The exclusion of the basic food was the ground of equity. While there is little aspect of equity in education and health, the reason that was important had been the challenge to deal with public providers (with no price signal) and private providers (with price signal). Considering the fact that there are rationales which differ for each category of items that have been excluded from the list of GST base, it is not likely that the measure of policy (inside or outside the GST) can be addressing all concerns. This essentially mean that the base of GST should be broadened significantly that would require a series of targeted solutions. Nonetheless, the regressive effect of the application of a tax rate into more PFCE categories is a theme, which is recurring. When, there is exemption of the items from the base of the GST, all consumers, irrespective of the level of income are recipient of the benefits in relation to the exemption. The paper has highlighted the paradox in the discussion on taxation that while there is higher proportional spending of the lower income groups with regard to their income on GST exempt items, in terms of dollars; it is households of higher income groups that are recipient of the maximum benefits from the exemptions of GST.
This is the reason why the compensation via the system of direct transfer, which can also be called as the social security, can be dubbed as the best method to deliver compensation for the regressive effect of the GST base broadening, rather than to deal with the effect that is regressive through the treatment of concession within the base of GST. The problem that compensation faces has been that a number of voters as well as several politicians seize to have faith in the possibility that the compensation level is maintained by the governments of the future over the long run. This distrust has been pursued in the hearts of the Australian Democrats in relation to their insistence that there should be exclusion of the basic food from the base of GST. The solution perhaps is lying with the “lock in mechanism”. There has been no doubt that the rate of GST and the mechanism’s base lock has been extremely effective to the extent that there has been act of contrary by the federal parliament with respect to it. This has been despite the fact that it is meaningless from stand point of view of the legality for the lock in mechanism. A lock in compensation mechanism would differ to a sizeable extent to the rate of GST and base mechanism.