written by john lewis

Just GST


I’m astounded at today’s Fairfax Media poll that suggests almost 3 out of 4 Kiwis think removing GST on food is a good idea. If it is just a reaction to 9 years of unchanging taxation combined with climbing living costs, then it does make some sense.

However, removing GST on food would have to be one of the most counter-productive “solutions” we could come up with for the problems and pressures New Zealanders are feeling today.

Petrol, mortgage/rent, and food form the core of most families’ expenses and all three have risen higher than wage growth for a number of years. Voters also feel overtaxed. They probably should. Govt spending has been of a quality which doesn’t match or justify the current level of taxation (but that is just an opinion of this one voter). :)

Throw in a resurgent National with this as their main election plank and a finance minister making their job easy and we have today’s situation. I honestly do think that Cullen has good intentions (like Muldoon), but he’s just the wrong person for the job (like Muldoon). Thankfully Cullen likes to horde and spend rather than spend and bankrupt (like Muldoon).

The first problem with removing GST on food is that it’s a really lousy way of helping those who need help the most while reducing revenue for the Govt. It is much more efficient to tax them less in the first place rather than change the rules of GST. This leads directly onto the next problem.

If we remove GST on food, we break the simplicity that is our GST. This would raise compliance costs significantly and this really should be reason enough. Personally I think GST is probably the most efficient and effective method of taxation we have. Businesses know how much money they’ve earned and they know how much they’ve spent – it’s easy to calculate and plan for GST payments. In fact, in my dream world GST would be raised and be the only form of taxation (encourages saving, encourages exporting, Govt revenue tied even more closely to the current health of the economy, etc).

Lastly, if we break the “rule” we have of almost no exceptions to GST then we’re at the mercy of future politicians pandering to voters to exempt further items from GST. What’s next? Would, for instance, the Greens say we should exempt GST on NZ-made goods to further their buy NZ campaign? Would United Future say we should remove GST on anything child-related as part of their focus on families? It would be a rather slippery slope that would only end in higher compliance costs and higher taxation in other areas.

I hope our politicians show some leadership on this point and refuse to make it an issue or to consider it a real option to better the lot of New Zealanders, well-off or not. I’m very interested though, do 3 of my 4 readers think it’s a good idea too?

Posted in: Life


There are 6 responses to Just GST

Simon Young
Sunday, 18th May 2008 10:43 am

I agree with you all the way on this. John Chewan of PwC put forward a really good case on how the simplicity of our system is admired around the world, and cutting GST on food would make it harder for those who need relief the most. Let’s not ruin a good thing.

Sunday, 18th May 2008 3:32 pm

Whenever someone says that the “simplicity of our tax system is admired globally” I always wonder what kind of other things those people admire? Probably North Korea’s policies on political freedom or South African Race Relations policies from the 80′s….

Simon Young
Sunday, 18th May 2008 3:54 pm

Slip of the tongue. Slip of the _GST_ system. The rest of the tax system … ah, yeah.

Monday, 19th May 2008 11:05 am

Ideally you want people ten or twenty times smarter than the average, making considered decisions about this sort of thing before the law of unintended consequences gets a hold of what you implement.
Unfortunately we have policitians making the decisions who’s primary response is to go with what would make people happy in the short term.
I especially would not like to see a complex fiscal decision made by the average New Zealander. They simply are not smart or well informed enough to make a good call.

Monday, 19th May 2008 3:19 pm

Other voters = 101%

Rounding wins!

I agree that tinkering with GST will just increase business costs for compliance and those just get passed on to those who were supposed to benfit from those changes.

IMO the best and fairest across the board move would be to slash the taxt rate on the bottom tax bracket. Everyone gets an equal benefit and it’s a lot easier to manage.

Monday, 19th May 2008 3:50 pm

I like the GST only based tax idea (I’ve heard it called “Fair Tax”) because you immediately save millions by firing everyone who works in policy making at IRD. It also makes so much sense, people with less money spend less and will therefore pay less tax, those with more spend more and pay more. There are no loopholes to worry about and less government employees needed to enforce it. You’ll never need an accountant to work out your taxes, in fact you won’t even file a return, how’s that for compliance costs!!! In fact it makes SO much sense that it will NEVER EVER happen. Even in a tiny country like NZ where it would be ridiculously easy to introduce.



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