Cullen hints at GST cut in trade-off
The level of goods and services tax (GST) could fall if the Tax Working Group recommends new environmental taxes, its chairman Sir Michael Cullen has suggested.
The working group is considering changes to the tax system that could apply after the 2020 election.
Although the group will consider a variety of possible new taxes, Cullen has maintained its focus will be on changing the balance of taxation rather than increasing it.
There could be a case for reducing GST if the working group recommended new resources taxes to improve people’s environmental behaviour, he said.
Examples of environmental taxes include taxes on petrol, water consumption and waste sent to landfills.
Cullen said the working group was only like to come to a conclusion that there was a case for new environmental taxes after ‘‘quite a long debate’’.
But if it did, there would be a case for reducing GST as both taxes might fall on people in a similar way, he said.
‘‘The final incidence of those taxes would probably be fairly similar to consumption taxes, and if that is the case do we look seriously at the reduction of GST?’’ he said.
One difference was that people overseas might end up footing some of the bill for environmental taxes through higher prices for some New Zealand exports.
GST is referred to as a ‘‘regressive tax’’ because it falls disproportionately on lower-income people, as they will tend to spend more and save less than those on higher incomes.
GST could be reduced by cutting the current rate of 15 per cent.
But the background paper said New Zealand could consider following other countries and remove GST from some goods and services. Examples of goods that are exempt from sales tax (VAT) in Britain include fresh food, children’s clothes, and newspapers, as well as some more eclectic items such as ramps for disabled people, helicopters, houseboat moorings, incontinence pants and airships – either bought outright or chartered.
One of the key decisions ahead of the Tax Working Group may be whether to recommend a broader capital gains tax on the likes of investment property and shares, or a wealth tax that would exclude the family home.
Cullen has said the two taxes might be regarded as alternatives.
One difference was that a capital gains tax would take time to ramp up and contribute to government coffers, as Cullen said gains would only be calculated from the time the tax came into effect.
A wealth tax would tax people’s already-accumulated assets and could therefore take full effect immediately on its introduction.
Submissions on the background paper close at the end of next month.