GST is just a political tax. Scrap it.

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The foundation for moving to GST was the neo-liberal economic fantasy; supply side economics. Free the entrepreneurs, the suppliers of goods and services, from regulations and taxes. This would give them investment capital to follow their visions, responding to the laws of demand and supply to create and supply the goods and services needed and demanded within the economy.  Competition would make things cheaper and opportunities would open up throughout the economy. 

So GST was about shifting the tax burden away from the entrepreneurs and onto ordinary people, the demand side of the economy. So income and other taxes on business went down and taxes on ordinary people went up. 

The economists and right wing politicians promised we would be better off, but after almost 40 years experience we know it was lies, and supply side economic theory is rubbish.

So what did our great entrepreneurs do with their investment money gained from lower taxes? 

  • It went overseas seeking easy money in stock market rises rather than in the harder work of producing to supply goods and services within the New Zealand economy. 
  • Investment capital went into the holding of capital assets; shares, bonds, luxury goods, property. Money for innovation, start ups, and productivity dried up.
  • It sent investment and jobs overseas to bring down production costs and increase profits. We lost well paid jobs and opportunities to grow skills in the New Zealand workforce. This impacted the ability to find skilled people in New Zealand.  

Now our businesses moan for overseas workers, skilled or low wage middle class workers, to make their business profitable. Other nations lose their best people, and families lose loved ones for months. Is this model any better than the exploitive gulf state immigration models?  

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So large business leaders have protected their own wealth base by investing in capital assets rather than build production and grow the New Zealand economy. They minimised risk by not taking risks. 

We all know GST is a regressive tax that falls heaviest on the poor because they spend all their income. The same for the middle class who are spending more on the basics. The tax burden is being carried by those less able to bear it. No civilised society should have GST. 

But GST also damages the ability of our economy to adapt. We need to move from fossil fuel SUV’s and cars, to electric or hybrid. Or more energy efficient household appliances. Or to do up our houses to be more energy efficient. But these are large cost items that are made very expensive with an extra 15% GST cost.  It is more costly to adapt on the consumer level therefore the forces of demand are not sending the right market signals. 

Getting a loan is therefore the main way this upgrading is currently sustained and this is creating its own problems for the middle class who are getting swamped in debt. Nice for the lenders. 

GST helps change buyer behaviour to favour lower priced but lower quality products. The 15% GST increases the price differential from quality to poor quality products. This exaggerates the price edge of rubbish products. The market is getting the wrong signals on what to produce. 

GST is harming our economy and people. The extra investment money made available to the wealthy through lower taxes has not been used to innovate or grow our economy. New Zealand has low investment rates in research and development hence we have a government funded scheme to try and encourage it. The neo-liberal purpose of GST has failed. But it is very easy to get rid of GST.

  1. Move to taxing gross income rather than net income (no deduction for expenses, except domestic salary and wage PAYE payments)
  2. Remove the capital revenue distinction for non-individuals.

These steps would:

  • Stop huge areas of tax avoidance and tax minimisation. The big high cost structure business would begin to pay their fair share of tax. 
  • Remove the current tax settings that favour multinational companies. It would be harder for multi-nationals to profit strip out of New Zealand without paying more tax. 
  • Return a comparative advantage to local low cost businesses. Part of this is because it increases the cost of imports, rather than as currently subsidised.
  • Create better economic signals to producers. Inefficient or environmentally damaging practises would not be subsidised as currently. Excessive exploitation of natural resources would not be subsidised. The true cost of oil/coal, exploration/extraction would be reflected in the price of the product. 
  • Allow us to move to a 10% rate of tax on ‘gross income’ for non-individuals. [I make no suggestions on individual tax rates at this point].  This would collect more money than by our current taxation of net income and GST. This 10% rate would be enough to fully cover the removal of GST and still leave extra money for government to invest/spend. 

But there would be reactions:

  • Tax administrators tend to love GST. It’s low cost to run. Business collect it, it’s easily integrated with normal sales invoicing process. It’s regular income coming into government based on monthly or two monthly returns. 
  • But all these advantages can be replicated with a sales system that puts all sales through an IR register bank account and every deposit gets a simple 10% tax deduction that is tagged before sent to the non-individuals other accounts. Deposits in those other accounts not tagged would attract audit attention. 

Removing GST would in theory reduce prices by 15%. But large businesses paying more tax means they would fight back, with inflation. More tax is more cost so they would try and get GST back through prices rises and a bit more because change is a chance to maximise profit. All to frighten government and the Reserve Bank to back down.

Therefore government must do what it used to do – supply many essential goods and services at low cost. Perhaps like we will do with the current flooding emergencies. I have already suggested how to do this for groceries, energy, and cars. This means private business will have some real competition to keep prices lower, like they used to.  This is not only do-able but essential. 

The neo-liberal economic theology used to justify shifting our economy to tax people through GST, has not made us wealthier. It damages our economy by making it more costly to adapt. 

All that’s left to justify GST is politics. The National/Act political dance of a thousand veils forever promising an economic heaven with a second coming, but always just around the corner after the next election, or the one after that. 

Removing GST is a substantial and tangible help for voters. Price rises would be the greedy actions of business. Small domestic low cost businesses would see benefit in a low flat tax rate. Large high cost structure businesses, mostly multi-national franchises would fight like hell. Our local business representatives would generally side with the status quo that pays their salary and sustains their shares. But having no GST is just returning to our previous status quo. These are ways to shape the fight.   

Change by Labour can’t happen without a fight; that means challenge, pain, courage and vision. A bit like what the current storms are forcing onto the government and people. We have to change. Do the vision stuff. Get rid of GST fully. 

29 COMMENTS

  1. GST? Scrap it indeed. GST was a Phil Goff’er wasn’t it?
    Now. About those now nine Kiwi-As GST registered multi billionaires and them there four now foreign owned banksters here stealing our fucking money? ASB? Record half yearly profit! How? Ooooooooooh riiiiiiiight. Logical fallacy house price hikes, of course.
    RNZ.
    ASB posts record $840m half-year net profit, predicts difficult year for home-owners” Gee I wonder how they could predict that? Must be magic! Nothing criminal about that racket though is there.
    https://www.rnz.co.nz/news/business/484267/asb-posts-record-840m-half-year-net-profit-predicts-difficult-year-for-home-owners
    Lets spare a thought for phil.
    Wikipedia:
    “He was a member of the New Zealand Parliament from 1981 to 1990 and again from 1993 to 2016.”
    That useless fuck stood on rogers little shoulders all the way through the destruction of our wonderful AO/NZ
    and now there’s no money or public assets left to pillage, he’s off.

    • GST was a foundation tax of Rogernomics and was introduced by the Lange government and Roger Douglas. It came in in 1986.
      Grab Snatch and Take.
      It is part of the notion of Flat Taxes.
      Another bullshit tax on the poor by the rich and advantaged.
      I am not rich but I am advantaged by having been GST registered since1986.
      Being able to claim GST every 2 months advantages me a few thousand dollars every year.

  2. GST would probably work if those entrepreneurs were paying their staff well but they don’t, in fact we’re all being underpaid and now over taxed.
    The problem with this country is our political system only really helps those who make a lot of money, they’re simply not interested in the people who make them money, just the person at the top and their needs.
    Over the last 30 years I have seen employment rights decrease with every right wing govt, then a supposed left wing govt comes along and just tinkers around the edges but never puts it back to what it was, then we get another aggressive push by the right and things are now at crisis point and Labour is still sitting on their hands not doing anything.
    Its no wonder so many people have stopped voting, there simply isnt a point, nothing is improving for the bottom half.

    • mark compared to other (trigger warning for the fragile) ‘civilised’ countries NZ is not heavly taxed it’s rightard trope..it’s easy you want a decent country it costs..nowt is for nowt
      are there idiot spending decisions? you betcha but that’s not the issue

      or you can choose to live in alabama…

  3. The left have been complaining about GST for years since it was introduced (by Labour funilly enough)
    Everyone has their own workings as to how it can be done…. easily by all those who offer an opinion!

    How many finance ministers have their been since it was introduced? And we still have it….which begs the question, all the bar room economist/finance ministers has it wrong and more complicated that their grasp of economic literacy.

    Otherwise if it’s soooo easy to implement it would be done by now. (This includes 9yrs of Clark and now the 6th year of Labour)

  4. Should be an easy sell 🙂 Tax cut for everyone and very fair, just 10%. No Gst and no income tax. Tell the Act types it’s an upgraded version of Roger Douglas’s flat tax.

    • The tax cuts National gave the top and corporations the following year, the books were balanced using an increase in GST.
      Infrastructure in NZ has subsequently fallen into disrepair.
      10% tax cut AND remove GST will push us further into becoming a third world country.
      How about remove GST and increase taxation on those who are under taxed.
      A poor person pays everything they have into tax whereas a rich person has room to create savings which isnt taxed as heavily therefore rich people pay less tax compared to poor people.

      • Misconstrued. Sorry I meant to say selling the idea of a 10% revenue tax should be easy. Replacing a 15% gst and 30% income tax with a 10% tax can be sold as a “Tax Cut” if you repeated that statement often enough people would believe it. It shifts the tax burden by negating tax minimisation and international transfer costing. The Act types can be told it was a Roger Douglas idea – he ludicrously proposed a flat 10% income tax and thats what got people thinking about a 10% revenue tax.

    • In the words of Jacinda: There is no political will to introduce a Capital Gains Tax.
      Labour was unable to get enough votes to pass it……

      Doesnt help when more than half of them own more than one property eh.
      But there was no conflict of interest in their decision making right….

  5. There is so much that needs to be rebuilt. The level of tax receipts will need to increase by a lot, which will mean all the tax cuts for the rich will have to go — to reach the percentage of national income taxed in France, receipts will have to go up by about 44%.

    The old tax brackets (and rebates) used to mean that people earning an average wage or below would end up paying no tax at all.

    If all the tax cuts were dropped, the income tax rate for the highest bracket would revert to 76.5% (where it was at the end of the Nash Administration).

    F.D.R. used to have tax brackets for very high income earners. For someone earning over $180m today, under his rates they would pay 79% income tax (this was eventually raised to 90%). Someone earning $9m would pay 68%.

    However, some of the foreign companies that will need to help rebuild the all the industrial plant and machinery will probably have to be given tax breaks (in advance to the tariffs being put back in place).

    Under Eisenhower, the top corporate tax rate was 52%. So there is a lot of lost tax there.

  6. GST introduced by a Labour Government will see Hipkins do nothing.
    Hipkins is risk averse he doesn’t want to rock the boat.

  7. Yes, let’s adopt a tax (a gross tax with no deductions for business expenses) and see how that goes. Not well I suspect.
    Just about all OECD countries have a consumption tax. As Stephen concedes, there is a reason, they work.
    There is a sensible argument about how far GST should extend (food) but no consumption taxes at all would launch us straight back into all the problems that beset NZ in the late 70’s and 80’s. Based on Stephen’s photograph, possibly before he was born.
    I know it is fantasy of the Left about how wonderful things were then. But speaking as one who turned 20 in 1972, let me say, they weren’t. NZ, despite all our problems, is a much better place today.

    • the thing is trying to devide GST into silos is a gordian knot…is chocolate a food item? are doughnuts food, is a toffee apple fruit?

  8. ” So income and other taxes on business went down and taxes on ordinary people went up. ”

    Like the GST levied on the rates bill which essentially is a tax on a community charge used to extort homeowners every year to pay the local council and its environmental arm to ignore many basic services and run inefficient organisations but they always have new vehicles and lavish salaries + increases every pay cycle that the public are not entitled to know the % increase they are paying for their top managers.

    But know the latest idea is to allow 16 year olds to vote for their local council in the hope that it will increase turnout when it is actually the disgust many ratepayers feel for the way these councils operate and the power they have to obstruct ratepayers , and lack of services and are never responsible from one three year term to the next.

    I live in Christchurch but I get the same feedback from friends in different regions in our fair go for everyone myth that pervades the entire country.

    Apologies Stephen for the rant but there is a case for removing GST across the board and how it has been applied very unfairly mainly penalising the underclass exacerbated by unregulated capitalism.

    This government will not cancel a tax that nets nearly a billion dollars a year and has no interest in adopting the structural changes the TWG proposed at considerable expense to the tax payer slush fund.

  9. Would scrapping GST reduce costs/prices by 15%?In your dreams.
    The rich avoiding paying tax is part of western culture.
    Why would you have over 75 tax havens if it..wasn’t?

    • The rich use the rules set by Governments. If the rules are poorly made leaving loopholes then they will be used. I know a few of them and you dont need to be a rich prick to utilise them, anyone with a clue can.

      • Rich pricks are those who can afford to donate to political parties and those donations come with strings attached.
        The rich pricks get whatever they want.

      • peter the tax rules are not poorly made the rich employ lobbyists to get what THEY object to canned (brexit and avoidance of EU money laundering laws being a prime example)..then even more expensive accountants and lawyers to make spurious arguments which are accepted by courts filled with people the rich went to school with

  10. I have picked out these statements from the post which should send clicks through every ordinary earners spine as loud as clicks on a geiger counter – because it is so true, and the core of our disease of poverty of mind, spirit and pocket in NZ/Ao.

    …The economists and right wing politicians promised we would be better off, but after almost 40 years experience we know it was lies, and supply side economic theory is rubbish…

    …All that’s left to justify GST is politics. The National/Act political dance of a thousand veils forever promising an economic heaven</b with a second coming, but always just around the corner after the next election, or the one after that.

    Removing GST is a substantial and tangible help for voters. Price rises would be the greedy actions of business. Small domestic low cost businesses would see benefit in a low flat tax rate. Large high cost structure businesses, mostly multi-national franchises would fight like hell. Our local business representatives would generally side with the status quo that pays their salary and sustains their shares.

    But having no GST is just returning to our previous status quo. These are ways to shape the fight.

    Change by Labour can’t happen without a fight; that means challenge, pain, courage and vision. A bit like what the current storms are forcing onto the government and people. We have to change. Do the vision stuff. Get rid of GST fully.

    And have a plan on how to replace the loss from rational economic means – CGY which should be looked at in this case as a money-gathering task rather than wanting it to slow down house purchasing.

  11. Yes please remove GST. Im a big spender and would love the tax cut, I’d save many thousands. But I don’t need the cut.

    If we want to better society, which will take big bucks, then the savings are to be had inside Govt and the so called public service. As they dont spend their money they are horrendously wasteful and very low quality shoppers easily conned. We charge Govt Depts and Council noticeably more than the public or private sector. Its a piece of piss to do so we do. That allows us the charge Joe Public less, a sort of tax rebate if you like.

    If Govt Depts and Councils wanted to save millions, if not billions, all they need to do is change the current job for life Govt dept muppets for purchasing people who do give a shit and can add to more than 10 without having to take thier shoes off.

    Do that and the money it will free up will dwarf Labours GST.

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