Brewer on GST

Newmarket Retailers Assn CEO Cameron Brewer writes:

Increasing the goods and services tax would hurt the country’s retailers just as they’re getting back on their feet. Christmas trade was an improvement on the previous year, but retail is still not out of the woods.

It would impact retailers, but the issue is what tax cuts would we get to compensate, and what would be the impact on the overall economy.

I’d be against GST going up, with no reductions in other taxes. But there is an argument to be made for slightly more taxation on consumption and less on income.

My wife tells me that before GST came into effect nearly 24 years ago, she remembers her mother rushing off to buy a vacuum cleaner. So yes, leading up to an increase taking effect, there would be a rush on consumption.

However the shops would then go quiet as people’s cost of living went up overnight.

Yep, but an increase from 12.5% to 15% is a lot less of an impact than bringing in a 10% GST. On an item that did cost $100 a 10% GST increased the cost by well 10%. That same $100 item now already costs $112.50 and would go to $115. That extra $2.50 is an 2.2% increase in total price – less than the annual inflation rate of late.

If an increase in GST is to lead to a fall in consumption, a tightening of business margins and a Government being hurt politically, it is hard to imagine theFinance Minister announcing it in his second Budget.

There are political risks around any GST increase. However it occurs to me that the overall economy as a whole would grow faster with less tax on income and capital and savings and a bit more tax on consumption. The target is a 30% top tax rate for individuals, trusts and companies. Now before the recession and Cullen’s last budget, one might have been able to do that by reducing surpluses. However unless one is politically suicidal, it will take several years of spending restraint to get back into surplus.