Brash on GST

Don Brash chaired the committee that established GST in the 1980s, so is pretty much an expert in this area. He labels any move to remove GST on food as a “seriously stupid thing to do”.

… we gave serious consideration to exempting food from GST at that time, and decided for three reasons not to do so. Those reasons are still absolutely valid today.

First, it is clear that every exemption from GST adds greatly to the compliance costs imposed on businesses collecting the tax. …

Secondly, abolishing GST on food would be a very inefficient way of helping those low-income families who most need help with their food bills in terms of the amount of government revenue foregone.

While it is certainly true that low-income families spend a disproportionately large part of their income on food, most of the money spent on food across the whole community, and therefore most of the revenue which would be lost if GST on food were abolished, is paid by middle and high-income families. If the Government sees a need to help those families most adversely affected by rising food bills, then the best way of doing that is by reducing the income tax levied on low-income families, or adjusting the Working for Families policy to help those on low incomes.

Thirdly, if GST is abolished on food, why not on other “essentials”, like children’s clothing, doctor’s bills, books, and the like? In no time at all, political pressures would build up to exempt other goods and services.

Compliance costs would go through the roof. Revenue from GST would fall, with the result that the GST rate of tax would need to rise on the goods and services still subject to the tax (as has happened in most European countries). Or income tax rates would need to be higher than would otherwise be necessary.

New Zealand has one of the best GST systems in the world. Don’t succumb to short-term pressures to bastardise it.

All excellent arguments. Luckily Labour are not showing signs of panic and are not looking likely to give in to the calls to do so.