Perhaps a 2% increase in GST would not lead to just a 2% increase in prices.

I would take a very simple analogy.

The cost price of a certain good is $1, which was sold from the wholesaler to the retailer at $1.50. The retailer then sold the good to the consumer at $2. Thus, the wholesaler and retailer each makes a profit of $0.50. (Pardon my loose use of the word profit)

Suppose a sales tax of 10% is imposed. The cost price of the good would still be $1. However, to make a profit of $0.50, the wholesaler would have to sell the good at $1.65 to the retailer. To make a profit of $0.50, the retailer would have to sell the good at $2.37. The price increase for the consumer has risen by 18.5%, which is significantly higher than the 10% sales tax imposed.

A 2% rise of GST is in fact a 107*100/105% or 1.9% rise of prices from a first hand exhange. It is not hard to see, with some mathematics, that a rise of GST by 2% would not simply lead to a 2% increase in prices, as most consumers would go through at least one middleman when they buy a good.

Thus, for a family that spends $500 a month, $120 of annual aid would not be enough to cover the increase in additional expenses incurred due to the rise in GST. The additional amount incurred would depend on how much profit middlemen at each level would want to earn, and the number of middlemen exchanges. It is however, definitely more than 2% of the expenditure.

ja.