Yarra Plenty Regional Library Service (YPRLS)

This report seeks to quantify the impact of the GST on a sample library, namely the YPRLS. Please note that we have quantified the effect of the GST on financial details from the 1997/98 financial year, as these are the latest figures we have available.

We highlight the following two scenarios:

Scenario 1 - sample regional library service
The library is GST-free as an arm of local government carrying on commercial and non-commercial activities. Leaving aside the administrative difficulties, the introduction of the GST has little impact, providing, of course, the GST on the charged services can be passed onto, and recovered from, the customers for these services.

In this example, the GST on the charged services is $41 639, and this is a cost to YPRLS. Operating expenditure will increase by the amount charged by suppliers (in this case $156 013), but YPRLS will be entitled to a full input credit for this amount.

It has been assumed in the example that the abolition of wholesale sales tax will not have any effect on the cost of goods and services supplied to the library because local councils and public libraries currently enjoy sales tax exemptions.

Thus, the net GST liability to YPRLS in this example is $41 639. The GST paid on inputs will be fully-credited.

[Scenario #1 sample profit and loss statement]

Scenario 2 - sample library corporation
The library is a corporatised entity (providing a service to the local council), which is effectively GST-free. That is, a GST is charged to the local council and recovered in a commensurate increase in funding provided by the council. The net effect of the GST on the corporatised entity is exactly the same as that of the non-corporatised library. That is, the library is likely to be in a worse position than pre-GST by an amount of $41 639. Again, the impact on YPRLS will depend on the extent to which this can be recovered in increases in charges to users of the library services.

We note that the GST charged to the local council for the library services gives rise to an input credit in the hands of the local council. There is a small possibility that these input credits cannot be used by the local council to offset output liabilities for services that the local council does render (such as road maintenance) which are not in respect of the library services. If these inputs credits are 'quarantined', then the 10 percent GST charged by the library will be a sunk cost to the local council. Clarification from the Government on this issue is essential.

[Scenario #2 sample profit and loss statement]

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