Allen Huang

The impact of the GST on mortgage yield spreads of Australian banks

Australia has experienced significant rises in mortgage costs and sharp declines in housing affordability in the past decade, which corresponds with the introduction of the Goods and Services Tax (GST) in the nation in July 2000. To what extent the GST has impacted mortgage costs is our research question. Using the mortgage loan data of all banks operating in Australia, this study investigates and measures the changes of mortgage yield spreads in the pre- and post-GST periods. Results show the bank lenders significantly increased their mortgage charges in the post-GST periods and the rise in mortgage charges was not a one-off impact. The findings have important financial, economic and policy implications.

The impact of the GST on mortgage pricing of Australian credit unions: An empirical analysis

Purpose - – The purpose of this paper is to investigate the impact of the Goods and Services Tax (GST) on mortgage pricing and to measure the GST shifting ratio of Australian credit unions. Design/methodology/approach - – Using the proprietary data from 79 credit unions in Australia, we perform multivariate regression analysis on the effect of the GST on mortgage effective yield spreads and interest margins, respectively. We also introduce a model that is used to measure the GST shifting ratio. Findings - – We document that the introduction of the GST in July 2000 led to the substantial rise in mortgage costs charged by credit unions in the post-GST periods. Overall, the GST alone contributed to the increase of effective yield spreads and interest margin by 65.3 and 70.1 basis points, respectively. As measured by the GST-shifting ratio, credit unions passed more than twice of the GST rate. This suggests GST over-shifting, and it is generally consistent with tax over-shifting literature. Originality/value - – This is the first time the GST shifting ratio has been robustly measured with the use of multivariate models on mortgage costs.