Tax Changes

The SST reported:

INCREASING GST to 15% and cutting income tax is among the proposals to be considered by a team of economic experts advising the government on tax reform.

Professor Norman Gemmell, who represents Treasury in the tax reform working group, told the Sunday Star-Times that New Zealand’s 12.5% goods and services tax was low by international standards. An increase to 15% could balance reductions in the 38% and 33% tax rates down to 30% a target the government has committed to in the medium term.

Generally taxing consumption more and earnings less will be beneficial to the economy.

The problem is that these sport of changes would have been easy to do while we had massive surpluses, as one could fund some sort of package to make sure lower income families are compensated for an increase in GST.

But in today’s climate of huge fiscal deficits, changes to the tax system will have to be revenue neutral – and that makes it a lot harder.

In 2007 the average Kiwi household spent around $950 a week, including groceries, fuel, clothing and healthcare, around $106 of which was GST. Lifting the tax to 15% would add an extra $21.25 to the bill, and a 20% rate would add $63.75.

A lot of families will notice an extra $21 costs a week, let alone an extra $64. Mind you if the ACC scheme is not sorted out, they may end up paying more in increased ACC levies than they would with an increase in GST to 15%.

He said the tax system was inconsistent and unfair. Someone who earned $50,000 paid 33 cents in the dollar while someone who received the same amount by selling an investment property might pay no tax at all, because there was no capital gains tax in New Zealand. A self-employed person could easily become a “company” and pay a 30% tax rate instead of 38%.

Yep. That is why the system needs reform.