A stupid and unaffordable policy

July 21st, 2014 at 7:00 am by David Farrar

Stuff reports:

NZ First has announced a plan to remove GST from food, as part of several policies announced at its party conference.

This is incredibly stupid. Our GST is the envy of much of the world for its lack of exemptions. When you start doing exemptions, then you get gaming of the system. Does food include fast food? does it include pre-packaged meals? Does it include caviar? Does it include dining at top restaurants? Does it include drinks?

Peters said the policy was estimated to cost $3 billion a year, and would be funded by a clamp down on “tax evasion and the black economy”, which it estimated to cost $7 billion a year, and what Peters said was “drawing on the projected surplus of billions in the years ahead that result from running a sound economy”.

This is just intellectually dishonest. Basically this policy would blow the deficit out by $3 billion a year. There is no magic wand you can wave to locate and tax the black economy. The reality is that if you want a $3 billion a year tax cut, then you need a $3 billion a year spending cut.

 

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Retailers trying to kill off Internet sales

February 5th, 2014 at 4:00 pm by David Farrar

The Herald reports:

The chances of GST being applied to all overseas web-based retail purchases appear more distant after the Government changed tack on a review into tax of online shopping.

The chances are not more distant. They are zero, and have always been zero.

New Zealand consumers can avoid GST on many goods bought for less than $400 on foreign websites, such as online retail giant Amazon.

The Retailers Association wants GST applied to all online purchases to “level the playing field”, saying the current gap in the tax system makes it more difficult for local businesses to compete against their overseas online competitors, while also losing the country up to $300 million in annual GST revenue.

The Retailers Association effectively want someone to un-invent the Internet.

One can have a reasonable debate about whether the $400 threshold is at the right level, but there is no practical way to apply GST to foreign companies unless you impound every letter and parcel at the border. Even then, electronic purchases of music and e-books would not be affected.

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Labour dumps tax cuts

January 22nd, 2014 at 12:14 pm by David Farrar

The Herald reports:

Labour has officially dropped its policies of having the first $5000 of earnings tax free and of removing GST from fresh fruit and vegetables Leader David Cunliffe said this morning.

The policies were adopted in the run up to the 2011 election under then-Leader Phil Goff but Mr Cunliffe’s immediate predecessor David Shearer in his first major speech as leader almost two years ago indicated that the policies would be dumped.

Labour estimated the policies would cost the Government about $1.5 billion a year in lost revenue.

The GST off fresh fruit and vegetables policy was a piece of populist nonsense and it is good to see it gone. It would have complicated a tax that is praised globally for its simplicity, and achieved little.

The $5,000 tax free earnings policy had some merit – it would have delivered tax reductions to every taxpayer. There is a case to be made that no one should pay tax until they are earning enough to live on, as otherwise you just give it back to them in welfare and have wasteful churn.

“While these were worthwhile policies , we believe there are better ways to help struggling Kiwi families”, Mr Cunliffe said.

Will this be a different form of tax cuts, or just spending increases? I hope Labour go into 2014 offering tax cuts. They offered $1.5 billion of tax cuts in 2011. They may not have been well targeted particularly, but they were tax cuts. Will they offer anything to taxpayers in 2014? Or just tax increases?

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More nonsense re GST on overseas purchases

December 27th, 2013 at 11:00 am by David Farrar

The Herald reports:

Nearly 40 per cent of New Zealanders believe GST should be charged on all purchases made on foreign shopping websites, a survey has shown. …

A Herald-DigiPoll survey this month found that almost 55 per cent of the 750 New Zealanders polled had bought goods from foreign websites.

Of those surveyed, 53 per cent said the $400 exemption should not be removed as the tax would be too inconvenient to collect.

Surprisingly, just under 40 per cent – 38.5% – agreed with the view of the Retailers Association that the 15 per cent GST should be applied to all overseas online purchases to level the playing field for local retailers.

This is like polling people on whether they would like more sunshine. You can want it, but it doesn’t mean it will happen.

Unless overseas companies decide to volunteer to collect tax for the NZ Government, then the only way you can apply GST to all purchases made on those sites is to have Customs impound every single letter and parcel sent from overseas, open it, assess its value, invoice you for the GST, and refuse to hand it over until you pay the GST. It would cost the Government hundreds of millions of dollars and piss off around two million or more NZers who would find that they no longer get mail from overseas delivered to them.

Labour Party revenue spokesman David Clark said the Government “needs to explain to New Zealand businesses why they should be disadvantaged by having GST collected when overseas business don’t face that challenge”.

“It seems it would be pretty simple to speak with Amazon and other suppliers to ask them to collect GST since they collect, as I understand it, sales taxes for individual states in the US. If that’s true, then it’s obviously an ideological decision from the Government not to collect it.”

David Clark is a smart guy, but he sounds like a moron when he speaks such tripe. Amazon is a US company and obliged to collect tax for the US Government from US citizens. It is not a NZ company and the NZ Government has no power to force it to collect GST for us.

To say that Amazon not charging GST to NZ customers is because of an ideological decision of the NZ Government is one of the most patently false and stupid things a NZ politician has said this year.  Perhaps a journalist could ask David Clark if he will guarantee that under a Labour Government, Amazon would collect GST for the NZ Government?

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Banks say no to being GST collectors

July 13th, 2013 at 7:00 am by David Farrar

Interest writes:

Banks wouldn’t want to be involved in attempting to collect GST on goods bought overseas for less than $400 because doing so would be “incredibly complex”, Kirk Hope the CEO of bank lobby group the New Zealand Bankers’ Association (NZBA) says.

Hope told interest.co.nz that although he had some sympathy with the New Zealand Retailers’ Association argument about a level playing field, banks weren’t keen on being involved. His comments come after it emerged that three government departments have set up a joint working party to see whether GST could be levied on overseas purchases worth less than $400.

“We wouldn’t want to be involved in the collection of it because it’s very complex both to implement and administratively,” Hope said.

“And I think (Customs Minister Maurice) Williamson has pointed out that in fact no other jurisdictions have figured out how to collect GST on online transactions because it’s not as easy as the Retailers’ Association would have you believe.”

Yep the Retailers need to harden up.

I don’t know anyone who decides to purchase online because of the GST difference. They buy online because it is convenient and/or available.

If the concern is the 15% GST provides an incentive for people to buy online, then the solution should be to lower GST!

Hope also said a problem for banks would be not actually knowing where their customers were.

“A customer may be in a foreign jurisdiction on holiday. We don’t know where they physically are so if the transaction is booked on their credit card in a foreign jurisdiction, are they there physically? Are they holidaying or have they just brought something from that jurisdiction?”

If my credit card company charged me 15% GST on a purchase and got it wrong, I’d want their blood.

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GST on online purchases

July 11th, 2013 at 11:00 am by David Farrar

Stuff reports:

Online shoppers face being chased down for GST on all goods, services and digital products bought from overseas.

A joint working party has been set up by Inland Revenue and Customs to investigate collecting GST on more personal imports.

Credit-card companies could be asked to collect the revenue, as could overseas payment intermediaries such as PayPal.

You could ask, but why would they? It would cost them money, and anger their customers to discover what they purchased has had 15% added to their bill.

The Government is also reviewing the threshold at which you have to pay GST on imports. It is currently $400, which means they only collect GST if it is of $60 value or more. You may be able to lower that threshold slightly, but I suspect the costs of collection would be more than the revenue gained if they dropped it by much. In Australia I think the threshold is $1,000.

The other issue is that many online retailers, especially in Asian countries, automatically declare the values of the goods they are shipping to be $20. Short of opening every letter and parcel and getting the contents valued, there is again little that can be done.

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Labour’s iTax

March 22nd, 2013 at 11:19 am by David Farrar

labouritax

Sent in by a reader, in response to my blog post yesterday on David Cunliffe saying it was a no brainer to reduce the threshold on which GST is applied to online purchases from overseas.

 

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Retailers need to stop trying to tax us online

March 21st, 2013 at 9:00 am by David Farrar

Tom Pullar-Strecker at Stuff reports:

Retailers are stepping up efforts to close a “loophole” that allows GST-free purchases of overseas goods costing less than $400.

They should give up their silly campaign to tax minor online purchases. It would cost the Government far more in administration than it would bring in, in revenue.

Retailers Association chief executive John Albertson said the import threshold was costing the Crown $300 million a year in lost revenue, far more than the $17m the Government had sought to raise through its ill-fated plan to tax employee car parking.

Well first of all I doubt that figure. They’re saying that $2 billion of sales are being made online from overseas retailers, which sounds way too high too me. But the compliance costs would be huge. Customs would have to intercept every single letter coming into NZ, open it, hold it, calculate GST, send an invoice for say $5 and then get it paid and then dispatch it on. A bureaucratic nightmare.

Labour revenue spokesman David Cunliffe said a low threshold for charging GST on overseas purchases would stop the Government “subsidising foreign commerce” and was a “no-brainer”.

Oh wonderful. Make sure everyone knows this. Labour Party policy is to tax your online purchases more. Buy a book from Amazon, and Labour will hold it up at the border until you pay the Government an extra 15% of the price.

Will Labour also block itunes? We can’t have people downloading music and not paying GST on it. So to implement their policy they’ll have to block itunes in NZ, and only allow people to purchase from a NZ located online retailer.

Labour grandstanded on the carpark tax (yet never had a clear policy on it), but have now trumped that with their e-tax. I look forward to detailed Labour policy on what they would reduce the threshold to so we know how many of our online purchases they plan to stop at the border.

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Whining retailers

December 4th, 2012 at 12:00 pm by David Farrar

Greg Harris at Stuff writes:

With Christmas just around the corner many kiwis will be purchasing online to take advantage of the strong New Zealand dollar and the lack of queues.

The rise in online shopping is putting considerable pressure on retailers’ slim margins. Various retail groups continue to lobby for GST and duty to be payable on all privately imported goods regardless of their value.

Customs imposes duties and collects GST on goods imported into New Zealand. If the GST and duty to be collected by Customs is less than $60 the charges are waived. Generally this means the maximum value of goods that can be imported tax free is $400.

The threshold was introduced as a practical solution to address the cost of collecting small amounts of GST and duty where it was outweighed by the revenue raised.

This is a key point. Customs would lose money if it tried to impose GST and/or duty on smaller purchases. They’d need a huge bureaucracy to cope.

The New Zealand Retailers Association believes that this “tax break” for online shoppers detracts from the retailers’ ability to compete in the market.

When I shop online, I prefer a NZ retailer as the delivery is much faster. I only go to Amazon (for exampe) if it is not on Fishpond.

With the effects of the economic financial crisis lingering, consumers are looking for bargains. Retailer loyalty does not rate highly amongst many consumers. It is not unusual for consumers to physically shop in New Zealand to find the desired item before purchasing online GST free.

I’d be interested to see any hard data on this. It sounds unusual to me. People may look at something in the shops and then buy it online – but that may be from a NZ website.

Regardless, even though it is an issue for some NZ retailers, asking the Government to lose money collecting GST on small purchases is just not a sensible strategy.

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Tax forecasts

May 22nd, 2012 at 7:00 am by David Farrar

One of the memes being pushed by Labour and the Greens is that the 2010 tax package wasn’t revenue neutral. They assert this because tax revenues are lower than was projected. The problem with their arguments is that tax revenues often differ from what was projected, and there is no way of knowing how much is because of changing economic projections, how much is impacted by a policy change and even how much is just because the forecasts are imprecise.

As an example. Let’s say you forecast GST to be $12.5b at 12.5% and you increase GST to $15% and hence forecast GST will bring in $15b. That extra $2.5b of income is distributed back as income tax cuts. But let’s say once GST goes to 15%, the revenue only goes to $14b. Now Labour and the Greens are saying that $1b less is due to the policy change, and hence the tax switch was not fiscally neutral. They argue that it is purely because of the rise in GST that people spent less, and hence less GST was paid. But the drop in GST might just be because of lower economic growth, or a drop off in consumer confidence etc.

To give you an idea of how dramatically forecasts change over time, I’ve collated the forecasts from the last nine fiscal updates. They tell quite a story. Let’s start with total tax revenue.

The last two columns are best to focus on, as we get a full history. This is the total tax take projected for last financial year and the current one.

Back in the 2008 budget Dr Cullen projected $62.1b in tax revenue for 2011/12. Then by the PREFU it had dropped to $61.2b. It further dropped to $58.3b in the DEFU, which takes accounts of National’s election tax cuts. However those changes were compensated by expenditure reductions – mainly KiwiSaver.

A huge drop occurred between 2008 DEFU and the 2009 budget, with tax revenues dropping $4.3b! Now bare in mind it was in the 2009 budget National cancelled its planned tax cuts for April 2010 and April 2011, so it would have been an even bigger drop without that. This change was pretty much all due to the global financial crisis and recession.

By year end forecasts got more positive, going up to $56.6b, and then the tax switch in the 2010 budget projected it to go to $57.4b. However then forecasts dropped again, dropping to $56.7b and then $54.7b.

Now Labour and Greens say that the difference between 2010 Budget and the latest forecasts is all due to the tax switch. But as one can see over time the wider economy is a far bigger factor in tax projections. Recall how in 2009 tax revenues forecast dropped $4.3b even though National cancelled tax cuts.

Now let’s look just at GST.

This shows projected GST revenues only. Note how they from 2008 to 2009 they went from $13.5b down to $11.3b. Then they were projected in 2010 to go up to $15.8b with the increase to 15%. Just six months later Treasury revised that down to $14.0b, but then this year revised up to $15.0b.  This is still lower than originally forecast in 2010, but again no greater than other variances from year to year.

So when Labour and Greens say the tax switch cost $2b, they are making it up. What they are saying is that there has been $2b less tax revenue than projected. But if the tax switch had never happened it is quite possible the drop in tax revenue would have been the same or even greater.

And for the paranoid out there, this is all my research, taken from going through the last nine fiscal updates. No one suggested it to me, helped me with it, or even knew about it. I did it because I got sick of the uncontested claims about the impact of the tax switch.

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Why GST should be kept simple

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

Ruth Porter 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 GST 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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Why we should keep a no exemptions GST

March 28th, 2012 at 2:00 pm by David Farrar

The Telegraph reports:

George Osborne has been mocked by MPs over his “pasty tax” after it emerged people could avoid paying VAT on hot baked goods if they wait for them to cool in the shop.

These are the sort of stupidities you get when you don’t have a clean GST like we have in NZ. Labour’s pledge to exempt fresh fruit and vegetables was bad public policy, and will lead to situations like the above. For exampel frozen peas might have GST on them, but if you waited to thaw them, then would they be exempt?

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Leave our GST alone

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

James Weir at Stuff reports:

New Zealand’s GST 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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Fruit & Veges

August 11th, 2011 at 1:00 pm by David Farrar

Got sent a spreadsheet comparing costs in the Hawke’s Bay of various fruit and vegetables between outlets and products. It shows that the difference between various retail outlets is far far more than the 15% GST. Some examples – all expressed as costs/kg:

  • Pumpkins – 94c at roadside vendor v $1.99 supermarket
  • Cabbages – $1.88 at roadside vendor v $4.43 supermarket
  • Brocolli  – $5.11 at roadside vendor v $9.97 supermarket
  • Tomatoes – $14.56 at supermarket fresh v $3.75 canned
  • Beans – $6.57 frozen v $3.75 canned
  • Peas – $5.23 frozen v $3.75 canned v $2.49 Pams Peas

Amazing there is such a huge price variation.

 

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GST one of lowest in OECD

October 20th, 2010 at 10:00 am by David Farrar

Susie Nordqvist in the Herald reports:

New Zealand has one of the lowest goods and services tax rates in the OECD, despite households being charged at a higher rate than before.

Tax accountants KPMG said even at 15 per cent New Zealand has the fourth lowest GST rate in the OECD and contrary to global rates, corporate tax rates were trending down. …

KPMG New Zealand’s GST partner Peter Scott said unlike any other country in the world, the recent increase in GST was matched by personal tax rate reductions.

But didn’t Labour say the reason they want to exempt fruit and veges was because our GST is one of the highest in the world? That wasn’t a populist porkie was it?

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Goff’s discounted truffles

October 1st, 2010 at 2:25 pm by David Farrar

Matthew Hooton writes in NBR (off line) exposing another consequence of goofynomics:

Mr Goff’s policy would slash the price of American pomegranates, now selling at over $30/kg, New Zealand cranberries, selling at $25.30/kg, and Philippine figs selling at $2 each but would leave the price of low-fat milk, wholemeal bread and natural muesli untouched.

The ultimate in excess, fresh Alban truffles, currently selling for $6000/kg in Auckland, would fall by $800/kg under Mr Goff’s policy.  Good luck selling that one in West Auckland.

The residents of Epsom whose like French cusine, will be thanking Mr Goff for knocking $800/kg off the cost of their truffles.

But before they celebrate, I have to take issue with one aspect of Matthew’s claim. You see a truffle is a fungus, and is a fungus a vegetable?

I don’t know the answer for sure. But what I can guarantee is that when the answer is worth $800/kg, the court case will go all the way to the Supreme Court.

And think if the Supreme Court rules that a truffle is not a vegetable, for GST purposes. Then presumably mushrooms will also be deemed not to be vegetables. And so all the supermarkets will have to remove mushrooms from their fruit and vegetables sections.

We may end up with our own version of the 1893 Nix v Heddon when the US Supreme Court had to rule on whether a tomato was a fruit or a vegetable (it is a vegetable – well at least in the US).

I can see Labour’s GST policy attracting lots of votes from lawyers.

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Your tax cuts

October 1st, 2010 at 9:12 am by David Farrar

On budget  Day I blogged:

The tax rate changes from 1 October 2010 are:

  • Up to $14K – tax rate goes from 12.5% to 10.5%
  • $14K to $48K – tax rate goes from 21.0% to 17.5%
  • $48K to $70K – tax rate goes from 33.0% to 30.0%
  • $70K+ – tax rate goes from 38.0% to 33.0%

Workers earning around the average full-time wage ($40K to $48k) will, over 18 months, have had their top marginal tax rate go from 33% to 17.5% – almost halved.

Two thirds of the “cost” of tax cuts goes to reducing bottom two rates and 73% of income earners will have a top tax rate of 17.5%. You keep 82.5% of every extra hour you work.

And the reduction at each income bracket:

As I commented at the time, the reductions are pretty even, as a percentage of existing tax paid.

And this takes into account the likely impact on prices with the GST increase.

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Editorials on Labour’s GST exemption

September 29th, 2010 at 2:00 pm by David Farrar

The Dominion Post is unimpressed:

Labour’s promise to remove GST from fresh fruit and vegetables reeks of desperation.

With his party languishing at 32 per cent in the latest Colmar Brunton poll – a formidable 22 points behind National – Labour leader Phil Goff’s desire for a circuit breaker is entirely understandable. However, that does not make his choice any less wrong-headed.

And the inconsistencies:

Mr Goff and his senior colleagues are experienced enough to know that to open the door for exemptions is to also open a can of worms.

They will be asked why those who buy their peas fresh should be favoured over those who buy them frozen – there is little, if any, difference in the health benefits they deliver.

They will be asked why the exemption should apply only to fruit and vegetables, and not to other elements of a healthy diet, such as fish and lean meat.

They will be asked why they do not provide for other exemptions to promote other activities that benefit society – removing GST from bicycles or solar panels, for example.

Most of all, they must pledge to also remove GST from condoms. Does Labour not care about herpes? Are they unconcerned over AIDs? Do they want to be responsible for tens of thousands of abortions, because they have not removed GST off condoms?

And The Press:

After spending more than two decades assiduously defending the integrity of the GST system it originally introduced, Labour has back-pedalled with its promise to scrap the tax on fresh fruit and vegetables. …

Despite Labour claims to the contrary, retailers have rightly warned that making fresh fruit and vegetables exempt would still compromise the simplicity of the system, which was one of its greatest virtues. This will inevitably lead to added compliance costs for many businesses and, in terms of monitoring or administering the GST change, for the government as well.

The benefit accruing to families, which Labour puts at $6 a week and National at just $1 a week, must be offset against the hidden compliance costs and the lost tax revenue of around $250 million a year. …

Rather than increase the costs to retailers, the Government focus, especially in post-quake Canterbury where employment losses are likely, should be on providing an economic environment which fosters job and income growth. This is a preferable way to ensure that fruit, vegetables and other healthy foods are affordable.

Exactly.

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Goff’s GST pledge rewards top 10% three times more than bottom 10%

September 28th, 2010 at 10:00 am by David Farrar

If one goes to the Stats Household Expenditure Survey, it give details of spending on fruit and vegetables by income decile.

The poorest 10% of households spend $9.80 a week on fruit and vegetables. Assume two thirds is “fresh” and that is $6.53 they spend on fresh fruit and vegetables.

The “rich pricks” households making up the top 10% spend $30.70 a week on fruit and vegetables. Assume two thirds is “fresh” and that is $20.47 they spend on fresh fruit and vegetables.

The Goofynomics announcement yesterday means a weekly saving of 98c for the poorest households and a saving of $3.07 for the rich pricks. So the rich pricks gets more than three times the benefit of Goofynomics than the poor.

But let us give the final word on Goofynomics to Dr Michael Cullen, who said on 4 August 2004:

Hon Dr MICHAEL CULLEN: I am aware of many countries that have appallingly inefficient GST systems where they exempt various articles, where they have differential rates, and where one has to differentiate between food taken away from a place and food consumed within a place. Thank goodness we have not followed those very bad policies.

So we have it officially from the last Govt – “very bad policies”.

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$1 a week more

September 27th, 2010 at 3:50 pm by David Farrar

Bill Engligh writes:

Labour’s unfunded policy to remove GST from fresh fruit and vegetables would deliver only $1 a week for the average Kiwi – and much less for low income earners, Finance Minister Bill English says.

The estimated $250 million cost of the new policy would have to be paid for by extra borrowing, pushing up already fast-rising public debt. …

The $250 million annual cost of the move, divided among all New Zealanders, is worth, on average, just over $1 a week – less for low income earners and more for high income earners.

“This puts the Government’s tax switch, which will leave the average income earner $15 a week better off, into perspective,” Mr English says.

But here is the real ripper:

“It’s also worth noting that fruit and vegetable prices have actually fallen by 11 per cent since National took office, having jumped 54 per cent under Labour.”

The removal of GST will have a relatively minor impact on overall fruit and vegetable prices and affordability, compared to normal price movements.

This is a point Danyl also makes at the Dim Post:

The real flaw with the policy is that its just a gimmick. I’ve written before about how the price difference between fruit and veges at the supermarket and the farmers market down the road is several hundred percent.

I predict that if Labour ever got to implement their policy, it would have next to zero effect on the uptake of fruit and vegetables.

Bill continues:

“Labour’s policy makes no sense and smacks of political desperation,” Mr English says. “Phil Goff must explain to New Zealanders why he is removing GST from imported, out-of-season raspberries and asparagus, but not from New Zealand frozen peas, which are a nutritious part of many Kiwi meals.

“People would be able to buy GST-free potatoes, take them home and make deep-fried chips. But at the same time, healthy foods like Weetbix, low-fat milk and wholegrain bread would be subject to GST.

Distinguishing between fresh and frozen vegetables is just the start of the stupidities that this policy would lead to.

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Labour abandon their own GST principles

September 27th, 2010 at 7:15 am by David Farrar

Phil Goff today abandons the concept of a simple all inclusive GST. Taxation experts time after time praise our GST for its relative simplicityand fairness as it applies to everything.

The Herald reports:

A Labour-led Government would scrap GST from fresh fruit and vegetables to encourage healthy eating and help New Zealanders as higher GST on other goods is imposed.

This is an exceptionally bad move, because it is the start of a very slippery slope.

For 25 years, lobby groups have pressed National and Labour for a GST exemption for their pet cause. Up until Phil Goff, major party leaders have had enough fortitude to say no. They have said GST is about having a consumption tax – it is not a device for designating what goods are “good” or “bad”.

Once you concede that principle, you can’t say no to all the other requests. We saw this in Australia, where a Government had to exempts tampons from their GST, because of a campaign.

By saying fruit and vegetables will be exempt (as they are good and healthy), how can a Goff led Government possibly stand firm against say a campaign to reove GST off medicines? I mean, how dare the Government tax people for being sick.

Next to go will be GST off doctor’s visits.

Then my God, how dare you tax the school bus. That must become GST exempt.

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The taxpayer funded lies continue

September 22nd, 2010 at 10:00 am by David Farrar

TV3 report:

John Key is accusing Labour of lying in advertising material it’s sending out ahead of next week’s GST increase of 12.5 percent to 15 percent.

Labour leader Phil Goff says he stands by the flyers, which claims National is adding 15 percent GST to all power, phone, rates and food bills.

Pretty clear they are lying.

Chris Wright thought something was wrong when a Labour Party pamphlet turned up in his letterbox, and he was right to question it.

“It’s just wrong, they’ve just added 15 percent to everything and that’s what GST is going to be. And that’s not the case, no I thought it was going up 2.5 percent,” says Mr Wright.

The pamphlet sent out by Labour MPs highlights the increase in GST next week.

But instead of saying it’s going up 2.5 percent it adds what it calls National’s 15 percent GST rate to all power, phone, food, rates and car bills.

“It says National 15 percent as though National has just added 15 percent,” says Mr Wright.

But Mr Wright was further confused when he rang Labour’s head office – he says the woman there told him, yes 15 percent is being added to the current 12.5 percent.

“She told me GST was going up 15 percent and I said ‘does that mean it is going to be 27.5 percent’ she said ‘yes’,” he says.

I guess merely telling the truth that the GST increase will push prices up by 2.2% doesn’t scare enough people.

In one of the examples Labour starts with a GST exclusive $189.34 power bill and adds National’s 15 percent of $28.40. The power bill becomes $217.74.

But Labour should have started with a $212 power bill including the 12.5 percent GST that Labour introduced.

National’s 2.5 percent increase actually amounts to $5.74, not $28.40.

Prime Minister John Key is accusing Labour of lying.

“Labour is using taxpayers money to get these lies out into the public domain,” he says.

National, or someone, should complain to the Advertising Standards Authority. I’d say it was an open and shut case.

Mr Goff says it is not his problem.

“National has increased it to 15 percent; therefore it’s National’s 15 percent.”

Do you really want Labour back in Government with this attitude?

The equivalent would be Labour putting income tax up from say 19% to 21%, and National putting out pamphlets that tell you that your take home pay is going to drop by 21% because of Labour.

It is so fundamentally dishonest, that it really i indefensible.

One senior Labour MP told 3 News the brochure is technically correct but he accepted it was a bit “exuberant” in places.

Just like the 2005 pamphlet claiming National will evict state house tenants if elected.

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GST on “healthy food”

July 14th, 2010 at 9:00 am by David Farrar

The Herald reports:

Political momentum for removing GST from healthy food is increasing with both the Maori and Labour parties working on the idea.

But even in the event the two parties were to put aside their differences and work together on the policy they would not have the numbers to pass the required legislation since the National Party and United Future are opposed to it.

Maori Party MP Rahui Katene’s Goods and Services Tax (Exemption of Healthy Food) Amendment Bill is likely to get its first reading when Parliament returns from recess next Tuesday.

The member’s bill would remove GST from fruit and vegetables, bread and cereals, some dairy products, lean meat, poultry, seafood, eggs, nuts, seeds and legumes.

Yesterday, Labour Party leader Phil Goff – who has previously opposed similar proposals – said his party was close to adopting what he believed was a more workable policy to remove GST from fresh fruit and vegetables.

Revenue Minister Peter Dunne said Ms Katene’s proposal wasn’t viable because of problems around defining what constituted healthy food. Furthermore, removing GST from the food specified in the bill would mean the loss of about $330 million a year in tax revenue which would have to be found somewhere else.

I can’t believe how desperate Labour are getting with its support for such nonsense. The only winners from removing GST on so called healthy food will be the tax lawyers.

The moment you start picking and choosing what goods are included, you get massive distortions and gaming of the system -and huge complexity.

Also any removal of GST may be insignificant compared to normal price movements. By coincidence the Herald reports today:

Food prices dropped by 2 per cent in the past year – the largest annual fall since records began more than 50 years ago.

The Food Price Index, released yesterday, shows that fruit and vegetables are nearly 10 per cent cheaper than they were a year ago.

So fruit and veges are 10% cheaper without fiddling with GST, which would cause the Government to borrow a further $330 million a year.

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Labour heads left

May 6th, 2010 at 9:10 am by David Farrar

Vernon Small reports:

The Labour Party is opening the door to policy change, including taking GST off food and clamping down on foreigners buying farms.

Phil Goff is trying to go to the left of Helen Clark. Taking GST off food is a daft idea. Mind you McDonalds will think it is a great policy.

And it is vital we must stop farmers from being able to sell their farms. Imagine if a foreigner buys a farm. One minute it is sitting there in the Waikato, and suddenly the foreigner has packed the farm up and moved it overseas. The dirt, the grass, the cows, the sheds – all gone. Just a big chasm left in the earth.

I wonder if Winston will sue Phil for stealing his policies? I mean they already share major funders, so sharing policies is next logical step. Maybe their shared name can be Labour First.

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Why GST should remain simple

April 21st, 2010 at 2:00 pm by David Farrar

Eric Crampton blogs:

New Zealand is blessed with one of the cleanest value added taxes in the world, our GST. Every new good is taxed at 12.5% (likely to rise to 15%); the tax provides about a fifth of national tax revenue. …

A fun Australian case, via the Centre for Independent Studies daily email update, ideas@TheCentre:You wouldn’t usually expect to find baking recipes in court judgments, but Justice Sundberg of the Federal Court in Melbourne made an exception recently. In doing so, he demonstrated how overly complex Australia’s tax rules are.

Take 67.5% wheat flour, 20% water, 8% olive oil, 2% sea salt, 1.5% yeast, and 1% malt extract. Follow the instructions in Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329, and what you get is either bread or a cracker.

At least that was the question Justice Sundberg had to answer. A small food importer from Melbourne had been importing Perfetto Mini Ciabatte, an oven-baked Italian flat bread that only culinary philistines – or the Australian Taxation Office – could mistake for an ordinary cracker.

Australian tax law has kept lawyers and bureaucrats busy for a long time over this mini ciabatta. Basic food stuffs are exempt from GST, but other foods are not. Thus, bread does not attract GST but crackers do.

The food importer thought he had a clear case when he claimed tax-free status for his mini ciabatta. He had even flown in Italy’s leading bread expert Giampiero Muntoni to testify in court. Signor Muntoni holds an EU certificate that entitles him to certify whether a product is a bread or a non-bread item for value added tax purposes in Italy. To this infallible bread pope it was clear that if the ingredients are that of bread, if it looks like bread, and if the Italian tax authorities classify it as bread, it must be, well, bread.

This was not good enough to convince an Australian court, though. Justice Sundberg noted that mini ciabatta cracks like a cracker; it’s sold next to crackers in Australian supermarkets; and a chemical analysis revealed similar gluten and protein content as that of crackers. In conclusion, he upheld that GST had to be paid on it.

It would be easy to find this issue ridiculous, but actually it is symptom of what is wrong with our tax law. It is incomprehensible that there should be different taxes for, arguably, very similar products.

Tax lawyers would do very well if we start introducing exemptions.

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