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Savings up + GST collections down = GST rate up?

Kiwi households are saving more than at any time since 1995 according to the latest national accounts.

http://www.beehive.govt.nz/release/household-savings-rate-positive-five-years

The flip side is with low inflation and lower consumption the Government’s GST take is down.

I’m not an economist but my understanding is even though households may be saving more, national savings overall aren’t necessarily any better off because of the push/pull effect of private savings and tax collections.

This was something the Savings Working Group considered in their report Saving New Zealand: Reducing Vulnerabilities and Barriers to Growth and Prosperity: Final Report to the Minister of Finance published in February 2011.

As a countermeasure the Savings Working Group recommended an increase in the GST rate from 15% to 17.5% over other tax changes because GST is “less distorting than income tax on the saving decision”.

http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup/finalreport/30.htm

The political challenge with increasing GST to 17.5% is that our rate is already amongst the highest in the world when it comes to basic food, education, healthcare and utilities. Outside of the benefit system there doesn’t seem to be a simple mechanism to compensate low-income households for an increase in GST and this must surely put real pressure on our single rate broad-based regime.

Iain

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Election 2014 – your GST vote

This weekend’s New Zealand general election offers some choice in GST policy.

So, if you’re a GST geek like me you might be swayed by what the different parties intend doing about GST.

Here’s what I’ve been able to find out about some of the main parties’ GST policies:

Labour Party – no change to base or rates. Committed to simplifying compliance and supports “one hour, one return, one payment” principle for monthly GST and income tax compliance.

Green Party – no change to base or rates. Propose extra ecological taxes but will leave detail to a commission. Also, propose financial transaction tax. [comment – subject to seeing the detail, the existing GST system could be one way of achieving these new tax imposts].

National Party – no change to base or rates.

Mana Party – propose abolition of GST and replace with “Hone Heke Tax” on financial speculation.

Maori Party – will revisit removing GST on healthy food (fruit and veges) and also increasing GST on sugary drinks.

I couldn’t find any detail from other parties. If anyone knows any more feel free to comment.

Cheers and happy voting on Saturday Kiwis

Iain

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Fat taxes have support

A NZ Herald/Digi Polls finds support for fat taxes: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11298134

To have any real behavioural impact a fat tax needs to be at least 20%: http://iainblakeley.com/tag/fat-tax/

Iain

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NZ First GST policy

Removing GST from food is back on the political agenda thanks to Winston Peters’ announcement yesterday.

Recent calls for GST free food have focussed on the health aspects. This doesn’t seem to be a prime motivator for NZ First but it does appear the policy would not extend to removing GST from fizzy drinks and some other sugary foods.

NZ First’s stated objective is to lower the cost of food for low income households.

Voters need more information on this. Overseas research I’ve seen suggests removing tax on food has an immediate downward impact on prices but it is shortlived. Within several months prices tend to move back close to the levels they were at when the tax applied.

Also, those who benefit most from removing GST on food are those who spend the most, a bigger subsidy for high income households.

Then there are the compliance complexities of different GST rates for different types of food. The overall costs to government (taxpayers) of collecting GST will go up. GST will become less efficient and tax advisors will be busier.

Overall I think there are probably more effective ways to provide relief for low income households but it’s a good debate to have given New Zealand’s comparatively high GST rate on food.

Iain

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