The Impact of the Goods and Services Tax on Mortgage Costs: Evidence from Australian Mortgage Corporations

Abstract

Australia has seen significant rises in mortgage costs and sharp declines in housing affordability in the past decade or so, which corresponds with the introduction of the Goods and Services Tax (GST) in July 2000. To what extent the GST has impacted mortgage costs is the research question. This study investigates the GST impact on the mortgage costs of Australian mortgage corporations. Using data of mortgage corporations operating in Australia, we perform t-tests and multivariate regression analysis to examine the GST effects on mortgage yield spreads. The empirical results clearly indicate that mortgage corporations increased their mortgage charges in the post-GST periods significantly beyond the magnitude of the GST. Furthermore, the lenders started to increase the yield spreads before and continued to increase the spreads after the implementation of the GST, indicating the rise in mortgage costs was not a one-off surge. The findings offer insights into mortgage costs and have significant policy implications and wider economic relevance.