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  • 2009-14: The Goods and Services Tax (GST) and Bank Mortgage Costs: Empirical Evidence (Working paper)

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    Discussion paper (344.4Kb)
    Author(s)
    Huang, Allen
    Liu, Benjamin
    Griffith University Author(s)
    Huang, Allen R.
    Liu, Benjamin
    Year published
    2009
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    Abstract
    In July 2000, Australia implemented a new tax system of goods and services tax (GST). Since then Australia has experienced significant rises in mortgage costs and decline in housing affordability. Although prior research has attempted to investigate the impact of the GST on the general price level, a central question of what extent to which the GST has impacted on mortgage costs remains unanswered. Using unique data of all banks in Australia (covering 36 months), this paper empirically examines and quantitatively measures the changes of mortgage costs in the pre- and post-GST periods. Results of t-tests and regressions provide ...
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    In July 2000, Australia implemented a new tax system of goods and services tax (GST). Since then Australia has experienced significant rises in mortgage costs and decline in housing affordability. Although prior research has attempted to investigate the impact of the GST on the general price level, a central question of what extent to which the GST has impacted on mortgage costs remains unanswered. Using unique data of all banks in Australia (covering 36 months), this paper empirically examines and quantitatively measures the changes of mortgage costs in the pre- and post-GST periods. Results of t-tests and regressions provide robust evidence that the banks significantly increased their mortgage charges in the post-GST periods. For example, the increase is found to be, on average, 52.4 basis points. It is also found that the rise in mortgage costs is not a one-off impact. This study is the first one internationally that examines the impact of the GST on bank mortgage costs and the findings should have important financial, economic and policy implications.
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    Copyright Statement
    Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
    Note
    Finance
    Subject
    G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    G14 - Information and Market Efficiency; Event Studies
    H25 - Business Taxes and Subsidies including sales and value-added (VAT)
    G12 - Asset Pricing; Trading volume; Bond Interest Rates
    GST
    Mortgage costs
    Lender pricing behaviour
    Publication URI
    http://hdl.handle.net/10072/390442
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