No changes to GST threshold for now

July 2nd, 2016 at 4:00 pm by David Farrar

The Herald reports:

The Government wants to lower the threshold on online purchases which qualify for GST from mid-2018, but says more work is needed and there will be no change without public consultation.

Currently, online purchases don’t qualify for GST and tariff duty unless the total tax owed is $60 or more – meaning a purchase price of about $400. But goods such as clothes, accessories, and shoes attract both duty and GST, meaning charges may be payable when the purchase price exceeds $225, according to the New Zealand Customs Service.

The $60 duty threshold, referred to as the de minimis, is the point at which more would be spent on the administration and collection than would be collected in revenue.

Customs Minister Nicky Wagner today said she is continuing to look at different ways to collect tax effectively, and the government acknowledges a lower threshold “would help to level the playing field, but there’s no quick or easy solution”.

“Customs needs to look into more detail around what some of the collection mechanism options could look like and what the border transaction fees might be,” Wagner said.

“Once Customs has a better understanding of the best ways to collect tax for low-value imports, we will look to lower the threshold, potentially from the 2018/19 financial year.”

I’m glad the Government is not rushing into this. If they get it wrong they will suffer a massive backlash if almost every item people order over the Internet from overseas is detained at the border.  It isn’t about the cost, but about people being able to get the goods they ordered easily.

There may be room for a modest decrease in the de minimis level if it will bring in more revenue than it costs. But I suspect any decrease would face significant extra costs.

Is the Govt silly enough to force a $20 parcel fee on us?

November 30th, 2015 at 7:00 am by David Farrar

Stuff reports:

NZ Post may charge people $20 to receive overseas parcels if the Government slashes the threshold under which items can be bought from foreign websites GST-free.

The new fee of between $15 and $20 per parcel would cover the cost of red tape associated with collecting tax at the border, NZ Post said in a document obtained under the Official Information Act.

People could also expect more delays receiving parcels from overseas, it said.

Customs Minister Nicky Wagner is due to release a consultation document in April that will canvass lowering the $400 threshold under which most overseas internet shopping purchases can be made free of GST and duty.

Retail lobby group Retail NZ has been pushing for the threshold to be slashed or abolished, to put domestic retailers and overseas sellers on a level playing-field paying GST.

But NZ Post said that if the threshold was slashed from $400 to $20 and tax checks continued to take place at the border, then it would need to invest $20 million in a brand new parcel warehouse that would also cost several million dollars a year to operate.

NZ Post said it already incurred costs of $700,000 a year helping facilitate the payment of GST and duties on parcels entering New Zealand.

But if the threshold was slashed it would not be able to absorb the increased costs, it said.

“Based on our preliminary analysis, New Zealand Post’s cost recovery charge is likely to be in the range of $15 to $20 per parcel held at the border for GST collection,” it said.

That meant consumers might expect to pay $65 in administrative charges on low-value items they bought from overseas if an existing $49.25 Customs clearance and biosecurity fee also applied to all items under any new threshold, it said.

Buy $30 of books from overseas and the Government would force you to pay another $65 to receive them. This would be as popular as cold vomit. I hope they see sense.

It is possible there is an economic case for a minor reduction in the de minimis threshold of $400. Maybe at $300 the extra revenue would still exceed the compliance costs. But a reduction to anything like $20 would be economic stupidity and become very hated.

Online GST

November 19th, 2015 at 10:00 am by David Farrar

Todd McClay announced:

Revenue Minister Todd McClay says measures proposed in a tax bill introduced today are about fairness and equity.

“It is about creating a level playing field for collecting GST and putting New Zealand businesses and jobs ahead of the interests of overseas suppliers”, says Mr McClay.

These measures are an important first step in the Government’s efforts to deal with increasing volumes of online services and other intangibles purchased from overseas suppliers that should, under New Zealand’s tax rules, be subject to GST.

“GST should apply to all consumption that occurs in New Zealand.  This is what makes our GST system fair, efficient and simple,” says Mr McClay.

“The growth of online digital and overseas services means the volume of services on which GST is not collected is an increasing challenge – for the Government in terms of the GST revenue foregone, and as a matter of fairness for New Zealand suppliers of services and intangibles who must account for GST in their pricing structures.”

Mr McClay says the proposed measures will apply GST to cross-border “remote” services and intangibles supplied by offshore suppliers (including e-books, music, videos, and software purchased from offshore websites) to New Zealand-resident consumers, by requiring the offshore supplier to register and return GST on these supplies.  

I haven’t got a problem with this. I will have a problem if the de minimis threshold on imported goods is reduced to such a low level, your books and minor purchases are stopped at the border.

The key issue here is how many overseas retailers will actually agree to register. Some will, but not all. The FAQ notes:

Why would offshore suppliers comply with the proposed rules?

When similar rules have been applied in other countries, offshore suppliers – particularly large international suppliers that account for the majority of cross-border services and intangibles – have demonstrated a willingness to comply. For many of these companies, failure to comply with their obligations would pose a significant risk to their reputation.

So I imagine Amazon, Apple will comply. But will Ebay as they are just an auction house, not a retailer?

The bill is here. It says a supplier will treat a customer as being from NZ if there are at least two non-conflicting pieced of evidence, from the below:

  • the person’s billing address:
  • the internet protocol address of the device used by the person or another geolocation method:
  • the person’s bank details, including the account the person uses for payment or the billing address held by the bank:
  • the mobile country code of the international mobile subscriber identity stored on the subscriber identity module card used by the person:
  • the location of the person’s fixed land line through which the service is supplied to them:
  • other commercially relevant information.

The IP address inclusion could be problematic. They are not necessarily a reliable guide to where someone is from. It also means that someone who uses software to mask their country of origin (very useful if you wish to view videos from other countries, or subscribe to US Itunes or Netflix) could end up breaching the GST Act. However a prosecution would only occur if the GST amount was substantial.

The online GST proposal

August 18th, 2015 at 1:00 pm by David Farrar

The Government has published a discussion document about what to do with GST on online purchases. It is here. They key points are:

  • Offshore suppliers will be required to register and return GST if their supplies of services to New Zealand-resident consumers exceed a given threshold in a 12-month period. Submissions are sought on the value of that threshold.
  • In some situations, an electronic marketplace or intermediary may be required to register instead of the principal offshore supplier.

The Government has kicked for touch (for now) the most politically significant issue of the de minimis threshold of $60 GST/fees (or $400 of goods) for collecting GST at the border. That is the issue I am more interested in. If Customs starts seizing my books from Amazon, I’ll be bloody pissed off.

What is proposed in the discussion document is pretty unobjectionable, but that is because they may be unenforceable.

Basically it is saying we’re going to ask overseas e-tailers to agree to register for GST in NZ, and pay us GST.

Some may do so, for reputational reasons. But what if they don’t?

These companies may not have a legal presence in NZ. Will Amazon be banned if they don’t agree to register for and collect GST?

So I’m not sure this will achieve much. It may get some voluntary compliance for reputational reasons, but not too many businesses will rush to pay a voluntary tax. If all OECD Governments agree to pass laws mandating each other’s GST laws must be honoured by their own businesses, then it would be a different matter.

So as I said the big issue for me is the de minimis threshold. There may be a case to reduce it a bit, but if the cost of collecting GST at the border is more than the revenue from it, then the threshold is too low.

Lumley on GST from foreign websites

August 4th, 2015 at 4:00 pm by David Farrar

Thomas Lumley blogs at Stats Chat:

From a Retail New Zealand Media Fact Kit

“The amount New Zealanders spend on goods from foreign websites is approaching $1.5 billion and this number is growing all the time.”

GST is 15%, so the total GST payable on an amount approaching $1.5 billion would be approaching $225 million.

Since $1.5 billion would be approaching $900 per household (1.68 million households according to StatsNZ), I assume it includes quite a few business purchases as well. For these, any increase in GST on the purchase would later be deducted from the business’s GST liability, leaving a net zero.

For non-business purchases, some of that GST is already payable under current law (if the total value of a single package is over $400). Some would still not be payable if the threshold was lowered to $25.  Also, some might not be payable and definitely would not be easily collectable at the border because the purchase is an electronic download — e-books or music, for example.

Putting all these together, the potential increase in revenue has to be less than 15% of $1.5 billion, though it’s hard to say how much less.

So the absolute most is $225 million but it could be much less than that.

The Media Fact Kit says

“The Government misses out on at least $200 million in tax (maybe as much as $500 million) every year”

Based on their expenditure numbers, that doesn’t look plausible.

So don’t believe their claims.

One of the differences between a Treasury Regulatory Impact Statement and a “Fact Kit” from a lobby group is that the numbers in the RIS have to add up and the document needs to give sources. If, as Radio New Zealand reports, there will be a proposal for Cabinet this month, we might be able to get some real numbers about the likely revenue and costs, and perhaps even how the economic impact would compare to other ways of raising taxes.


If the Government drops the threshold to a level that means books and minor purchases get detained by Customs, then the compliance costs will chew up a lot of that revenue – and piss off a lot of New Zealanders.


GST online

March 18th, 2015 at 10:00 am by David Farrar

The Herald reports:

The Prime Minister has warned New Zealanders they could soon be paying GST on online purchases as small as a song download from iTunes.

Mr Key said it was inevitable that the cost of online shopping would go up as GST was charged to more goods and services.

GST is not currently charged on imported digital products such as music and film downloaded from services including iTunes.

Because they are not NZ companies. Good luck getting global companies voluntarily agreeing to put their effective prices up so they collect tax for the NZ Government. It is unfair to NZ companies, but there is no easy fix.

A suicidal government could try and ban NZers buying goods from companies not registered for tax in NZ. Ban access to iTunes, Netflix and the like. I think david Parker proposed banning Facebook if they didn’t pay more tax in NZ. National is not so stupid.

The only real solution is for the major economies to agree that a company resident in one country will register for GST type taxes in each country it sells to. But if even one major economy doesn’t become part of such an agreement, then it won’t work. The OECD does have a work programme for this.

Physical goods bought online and worth less than $400 also usually escape GST.

Because the cost of stopping every envelope and parcel at the border, and holding it until GST is paid by the buyer, would cost tens of millions. The de minimis amount should be set at the point which the revenue would significantly outweigh the collection costs. This may be less than $400, or more than $400.

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.


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.

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?

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?

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 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.

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.

Labour’s iTax

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


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.


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.

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.

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.

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 ÂŁ30bn. This ÂŁ30bn 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.

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?

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.


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.


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?

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.

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.

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.


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”.