Selwyn Manning joins Australian radio FiveAA’s Peter Godfrey to deliver their Across the Ditch bulletin. This week: How Has GST Delivered For NZ + 3rd Cricket Test in Adelaide – Recorded on 26/11/15
With Australia debating the pros and cons of increasing GST, what is the experience of New Zealand which increased its GST to 15% on October 1 2010.
Points to ponder, in NZ:
* Labour brought in GST at 10% during the Lange Labour Govt in 1986s. It replaced sales taxes that varied according to what was being sold or serviced.
* Labour increased it to 12.5% in mid 1989 when the economy was in decline and unemployment was rising fast.
* National increased it to 15% on October 1, 2010 (despite promising not to increase taxes)
* National needed to increase GST in an effort to balance the Govt books due to reductions in income tax and business and corporate tax rates as promised by National.
* It should be seen as a shift from income-related taxation to consumer-based taxation.
* GST works (from a fiscal prudent POV) while domestic consumption (or private spending) is high or progressing, but when people ease back in their spending due to increased costs of living, mortgage rate increases, cuts to working hours or entitlements, then the GST take falls dramatically.
* In NZ GST is applied to all goods and services including food and essential goods and services – no exceptions. This means low and middle income earners have to pay more tax as a proportion of their household incomes as compared to high income earners. And for people laid off or ill or retired it has interrupted their ability to regain self-sufficiency.
Is NZ in better shape because of, or in spite of, 15% GST?
Well, the first thing to remember is NZ’s economy is vulnerable. It has a current account deficit that is problematic, it has ballooned government debt since GST was increased to 15%, its manufacturing sector is struggling, its reliance on milk powder exports (the so called white gold) has left the economy exposed – which with the downturn in milk commodity prices has driven thousands of farmers to the wall and caused the rural sector into a regional recession.
15% GST has provided the Government with more revenue to help it recoup tax revenue lost due to a reduction in income and business tax. But it has impacted heavily on low and middle income earning New Zealanders who shoulder the bulk of the tax liability burden, as a proportion of their disposable income.
As an export-led economy, New Zealanders have learned the hard lesson that the domestic economy progresses only when New Zealand’s export commodities (agriculture, forestry, horticulture, viticulture, ICT products and services etc) are booming.
Like Australia, when commodity exports are regressive, or under pressure, our domestic economies suffer – and remember GST is a domestic consumption tax, and as such it is a means of getting more money into a government’s coffers rather than be an economic saviour.
It also enables businesses to escape direct revenue-based taxation liability (especially when business tax rates are reduced) and places the burden of lost tax revenue on people (income earners). Some would say, it gives businesses a revenue stimulus.
New Zealand governments argue that it is too complex to take GST off food. Australia has shown it is possible and sustainable to exclude food. If your country is mindful of maintaining that exclusion then it would maintain its ethic of ensuring low and middle income Australians are not disadvantaged by GST.
ALSO DISCUSSED! How is the Adelaide Oval pitch shaping up for the third Cricket test between Australia and New Zealand’s Black Caps?