This paper uses detailed information about household supermarket purchases from the Australian Nielsen Homescan Survey to estimate price elasticities of demand for a range of food categories. An instrumental variable strategy is employed to address endogeneity issues. The estimates obtained from our analysis are used to study the implications of (i) a hypothetical increase in the Goods and Services Tax (GST) from 10 to 15 per cent and (ii) a broadening of the tax base to selected food categories. Preliminary findings indicate that the costs of compensating households in the bottom quintile of the income distribution for the loss in consumption induced by the tax increase is relatively small compared to the tax revenue resulting from the reform.