Why GST should be kept simple

May 8th, 2012 at 2:00 pm by David Farrar

writes in the Telegraph:

Today the pasty is fighting back, but it shouldn’t be. For years it has enjoyed a special exemption and privilege which it should never have had. Companies and consumers of hot pasties have benefited unfairly while fish and chip shop owners and consumers who preferred pizza have had to pay more. Through a strange anomaly bakery goods were exempt from VAT, the Budget changed that, but today Cornish MPs are objecting to the change. Other MPs are now complaining about another reform which will see certain types of caravans subject to VAT as well. …

Britain’s VAT system is a mess, with arbitrary exceptions all over the place. In recent years this has led to absurd legal battles over whether Pringles are crisps and whether Jaffa Cakes are cakes or biscuits.

A report from the think tank Reform showed how inefficient the current zero and reduced rates are. Citing evidence from the OECD and looking at how our system is one of the most complicated in Europe. They suggested exemptions total more than £30bn. This £30bn could be given back to people in more efficient tax cuts. …

Other countries like New Zealand manage perfectly well with a much simpler system. We should follow their example.

But we can not take our simple system for granted. The Greens and Maori Party want to bastardise it, and Labour campaigned last election on doing the same. It looks like that policy will be dropped, which is a good thing.

If you are interested in British politics you can follow Ruth on Twitter, @ruthoporter.

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13 Responses to “Why GST should be kept simple”

  1. Pete George (23,591 comments) says:

    If there is one worthy candidate for genuine slippery slope fears tampering with GST is it.

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  2. Cunningham (844 comments) says:

    Sadly I think it is only a matter of time before our GST system is butchered. Labour may not campaign on it but the Greens will be itching to add exemptions as part of a coalition deal. Once it has been done, there will be no turning back.

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  3. gravedodger (1,566 comments) says:

    Sadly Cunningham I fear your prediction will eventuate leading to a buggers muddle.
    Cripes the fu**ing socialists as onel thought it was a game breaker for over a year.

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  4. Wilbur (7 comments) says:

    You’re incorrect, the Green Party doesn’t want to introduce exemptions into GST.

    [DPF: I stand corrected. Just checked and you are right. This is good]

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  5. OliverI (112 comments) says:

    PWC agrees: http://www.pwc.co.nz/media-centre/opinion-pieces/gst-one-of-our-best-exports/

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  6. BlairM (2,341 comments) says:

    There is nothing holy or sacrosanct about GST, and arguing against something by taking extreme examples is disingenuous.

    If you want a GST exemption on food, it should be on food. It’s not hard to figure out what is food and what is not. I think it would be ridiculous to start differentiating between food types, but see no reason why an exemption shouldn’t be made for food, provided it was for ALL food.

    The point of the GST is to discourage frivolous expenditure and encourage saving and investment in an economy. Food is not a part of this equation. Exempting food would help poorer people tremendously, as they spend a higher proportion of their income on it. Keep GST for the luxuries and indulgences of life – not the basics which everybody needs.

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  7. wreck1080 (3,923 comments) says:

    But it is even worse that that.

    There were examples where some heated food products would have VAT in winter, but not in summer (because the difference in temperature between food and ambient temperature was greater in winter).

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  8. Cunningham (844 comments) says:

    BlairM do you honestly think it will make f’all difference to the price of food? Veges and fruit fluctuate so much in price how will you ever be able to determine whether it has reduced the price? If you take it off food in general it will reduce the tax take by such an amount that there will need to be a large revenue stream to replace it. There is NO valid argument for introducing exemptions.

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  9. Griff (7,808 comments) says:

    Its simple is it not food is food
    Is wine beer soft drink food?
    are the ingredients of food food?
    NaCL3 SO2 HCL food?
    Tea tree wood chip for smoking fish is that food
    Pet food is that food?

    All you create with exemptions is a focus on exploiting those exemptions
    Food for lawyers and the dishonest

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  10. orewa1 (410 comments) says:

    In the 1980s we had wholesale sales tax – different rates for different stuff. There was always tension at the boundary. For example, ice cream was regarded as a wholesome natural product and taxed low, while confectionary was unhealthy and taxed high. So surprise – manufacturers refirmulated their products to sneak within the boundary for lower tax. Many similar examples.

    Keep GST Simple!

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  11. pq (728 comments) says:

    I completely disagree with the Roger Douglas program
    charge total people for GST,
    BUT yes all free GST on financial transactions
    now how is that, what about that,
    why is NZ so poor, answer her you Farrar pathetic arrogant,
    I am OK, wake up New Zealand now

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  12. ObligatoryMarxist (37 comments) says:

    GST is a bizarre tax, made only more bizarre in the UK with all the exemptions. Labour likes it because exemptions can give them a whole sleuth of ways to play social engineer. Seems like it’d make more sense to scrap it altogether, and instead have a financial transactions tax with no exceptions. Don’t see why trading in, y’know, real things like cars and food should be taxed, while making millions of dollars fly from place to place in search of magical stock from the future shouldn’t. The concept that BlairM brought up, “The point of the GST is to discourage frivolous expenditure and encourage saving and investment in an economy.” is exactly what Labour gets all dreamy about. Tax shouldn’t be about social engineering, should be about raising money in a fair way. A FTT seems fair to me because it catches all economic activity in the country. Not just the economic activity of the poor. Get rid of Alcohol and Tobacco tax too.

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  13. BlairM (2,341 comments) says:

    If you take it off food in general it will reduce the tax take by such an amount that there will need to be a large revenue stream to replace it. There is NO valid argument for introducing exemptions.

    Cut spending?

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