Leave our GST alone

March 17th, 2012 at 10:12 am by David Farrar

James Weir at Stuff reports:

New Zealand’s is the best value-added tax in the world and should be protected from any exemptions that undermine it, according to Treasury secretary Gabriel Makhlouf.

Hopefully Labour is listening. The saddest thing of the Goff leadership was his turning his back on 25 years of sensible tax policy, for basically a political stunt.

Makhlouf said New Zealand’s GST was a simple tax that raised a large amount of revenue, with minimal distortions.

“Using GST to promote particular policies comes at great cost,” he said.

Removing GST from food would see the tax take from GST drop about 20 per cent.

The compliance costs, uncertainty and complexity of bringing in exemptions and multiple rates “are overwhelming compared with the asserted benefits”.

There were far more effective ways to promote social outcomes than by “fiddling” with the consumption tax on a good or service, and far more effective ways to redistribute than taking GST off swathes of goods and services.

“GST remains our best designed and more efficient tax,” he said.

The signs are looking reasonably positive that Shearer will have a more sensible tax policy than his predeccesor.

Countries looking for ways to raise more revenue should follow the advice of the OECD and “tidy up their tax codes to remove tax expenditures” which typically favour higher income taxpayers, so more money could be raised without increasing tax rates.

Tax “expenditure” – short for tax concessions or exemptions to particular industries or groups not available widely, were just subsidies “by another name”, Makhlouf said.

“Work on tax expenditure is focused on identifying such expenditures in the interests of transparency”.

With a broad-base, low rate approach and a comprehensive GST system, New Zealand did not have many “tax expenditures”, but they have been listed in the Budget since 2010, he said. The aim was to get a complete tally of all the implicit and explicit subsidies the government awards, “so they can be appraised on their merits”.

That’s a very good thing to do. And I agree with having as few exemptions as possible. That is why I don’t support health insurance being tax deductible.

 

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21 Responses to “Leave our GST alone”

  1. Graeme Edgeler (3,289 comments) says:

    Health insurance is effectively tax deductible to companies, are you suggesting that this change?

    [DPF: No Mr Pedant, I am obviously referring to personal tax.]

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  2. holysheet (386 comments) says:

    Why not increase GST to 25% and remove all income and company tax.
    This would remove any incentive to try and avoid tax by the rich, every body pays the same amount of tax. The more you earn, the more you spend. If you don’t want to pay the tax, you don’t spend your money. This increases your savings. Am I being to simplistic or will this work?

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  3. krazykiwi (9,186 comments) says:

    holysheet – I’m no economist but my thoughts on that suggestion is that it would encourage consumtpion rather than investment/saving. Despite individual examples to the contrary, the global economies that seem to be tanking are the consumers while the ones that are strengthing are the producers.

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  4. KevinH (1,227 comments) says:

    What will the impact be of a 20% GST rate be on low income families? Basic items such as food and accommmodation will become unaffordable.

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  5. nickb (3,687 comments) says:

    I think the saddest thing is that National raised GST, knowing that Labour will leave it as is and raise other taxes as well. In complete contradiction to their pre-election promises I must add.

    Why not take the axe to the myriad of “entitlements” out there? I see on stuff today that benefits and WFF are set to rise. FFS

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  6. Ed Snack (1,872 comments) says:

    Would company paid health insurance be personal benefit and be taxed via FBT ?

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  7. Paulus (2,627 comments) says:

    A flat tax rate of 21% would elminate all other forms of tax.
    Ask Roger Douglas – before wimp Lange had a cup of tea.

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  8. gazzmaniac (2,307 comments) says:

    holysheet – no, you’re not being simplistic. It is a good idea, and it will probably increase tax compliance since tradies etc have no incentive for “cash jobs.” I think the opposite of krazykiwi in that it is a discouragement for people to use consumer finance.

    Ed Snack – yes it would be taxed by FBT.

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  9. BlairM (2,339 comments) says:

    I used to agree with regard to keeping GST simple, but to be honest, it depends on what you are doing with the whole tax code.

    Really what you want to do with tax is encourage saving, punish lavish spending, and not make things too hard for subsistence income earners. A high GST and low income tax system would therefore work best – and one could exempt food and petrol from it. The reality is that, given the choice between having a more complicated GST, or more benefits and Working for Families credits, I would pick the former over the latter any day.

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  10. krazykiwi (9,186 comments) says:

    holysheet / gazzmaniac – I guess where I was coming from is that a governemnt that is funded entirely by consumer spending is highly likely to implement policy that encourages that. never mind the quality of the spending, just have more and more of it more quickly so it can be syphoned off. doesn’t seem sensible, but i can see the beauty of a flat rate across all consumers

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  11. kyotolaw (52 comments) says:

    This government is about to do something similar to GST – by starting to charge GST on fees.

    GST is a tax on either goods or a service. If your telephone bill is late, Telecom charges you $11. The govt wants to charge GST on top of this fee, when you have received neither a good or a service in exchange for it.

    This bill is in select committee now I think, and it is a serious breach of the purity of the GST system which DPF vociferously advocates.

    I am a supporter of the National govt, but its not only Labour who is trying to mess with the system here…

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  12. Manolo (13,765 comments) says:

    Socialist Labour is as bad as its the rapacious counterpart Labour lite, which hiked GST to 15% after promising not to change it.
    Long live National, the party of lower taxes, …..not.

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  13. Johnboy (16,529 comments) says:

    GST should be raised to 50% and all other taxes abolished.

    Cash should be eliminated and ALL transactions done by EFTPOS.

    Net result would equal: Consumption reduced. Fat people would become healthy.

    Black economy, cashies for tradesmen etc, drug deals etc would be fucked.

    Fucken hard to sell a million dollars worth of P when you have to swap it for say veges! :)

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  14. The Scorned (719 comments) says:

    We want the state taking far less tax…. because every dollar they do take from we,the private sector ,makes us poorer.

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  15. Johnboy (16,529 comments) says:

    Are you not then prepared to front up with your gold so Chris can dispense it to the indigenous folks then Scorned me old mate! :)

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  16. Pete George (23,559 comments) says:

    I agree that the simpler GST is the better, exemptions (like food, especially certain classes of food) should be avoided.

    CGT with the level of variations and exemptions that Labour (under Goff) proposed would have been an awful tax. National already tightened up on tax on capital gains for profit a year or two ago, it probably doesn’t need much if anything more than that.

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  17. Johnboy (16,529 comments) says:

    As a nascent politician Pete what do you think of my theory on a cashless society?

    Tax avoidance would be bloody difficult!

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  18. Steve (4,561 comments) says:

    What pisses me off is

    Land Rates + GST
    Vehicle Rego + GST
    ACC levies + GST
    etc etc, double taxing

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  19. Joseph Carpenter (214 comments) says:

    What absolute twaddle, a few current exemptions from GST:
    – ALL domestic housing and accommodation (the single biggest expenditure to the average person).
    – ALL financial services (the second biggest average expenditure).
    – ALL second-hand goods.
    – ALL imported goods under $400 (wink).
    – ALL commodity and commodity derivative trades.
    The good Lord only knows how we managed to survive with such huge anomalies in our GST to date.

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  20. Viking2 (11,469 comments) says:

    a few current exemptions from GST:
    – ALL domestic housing and accommodation (the single biggest expenditure to the average person)
    – All domestic rental income

    Land Rates + GST

    Paid for by the Landlord.
    Which is why councils waste money. Voters that don’t get a rates bill (tenants), don’t give a shit what rates cost and the higher they are the more the Govt. collects.

    Rents should attract GST and the tenant should pay the rates bill so that they contribute fairly to their local body services and supply.

    Only way to reform local bodies.

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  21. wreck1080 (3,909 comments) says:

    As some one who actually does my own gst returns I cannot emphasize enough the importance of a simple gst system. If you make exemptions the govt simply claws back lost revenue via other taxes and the whole system is less efficient when all is taken into account (meaning total tax paid increases).

    Sure you may pay a little less for fruit and vege (not 15% less, more like 10% because of inefficiencies) but your acc , income tax, and whatever other taxes will increase by more than the amount you save.

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