The Political Economy of Compensating for the Distributional Effects of Goods and Services Taxes in Australia and Singapore

This paper analyses the political economy of policies taken in Australia and Singapore to address distributional concerns arising from recent tax reforms that introduced VATs in these countries. It investigates why the Singapore reform succeeded in implementing VAT with a comprehensive base, whereas Australia had to compromise on its original commitment to a broad base by zero-rating food. Economic and political perspectives of the equity effects of consumption tax reforms are presented, together with related policy implications