GST rise overdue

Expected Budget hikes to GST alongside reduced personal tax rates will make the tax system fairer, says New Zealand Institute of Chartered Accountants (NZICA) Tax Director Craig Macalister.

The Government has signalled it will raise GST to 15% from 12.5% while reducing personal tax rates in its Budget announcement on Thursday. The rise has been portrayed as a means of funding tax cuts ­ however it will result in an improved tax system, Mr Macalister says.

³If you raise PAYE, it is like shooting fish in a barrel. Those taxpayers don¹t have the same opportunities to claim expenses against their income as self-employed taxpayers,² he says.

³By contrast, GST applies to all taxpayers equitably.²

In addition, higher income earners have more opportunity to structure their income to take advantage of the tax system ­ but they also spend more, he says.

³A rise in GST therefore has the potential to capture tax on a more equitable basis across a range of income levels. NZICA supports this as a fairer and more efficient model of tax collection.²

The Government is also expected to lower personal tax rates across the board, and alter the thresholds at which different rates kick in. Mr Macalister says this is likely to have a neutral effect on the tax take.

³While it may see an arithmetical reduction in the Government¹s tax revenue, it also reduces incentives for people to structure their income to avoid tax. Experience shows that there is an economic effect that counterbalances the arithmetical reduction in the tax take as the cost of complex tax structures begins to outweigh the benefits.

³Nobody likes to hear about the dentist in Auckland who pays himself a salary of $60,000 and collects a Working for Families cheque from the Government when their trading trust or company amasses considerably more income, which does not count as their income. That¹s the kind of person that this Budget is trying to tackle.

³By shifting the burden off income tax and onto GST, this scenario can be redressed. How successful it is will depend on the detail of the policies and thresholds announced on Thursday.²

The Institute welcomes Prime Minister John Key¹s announcement that the Government will address issues with superannuation, Working for Families, and benefits to ensure no one will be worse off from the tax changes, Mr Macalister says.

³In combination with cuts to personal tax rates, this Budget has the potential to be one of the most effective tax Budgets of recent times.²

NZICA supports a simple, broad-based tax system that is efficient to administer and delivers equitable tax treatment across all taxpayers. The Institute represents more than 31,000 chartered accountants in New Zealand.

ENDS

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