The Australian Competition and Consumer Commission today issued a report on the outcome of its latest survey of price movements of commonly purchased household items since the introduction of the GST.
ACCC Chairman, Professor Allan Fels, said the survey is the most extensive post-GST monitoring of prices across the retail sector, including supermarkets, pharmacies, and household supplies and services. The report analyses over 400,000 price comparisons between May and August from over 10,000 retail outlets across Australia and covers around 300 product categories.
"Price checking by the ACCC in August confirms that there is no evidence of widespread opportunistic pricing intended to raise margins immediately after the tax changes", he said.
"It also confirms the preliminary July findings (issued on 7 September) that average price changes were generally in line with ACCC estimates of the effects of the New Tax System (NTS) as published in its Everyday Shopping Guide. While this result is pleasing, the ACCC will continue to be vigilant in monitoring price changes over coming months to protect consumers", said Professor Fels.
"The report issued today shows an average price change between the May (pre-GST) and August (post-GST) surveys of 2.6 per cent for the surveyed products. This report reflects price changes due to tax and non-tax factors during June, July and early August 2000".
Professor Fels explained that although the survey covers a very wide range of consumer products, it did not cover all consumer products and hence did not provide a full, economy-wide measure of the effects of the NTS. Nor should it be compared to other price change measures such as the Australian Bureau of Statistics' Consumer Price Index. This is constructed on a somewhat different basis to the ACCC's surveys and relates to different time periods.
"The average change is within ACCC estimates of the likely effects of the NTS on retail prices, even though ACCC estimates assumed a full pass through of NTS-related cost savings over the six months to the end of 2000.
"The survey result is higher than the preliminary July average (1.8 per cent increase) partly due to additional time since the 1 July implementation date for prices to be adjusted. Also, large rises in some fresh fruit and vegetable prices unrelated to the tax changes, the inclusion of some extra items expected show higher average increases and the use of revised product weightings based on the recently released 1998-99 Household Expenditure survey pushed up the average change.
"A feature of analysis of the survey is that no significant differences were found in average price changes between country towns and capital cities, between smaller (single outlet) and bigger (multi-outlet) retailers; and among the States and Territories."
Professor Fels said that the August survey was an appropriate time to assess the impact of the NTS on consumer prices. It allowed sufficient time to pass for retailers to adjust prices for the tax changes, but was close enough to the implementation date so that non-tax factors were not largely influencing changes in prices of the surveyed products.
"The ACCC's survey confirms, at least for the products in the survey, that product prices likely to change substantially, either up or down, due to the tax changes generally had changed by early August.
"The August ACCC survey shows that while about 40 per cent of surveyed product categories recorded average price increases, about 34 per cent recorded decreases and about 26 per cent stayed about the same in price.
"However, there are a relatively small number of instances where the ACCC has concerns about the price changes reported by the survey. These are being investigated further.
"For example, the ACCC is concerned that the latest survey shows price changes outside ACCC price expectations in the areas of generic car parts, adhesives and sealants, and insect sprays and repellants. These areas are being followed up with relevant retailers and manufacturers".
Details of survey between May and July 2000:
Alcohol and tobacco
The price changes for alcohol products were generally in line with ACCC expectations after allowing for the excise increase effective on 1 August 2000. For example, bottled wine prices on average increased by 2.1 per cent. Similarly, (takeaway) spirits were expected to stay about the same in price but fell slightly by 1 per cent on average in the survey. On premises full strength beer increased by 8.3 per cent compared to the estimated effect of the tax changes of about 8 per cent.
Clothing and footwear
Clothing prices in the survey on average increased by 3.2 per cent, but within a wide range of changes. In general, the prices for products in this group so far have been less affected by the New Tax System than estimated.
Processed food and beverages
Prices of most processed food and beverage products stayed about the same, with 39 of 66 product groups recording average price increases or decreases of less than 1 per cent. The product groups subject to GST and previously exempt from Wholesale Sales Tax, such as pies and cakes, increased by about 9 per cent. Soft drinks and carbonated waters decreased on average by 5.9 per cent.
Prices of processed fruit and vegetable juices/drinks also decreased on average. Fruit drinks have different tax treatments, both under WST and GST. There were consequently several different expected price movements, depending on the proportion of the beverage that was fruit juice.
A few products in this category, such as longlife milk and, to a lesser extent, some cereal products, showed average increases over the estimated New Tax System-related effect. The ACCC is also monitoring milk prices for the effects of dairy industry deregulation. It should be noted that the reported prices were collected before the recent announcement of reductions in milk prices by Woolworths.
Prices of fresh meats and seafood in the survey on average mostly fell or increased by less than 1 per cent. However, fresh fruit and vegetables price changes showed great variability, ranging from a decrease of 26 per cent (oranges) to an increase of 37 per cent (pumpkin). Considerable volatility in the prices of fresh foods is common.
Household furnishings and equipment
Prices of products in this group showed a weighted average increase of up to about 1.5 per cent. Most increases were less than ACCC estimates of the effects of the tax changes which averaged a 2.2 per cent increase.
The prices of household appliances (whitegoods and kitchen and cleaning appliances) within this group generally stayed about the same or fell slightly. Sixteen of 19 product groups recorded average price increases of less than 1 per cent. Only one product's average price change was outside the estimate of the tax effects.
Household services and operation
This broad category contains a mix of products subject to different tax treatments under the WST, although all are taxable under the GST. The average change across the group was an increase of 2.3 per cent, close to the estimated tax effect of 2.2 per cent. Prices of house and kitchen cleaning products fell on average, generally by more than ACCC estimates. Service products such as maintenance trades and house cleaning increased by around 6 to 7 per cent. These increases were less than the estimated effects of the tax changes.
A group of like products that showed average price falls were pesticides, herbicides, and insecticides. However, price changes up to August for these products were not as substantial as estimated prior to the tax changes.
Meals out and take away food
This category of products was not subject to WST prior to 30 June, but is now subject to GST. On this basis price increases of about 9 per cent, taking into account indirect tax-related cost savings, were expected. Generally the average price effect was below this at just under 8 per cent, with increases ranging from about 2 to over 9 per cent.
The exception in the survey sample results were the restaurant/café product subgroups 'Hot Beverages' and 'Breads or Rices' which both recorded an average increase of 10.2 per cent. The ACCC received a large number of complaints about prices in restaurants, cafes and takeaway food outlets, particularly coffee prices, in the first few weeks after 1 July. This issue was addressed by approaching hospitality businesses and their associations, and by producing and distributing a brochure in its GST News for Business series.
Medical and health products
Products in this category were generally exempt from WST. However their tax status under the GST varies. It was expected that the tax changes would lead to an average price rise for this group of about 5½ per cent. The average increase up to August was 5.4 per cent.
Sunscreen and oral pain relief product prices rose on average by around 1 per cent compared to the estimated effect on prices of a small reduction of about 1 per cent.
Motor vehicle parts and services
This category covers motor vehicle generic parts, tyres and car servicing. The prices of parts and tyres in the survey decreased and car servicing prices increased. The weighted average change was an increase of 1 per cent, compared to an estimated tax effect of 1.9 per cent. The direction of change was consistent with the ACCC's expectations, although for some parts the average reductions up to August were not as large as expected.
Personal care products and personal services
Most personal care product prices in the survey decreased. The weighted average change for this group was a fall of 1.3 per cent. Reductions in the prices of toiletries were between 1 and 5 per cent. Products in this category that were not subject to WST, but are now taxable under GST, rose on average within the expected 9 per cent.
Prices of hairdressing services surveyed in August increased on average by 6.7 per cent compared to May.
Recreational equipment: audio-visual
Reflecting the removal of 22 per cent WST, prices of products in this category, such as televisions, sound systems, and VCRs, fell substantially, on average by 4.3 per cent. Average price decreases have been greater than ACCC expectations based on the tax changes alone.
Other recreation equipment and services
The prices in this mixed category were generally expected to fall with the removal of WST (usually at 22 per cent) for many products. Examples include cameras, soft toys and electronic games. Services, such as sports lessons and gymnasium memberships, were expected to rise by about 9 per cent. The results from the August collection indicate that price changes on the whole were consistent with the ACCC's expectations.
Changes in prices of photographic film and photographic film processing appear to be exceptions. Price changes of these products are being examined further.
Professor Fels said that complaints and inquiries about pricing to the ACCC's Price Line 1800302502 have decreased substantially since early July. The number of calls is currently around 300 per day. The total number of calls since 1 July is around 90,000. This is substantially below the numbers anticipated.