Brash on GST
May 5th, 2008 at 8:09 am by David FarrarDon Brash chaired the committee that established GST in the 1980s, so is pretty much an expert in this area. He labels any move to remove GST on food as a “seriously stupid thing to do”.
… we gave serious consideration to exempting food from GST at that time, and decided for three reasons not to do so. Those reasons are still absolutely valid today.
First, it is clear that every exemption from GST adds greatly to the compliance costs imposed on businesses collecting the tax. …
Secondly, abolishing GST on food would be a very inefficient way of helping those low-income families who most need help with their food bills in terms of the amount of government revenue foregone.
While it is certainly true that low-income families spend a disproportionately large part of their income on food, most of the money spent on food across the whole community, and therefore most of the revenue which would be lost if GST on food were abolished, is paid by middle and high-income families. If the Government sees a need to help those families most adversely affected by rising food bills, then the best way of doing that is by reducing the income tax levied on low-income families, or adjusting the Working for Families policy to help those on low incomes.
Thirdly, if GST is abolished on food, why not on other “essentials”, like children’s clothing, doctor’s bills, books, and the like? In no time at all, political pressures would build up to exempt other goods and services.
Compliance costs would go through the roof. Revenue from GST would fall, with the result that the GST rate of tax would need to rise on the goods and services still subject to the tax (as has happened in most European countries). Or income tax rates would need to be higher than would otherwise be necessary.
New Zealand has one of the best GST systems in the world. Don’t succumb to short-term pressures to bastardise it.
All excellent arguments. Luckily Labour are not showing signs of panic and are not looking likely to give in to the calls to do so.
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May 5th, 2008 at 8:29 am
To summarise: It’s too difficult.
Vote:May 5th, 2008 at 8:32 am
And too costly.
Vote:May 5th, 2008 at 8:38 am
There goes any chance the Family Party had of securing more than 0.6% of the party vote at the election.
Vote:http://www.scoop.co.nz/stories/PO0805/S00048.htm
May 5th, 2008 at 9:11 am
Dont forget that any price reductions wouldnt be the full GST amount. Funny that
Vote:May 5th, 2008 at 9:15 am
GST is based on a timely principle – you buy it you pay the tax. User pays. Stops a lot of tax evasion rorts even the wealthy have to pay the tax not get a high powered lawyer or accountant find a loop hole.
Vote:Don’t change- Australia had a stupid situation where a cooked chicken incurred GST, a frozen chicken didn’t incur it. Our GST in NZ is clean, probably one of the best in the world.
Cutting GST would mean a further return to the regressive and unfair tax system of the past.
Grin and bear it. However the government could help by reducing the waste in their social programmes and thinking about growing productivity and in turn wages.
May 5th, 2008 at 9:30 am
GST is a fair way to tax except on local body rates.
That is purely double dipping and adds hundreds of dollars to people’s expenditure each year.
Also GST registered parties having to pay GST upfront when buying commercial property, and then waiting 2-3 months for a refund is crazy. The banks love it, charging for short term finance. Surely both parties could submit relevent documentation to the IRD before settlement and avoid this extra cost.
Vote:May 5th, 2008 at 9:43 am
Forgive my ignorance, I don’t know much about economics or the black arts, but how would this create more compliance costs exactly?
Vote:May 5th, 2008 at 9:46 am
Keeping GST pure and simple requires constant vigilance every time someone suggests a change. Screwing it up forever requires only one moment of weakness. Thankfully both major parties understand just how important this is to competitiveness.
Brash has hit the nail on the head with his argument that it is an incredibly untargeted form of tax relief – not only has he pointed out why it is a bad idea, he has also cut the original argument off at the knees by labelling it as being largely middle class welfare. Very very smart.
Vote:May 5th, 2008 at 9:52 am
LabourMustBeLiquidated, look at the full story at the link. DPF’s ‘…’ between point 1 and 2 cut out the explanation of the point.
Vote:May 5th, 2008 at 9:57 am
LabourMustBeLiquidated: the corner diary today can calculate GST at the end of the month by looking at everything that went through their cash register, and dividing by 9.
If there were some things with GST and some without, that same poor bugger now has to keep track of every product they sell and whether it attracted GST or not in order to get it correct. The paperwork involved goes through the roof. It isn’t especially hard for the big corporates – they have flash computerised tills that track everything anyway. But everyone running a small business suddenly has to do a lot more work, and as Brash pointed out, the benefits are illusory anyway.
Vote:May 5th, 2008 at 9:58 am
There are two areas that GST should be reviewed and they are both cases of taxes and taxes. GST on rates does not make sense as this is a government tax on top of a local tax and GST on petrol where we are paying GST on top of a sales tax.
GST on rates should be removed and GST on petrol should be adjusted to just cover the non-sales tax components of petrol. Both would be very specific changes and both would be easy to administer.
However I certainly agree that we should not change the current GST on foods.
Vote:May 5th, 2008 at 10:08 am
Rates are what we pay for Council services – rubbish, libraries … and GST after all stands for Goods and Services Tax.
Vote:May 5th, 2008 at 10:48 am
Wrong – rates are Property Taxes. They also go to keep councils bloated with too many staff and ensure that councillors and such like get junkets to Sister Cities in nice places. Notice they are never in Siberia or Mali.
Vote:May 5th, 2008 at 11:00 am
I find it amazing how the government can contemplate a tax on “bad foods” but it’s WAY to hard to remove GST off food. Quite frankly these politicians could tell some of you people the world is flat and you would all be lining up to ask “how flat”.Tamaki Resident, rates are a TAX, a TAX, A TAX , I hope you get the point, you are paying GST on a TAX!!!!, you may think this is marvellous I think it’s a crock of shit.
Vote:May 5th, 2008 at 11:36 am
Actually, I would quite like GST to be removed from Rates, and a smaller local govt bureaucracy. However, consider your privatised utopia for a moment – you would be paying GST on the costs to get your rubbish removed etc. Why has this issue (Tax on a tax) become part of a major parties policy platform?
Vote:May 5th, 2008 at 11:37 am
side show bob: you’ll never find me agreeing with a tax on bad foods, unless there is an externality that someone can point to similar to cigarette smoking – you know, someone who really likes eating food with asbestos in it, and we agree that they can but only if they pay an outlandish tax on top to cover the years of hospital treatment.
What difference does it make if GST is on top of a tax? So we could take the GST off, which creates some compliance costs, and then the local councils will just put up rates anyway. There is nothing special about taxes that they shouldn’t have other taxes on top of them – it’s just how they are calculated. The problem is how much tax in total we pay, and dealing that is the priority, not fucking around arguing about some small part of it being calculated in a way that we don’t like. You’ll exhaust yourself, it would be easier to just start lobbying for a decent bloody personal income tax cut. It will sort the rest out.
Vote:May 5th, 2008 at 11:54 am
PaulL, part of the issue with GST on rates is that GST goes to the government not the local councils, therefore the money is not available for local services and just disappears into the government coffers.
I generally don’t mind paying my taxes, but taxes on taxes is the government double dipping and hardly fair.
Vote:May 5th, 2008 at 12:09 pm
Rocket Boy, no taxes are fair. Sure, we could all get excited about this, but why? We could take the GST off local body rates, and put taxes up somewhere else to compensate. What outcomes did we achieve by that – what group of NZers got an advantage that other NZers didn’t. Homeowners. Any particular reason that we think homeowners are the group in NZ that most deserve a tax cut?
Vote:May 5th, 2008 at 12:25 pm
ErrolC, PaulL: thanks for enlightening me
Vote:May 5th, 2008 at 3:45 pm
having worked in the very complicated GST regime of the UK in the 1970s Brash is right on the money. It was a disaster.The beneficaries were we tax accountants and those who found ways to rort the system.
the complinace costs passed onto the consumers far outweighed the savings they got from zero or low rates
We had Zero rate 7.5% 15% and 25% so you could buy 4 items in a shop and have 4 different rates.
Food taken away had a different rates from food consumed on the premises.
Every pressure group fought to have their favourites included in lower or Zero rate
there were all sort of rorts in buying and selling on different rates The black market economy boomed Cashies were the order of the day.
Leave the GST regime alone the only change should be to the rate.
IMHO reduce income tax raise GST and the rich will pay more in total as they buy the expensive goods. You compensate the lower end thru tav relief or incresed welfare payments using the extra GST collected from the rich who cant rort the system as theyc an with income taxes
Vote:May 5th, 2008 at 4:54 pm
The answer to Gst on a tax is that it is deceit, there is no problem for govt – with fuel you remove the Gst on the duty and if the lost revenue needs recovery increase the duty, at least it becomes transparent something that Labour hate of course.Same with Gst on rates just tell the truth -
Vote:May 5th, 2008 at 4:56 pm
The answer to Gst on a tax is that it is deceit, there is no problem for govt – with fuel you remove the Gst on the duty and if the lost revenue needs recovery increase the duty, at least it becomes transparent something that Labour hate of course.Same with Gst on rates just tell the truth – increase another tax to recover revenue if required.
Vote:May 7th, 2008 at 2:27 pm
Dr Brash’s ability to logically de-construct an argument is unrivaled. The lack of spin is refreshing.
If all were fair Prime Minister Brash would be preparing for his second term election. We would have more money in our pockets. The tax structure would be fairer and simpler. The country would be more prosperous. And climate change would be exactly the same as it is now.. but with less spin.
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