Australia has several forms of taxation. Exercise and GST taxes are just two common taxes among several other takes in Australia. Excise tax is a type of tax in Australia that is imposed by federal government on goods like cigarettes, alcohol, coal and petrol (Anon., 2010). This kind of tax is subject to regular changes every year in August and February due changes of consumer price index. Consequently, in Australia, coal, tobacco, petroleum and cigarettes are called excisable goods. On the other hand, Goods and Services Tax, popularly known as GST, is simply a Value Added Tax (VAT) that is charged on the goods and services by business that enrolled. The federal government levies a constant 10% on these goods and services. However, exemption is allowed on some goods such in the medical industry, basic foodstuff and even educational services (Anon., 2017). The tax described in the article on unhealthy foods is excise tax. This is because of its changing nature. The article notes that the tax is fixed variably to meet certain criteria; this can be varied to bring out a balance in household’s expenditure. This is unlike GST which is fixed at 10%.
The interaction between demand, supply and tax on the unhealthy foods can be displayed in the diagram above. In the diagram, the original price was 2 dollars per a unit. Thereafter, due to the imposed tax, the supply curve shifted up and left causing the price to increase to 2.6 dollars. Analytically, the suppliers get 1.6 even after tax imposition; implying that the tax part is born by the consumers and producers. As we would expect, an increase in price will lead to a decrease in the quantity demanded. Thus both the consumers and suppliers will have to adjust the demanded and quantity supplied, respectively, in order to operate at equilibrium. Thus the most probable impact of taxes on unhealthy foods will be a reduction in both supply and demand. This is basically due to increase in production costs which is shared by the consumers in terms of high prices (Hartman, n.d.).
The main purpose of this tax is cut down the demand of unhealthy foods so that health problems resulting from excessive consumption of unhealthy foods are reduced. Imposition of tax on a good means that producers will have to incur greater manufacturing costs. These costs are shared with the consumers during pricing. That is, the price of the good is increased so that consumers have a share of the cost. According to the law of demand, holding other factors constant, demand is indirectly proportional to price. Thus the demand of taxed unhealthy foods will go down. Since suppliers are not ready to incur losses by supplying more than demanded, the supply will, through unseen market forces, go down. Basing on this information, the purpose of this tax can be achieved if effectively implemented.
Before tax is imposed, the price of unhealthy foods (in this case, we assume to be working with a given product that meets the description: unhealthy food) is at the equilibrium, Now, if the federal government imposes a tax on the good worth T dollars for a given unit. Consequently, suppliers receive a price of
Consequently, the government collects revenue.
Given that no tax is imposed,
Seemingly, the total revenue is zero. However, the total surplus. On the other, when the tax is imposed on the above variables change considerably.
The tax imposed leads to a reduction of E+C in total surplus. Thus the dead loss resulting from this taxation is given by C+E. The consequence of the tax imposition is that the Thus the producers lose most.
The main dilemma that policy makers face while planning to impose tax on unhealthy foods is striking a balance between merits and demerits of this taxation (Kaplow, 20101). Inasmuch as the tax is meant protect the Australian people from eating excess unhealthy foods, the welfare of producers is curtailed. This not only discourage the existing producers but put off potential investors. Thus imposing taxes on unhealthy foods may significantly affect federal government revenues collected from investment and slow the development activities in Australia (Kaplow, 20101).
Basically, taxes on unhealthy foods will discourage consumers from consuming unhealthy foods due to high prices. On the other hand, subsidy on healthy food will lower the production cost thus resulting into lower prices. The lower the price, the higher the demand. Thus consumers will consume more of healthy foods than unhealthy foods.
The producers of unhealthy foods will have to cut down the quantity produced due to a reduction in the quantity demanded. This is to ensure that there is excess supply in the market which result into losses. In the long run, the producers of unhealthy foods will receive less revenue and profits.
Producers of healthy foods will be most advantaged by this move. Subsidy will help producers to incur less production cost thus resulting into lower prices. The relatively lower prices will attract high demand hence incurring higher revenue. Producers of healthy foods will get higher profit.
In economics, it is advisable for a country to produce and export a product that it has a competitive advantage in. Consequently, Japan should specialize is producing cars while Australia should specialize in production of beef. Thus Japan will export cars and import beef.
Free trade implies that tariffs have been done away with leading to relatively lower prices of car from. Consequently, Consumer surplus increases is total to:.
Another observable important change is increase in the quantity imported . On the other hand, the Australian government will incur a reduction in the tax revenue (indicated by area 3) (Irwin, 2015). This is given by . Reduction in price lead to higher demand for Japanese cars in Australia hence the demand for Japanese cars changes from However, for the local car producers in Australia, they will experience a reduction in producer surplus due to lower demand of local Australian cars (Bhagwati, 2003).
Free trade increase the total surplus. This is due to the higher demand for the Japanese cars (Anon., 2014). Australia will either gain or not gain depending on how we approach the analysis. Looking at the combined benefit from the free trade, then Australia will gain. This is because Australia’s beef will have higher surplus in Japan due lower prices it will attract among the Japanese consumers. However, if we were to look at the benefit removal tariffs by Australia only, then Australia will in fact lose. This is due to the fact that its locally produced cars’ demand will significantly fall hence causing reduction in both consumer and producers surplus (Frieden, et al., 2009).
When the tariff is imposed on the above variables change considerably.
The tax imposed leads to a reduction of E+C in total surplus. Thus the dead loss resulting from this tariff is given by C+E. The consequence of the tariff imposition is that the
The tariff reduce the total surplus due to the emergence of dead loss in the new interplay between prices and demand to create equilibrium point (Anand, n.d.). Locally, the Australia gain in that the demand of local cars will not reduce. The reduction for the local cars, before imposition of tariff was been caused by cheap imported cars from Japan (Pascoe, 2014). However, imposing of tariff increases the price of the Japanese cars hence causing fair competition in the local Australian market. However, if Japan retaliates, then the foreign market for Australian beef will shrink hence Australia will lose.
iii) the perspective of Australia as a nation
References
Anand, V., n.d. Tariffs, Production and Consumption (With Diagram). [Online]
Available at: https://www.economicsdiscussion.net/theory-of-tariff/tariffs-production-and-consumption-with-diagram/6676
[Accessed 7 May 2017].
Anon., 2010. Excise duties. [Online]
Available at: https://www.business.gov.au/info/run/tax/excise-duties
[Accessed 7 5 2017].
Anon., 2014. Australia strikes free trade deal with Japan, beef and horticultural industries secure major concessions. [Online]
Available at: https://www.abc.net.au/news/2014-04-07/australia-japan-free-trade-deal/5372242
[Accessed 7 May 2017].
Anon., 2017. A brief history of Australia’s tax system. [Online]
Available at: https://archive.treasury.gov.au/documents/1156/HTML/docshell.asp?URL=01_Brief_History.asp
[Accessed 6 May 2017].
Bhagwati, J. N., 2003. Free Trade Today. New Jersey: Princeton University Press.
Frieden, J. A., Lake, D. A. & Broz, J. L., 2009. International Political Economy: Perspectives on Global Power and Wealth. 5th ed. New York: W. W. Norton & Company.
Hartman, D., n.d. Sales Tax Effect on Supply & Demand. [Online]
Available at: https://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.html
[Accessed 6 May 2017].
Irwin, D. A., 2015. Free Trade under Fire:. 4th ed. New Jersey: Princeton University Press.
Kaplow, L., 20101. The Theory of Taxation and Public Economics. 1 ed. New Jersey: Princeton University Press.
Pascoe, M., 2014. Trade deal: Japan wins, and why that’s good for Australia. [Online]
Available at: https://www.smh.com.au/business/comment-and-analysis/trade-deal-japan-wins-and-why-thats-good-for-australia-20140408-36ach.html
[Accessed 7 May 2017].
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