Hard News: The GST Punt
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Aren't we getting distracted by the purity or not debate?
Isn't the correct question; do the benefits of making the system more complicated outweigh the costs?The next question is if you have $250 mil to redistribute, is this the best use? Esp. considering that it benefits the well-off more than the poor, financially at least.
Which leads to the political own goal in this. How can Labour attack the recent tax cuts/GST hike as regressive when they introduce their very own regressive tax cut?
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@ Glenn Pearce
Thanks for the overview of some of the classes of exemption, and possible reasoning.
I do find it curious though how commonly the negative reactions centre on "Current exemptions good and rational; any other exemptions fiendishly complicated and irrational."
Given that consumption taxes serve to discourage consumption, and that such discouragement is often inappropriate with respect to particular types of goods and services (fruit and vegetables being as good an example as any), exemptions are often worth considering.
Put another way, if you told Canadians that the various "good goods" currently exempt from GST (from fruit and veges, to milk, to physiotherapy, to prescription medicines) were going to be taxed, there would be an outcry.
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Isn't the correct question; do the benefits of making the system more complicated outweigh the costs?
Which is, really, the point that Ben and I are trying to make. Not only is there a taxpayer-borne cost of increased IRD activity around compliance, because the room for error and exploitation increases significantly, but there's also a consumer-borne cost of increased advisory activity (and software development costs initially that will be very, very significant for at least the first year, probably the first two or three) around compliance and the outcomes of failing to comply.
Even if every cent of the cut is passed on by every retailer, it'll have to be accompanied by a general increase in prices to cover the extra money required to pay for the accounting services involved. Suddenly that decrease isn't so big. And the money that IRD willl need to ensure compliance means either tax increases (yeah fucking right!) or spending cuts in other areas.Anderton's (it was Anderton, wasn't it?) suggestion that it'll come out of decreased health spending ignores a) the lengthy lead-time in seeing the benefits of people eating better, and b) that our health budget will never shrink by $250m+ while we've got a population that's rapidly getting older.
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I do find it curious though how commonly the negative reactions centre on "Current exemptions good and rational; any other exemptions fiendishly complicated and irrational."
Nobody's saying that exempting fruit and veges isn't rational, even those of us who think the idea's bloody stupid. We're saying that current exemptions are easily defined and don't require suppliers of goods and services to do an item-by-item classification of everything they sell. They're also really only applicable to a few thousand businesses, at most, so it's pretty easy for IRD to check compliance.
A change to GST application to fruit and vege will first raise the issue of "What's covered?", and then apply to pretty much every supermarket, dairy, convenience store and school tuck shop in the country. Every outlet that sells fruit, and there're plenty of places that otherwise wouldn't have to worry, either stops selling it (decreasing general availability) or starts dealing with the new rules. For places that still use old-style ringing-bell tills, that probably means they'll just stop supplying fruit entirely. Good outcome? No, not so much.All the arguments of "But xyz country does it" don't seem to consider that a) they've always done it, right from the outset of the regime in question, so there was no extra cost to retro-fit the capability to accounting systems, and b) doesn't examine the costs of compliance and enforcement that come with a more-complicated regime. Those costs may be invisible to most people, but they are definitely real and they definitely have to be paid. The money's got to come from somewhere, and that means tax-payers and consumers.
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GST is already the most-disputed part of our tax system and it's incredibly simple.
How? Who disputes it? We know what an exemption is. Yes it's simple. A fresh fruit and veg is a pretty simple exemption as well.
There was no outcry when big bad tobacco was taxed again.Fair? We understand bad real easy, We understand fuel tax, we got roads. It's as simple as tax or no tax eh? What does the horticulture industry think?. If they like it, I'll understand,and happily buy knowing I'm helping the economy and my stomach. The poor people will have a chance to have a saving beside those who would always get the tax cutsWho pays for appeals to the Taxation Review Authority? To the Courts? For the accounting and/or legal advice on classification of goods? The IRD?
Authority? As per usual I imagine. The rest of your waffle is just that. It's called best business practice Matthew Poole, if you're interested in one. Doh!
Geez guys, way to harsh my buzz. -
Coming late on this but I think Tom has a valid point on this
No he claimed we were only arguing because we were brainwashed. In fact we are having a discussion between more and less knowledgeable people about the complexities of the proposal.
@Ben
Ok I accept your opinion that implementation is more complex than I thought.@Matthew
Yeah enforcement is always the area where I thought this would come completely unstuck.Isn't the correct question; do the benefits of making the system more complicated outweigh the costs?
I don't think so. Yes that question has implications on the value in dollar terms of the change. If the costs of making the change are so great that income taxes need to be raised to simply cover the implementation cost then it is a stupid idea in every sense.
But the real question here is
"How do you encourage healthier eating habits and make is easier for the lower income brackets to achieve those habits?"Part of the question is purely political philosophy. Some folks believe the government has a role to play in helping people eat better food and also a role to play in supporting the poor. Some folks believe governments have no role in those things.
Another part of the question is around what constitutes healthy food and how can you define that reasonably simply for legislative purposes. Assuming you are going to legislate.
And another part of the question is around whether we pay enough tax in New Zealand to support the government run activities that we want (eg health care, education etc).
What I find personally annoying at the moment is that there is an accepted dogma in New Zealand that we should pay less tax. Hence this policy is framed around reducing tax.
If you instead say New Zealanders should want to pay more tax so that our government can afford to pay for the things we want out government to supply, then this policy become much simpler to implement.
Identify broad categories of manifestly unhealthy foods (which BTW is much easier to do scientifically) and add a duty to them. And I know for certain that adding duties is easy for supermarkets and grocers etc because they already do it for other manifestly unhealthy things.
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Identify broad categories of manifestly unhealthy foods (which BTW is much easier to do scientifically) and add a duty to them. And I know for certain that adding duties is easy for supermarkets and grocers etc because they already do it for other manifestly unhealthy things.
But, as others have mentioned, then whoever did that would be the Nanny State. So it's very hard to push politically, no matter how logical it might be. Also, some foods are unhealthy when consumed in quantity; but food itself is not a luxury in the way that tobacco and alcohol are. You have to take that into account.
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"How do you encourage healthier eating habits and make is easier for the lower income brackets to achieve those habits?"
Picking on the "low income brackets" again.
Maybe the the real question is how do you encourage the human race to stop acting like a bunch of arseholes to each other?Oh thats right we haven't found an answer to that one.
And most likely, never will.
Now its just all about crowd control, and keeping up the pretence we're not completely fucked. -
GST is already the most-disputed part of our tax system and it's incredibly simple.
How? Who disputes it?
Businesses, one assumes. That tidbit was from one of my tax lecturers, who's also a consultant to the IRD. I assume she knows what she's talking about when she tells students such things. She didn't go much into the whos and whys and wherefors, just mentioned it in a lecture on tax enforcement.
Who pays for appeals to the Taxation Review Authority? To the Courts? For the accounting and/or legal advice on classification of goods? The IRD?
Authority? As per usual I imagine. The rest of your waffle is just that. It's called best business practice Matthew Poole, if you're interested in one. Doh!
Not that I really understand what you're saying here, but the money to pay the costs associated with that "best business practice" have to come from somewhere. Retailers don't just magic up money for paying accountants and lawyers, y'know. If they have to pay more for professional advice, that has to come from the margin on what they sell. And they will have to pay more, even if they manage not to fall foul of the law on compliance.
You don't think the IRD just magics up money to pay for compliance enforcement, do you? It comes from taxation. More need for enforcement means more tax money going into collecting tax. So either spending on other services gets cut, or tax gets raised elsewhere. -
Yeah enforcement is always the area where I thought this would come completely unstuck.
We've seen anecdotes in here this year from people who've been told that the restaurant's EFTPOS machine is "out of order", so can they please pay cash. Cash goes into the restaurantuer's pocket, tax man never sees any of it, no GST receipt to bugger things up. And that's where the system is pretty hard to apply selectively. Once you give room for judgement, it just gets worse. Humans are very fallible, and there are plenty of people out there who'll push the boundaries as far as they possibly can, for whatever reason. Right now the boundaries are quite concrete, so there's not much room for interpretation of what is and isn't covered by GST. This change would replace them with frayed elastic walls.
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But, as others have mentioned, then whoever did that would be the Nanny State.
So wear the badge with pride.
Seriously the job I want my government representatives to do is manage the things I cannot manage on my own. I want a government that is willing to take on that responsibility and if they do that then I'll be happy about paying them.
A huge part of that responsibility could simply be described as being a good nanny.
taking care of my piggy bank = nanny.
taking me to the doctor when I'm sick = nanny
making sure the toilet flushes = nanny
looking after me when I'm old = nannyAnd yes sometime stopping me doing things I might want to do that would do me harm = nanny
FFS having a really good nanny in government would suit me just fine.
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Authority? As per usual I imagine. The rest of your waffle is just that. It's called best business practice Matthew Poole, if you're interested in one. Doh!
Yes, Sofie, and there's a hell of a lot of small businesses out there who don't have the means to hire "tax specialists" to thumb-wrestle with the IRD if they get it wrong. Challenging a five figure demand for tax arrears -- and heavy penalties -- might be petty cash for massive chains like Progressive Enterprises or Foodstuffs, but potentially crippling for the small players I always try to put my money where my mouth is and support.
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If IRD suspected a store was claiming beer as carrots, they can audit the till records, do some test buys and look for them, etc. (the auditors will also check that sort of thing). Then the store gets fined several times the tax, which is a good reason not to try it on.
I think the objection to this is along the traditional lines of "we can't do anything that males it harder for the poor oppressed store owners, they might have to spent money on new tills instead of a foreign holiday".
Oh, along with the traditional IT attitude that processes should be adjusted to fit the systems.
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If IRD suspected a store was claiming beer as carrots, they can audit the till records, do some test buys and look for them, etc. (the auditors will also check that sort of thing). Then the store gets fined several times the tax, which is a good reason not to try it on.
1) Not even thinking such an egregious transgression. Example: bagged lettuce leaves, or a halved cabbage. Where's the line? Someone's got to be the test case. And yes, those absolutely will be matters that have to be decided, and those decisions cost money for the involved taxpayer(s) and for the IRD.
2) Gotta have auditors to do that. More scope for mistakes/malfeasance, more auditors required to ensure compliance. More auditors means more cost. Gotta have lawyers to run the cases, either to the TRA or on through the Courts. More legal spending means more cost. More cost to IRD has to be paid for from taxation, either by increasing taxes or by cutting other spending.
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Oh, along with the traditional IT attitude that processes should be adjusted to fit the systems.
Ah, yes... because central and local government have such a brilliant track record of bringing large-scale IT projects in on schedule, on budget and working from day one... (Just take the sarcasm as read, people.)
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this Travers' tea needs a spoonful of sugar...
FFS having a really good nanny in government would suit me just fine.
Mary Poppins seems to be poppin' up
in all these fiscal debates lately
- some subtle nanny-technology
at work perchance, and the Pleiades
are above the horizon...Maybe we could look at a Karmically
based Good Service Tax system
balanced with the Gross National
Happiness index... -
Another question, what would be the lead-in time? How many years? It's acknowledged that there won't be 100% compliance with the rate increase on Friday, and that's with plenty of signalling that it was coming and only a simple increase in a number. Variable application is a huge additional level of functionality, not just bumping some stored values that apply to every SKU.
I wouldn't expect this to be viable on less than two years' implementation time, unless IRD were prepared to pretty much ignore enforcement for at least a full year after implementation, and there'd be a huge drag on the economy in terms of money wasted on implementation over that period.
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Actually not only was Kiwisaver (which is a lot more complex on the government side than a split GST rate) brought in on time and to budget, the expertise developed is now being sold overseas. (The UK is modelling their Britsaver scheme on Kiwisaver).
I know some of the team that worked on it, and they did a great job.
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Incidentally Matthew, do you work in a call centre? Because "the computer won't let us" is the standard excuse CSRs use for business failings?
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I like what Bart said, and andin has a point too.Any shift can, and will take a time to get right, which is probably why Mr Goff suggested a trial to weigh up the good and bad. It seems no problem to throw the cost of law and order around like the holes in my cheese to us little people.Shit we are spending millions extra on a whim and a fancy of big thugs taking over our city, without any choice. So, choice be dammed, and put out a manual,(throw in an implementation period if that will float your boat) explain the changes with an info line if their is confusion.
The IRD have been very helpful to me when I pick up the phone and query anything with regard to taxes.They seem all about the education to me. They have all sorts of booklets too. Can't they make another one?. If enforcement is the problem, we have a judicial system that doesn't require money for representation. We have CAB. Google it.
If it makes certain places stock or not stock because of gst, then so be it, but I think the very fact it is cheaper is good advertising for any small shop, and supermarkets would have to trade at the same level as the smaller ones or they would loose business. If we turn back to smaller shops instead of Australian conglomerates, I have no problem, especially if the growers benefit in NZ.
Clean Green NZ, could be healthier as well. -
Which leads to the political own goal in this. How can Labour attack the recent tax cuts/GST hike as regressive when they introduce their very own regressive tax cut?
They can't. GST is a flat tax, any cut in it would be flat as well.
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Maybe we could look at a Karmically
based Good Service Tax system
balanced with the Gross National
Happiness index...A GoNaH tax?
(WoWC reference, apparently)
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Oh, along with the traditional IT attitude that processes should be adjusted to fit the systems.
Certainly every respectable IT person should at least consider the cost/benefit of a change, and the alternatives that either already exist or could be developed. Usually they have a broader picture of the true cost because they have been involved from start to finish with such things many times, and understand that the bit where you write a dozen lines of code somewhere (or a hundred thousand somewheres more likely in this case) is a tiny little piece of the overall life cycle of change.
I've got no problem with change when there is a clear case for it, when the benefit is indisputable and/or the cost is low. But in this case, neither of those apply, and there are better alternatives.
I'm going with Russell's analysis, that this is the kind of policy that only Opposition parties can really be serious about, because it's not on them to actually come up with a workable scheme, fully costed out, with a reasonable benefit analysis, and a good look at how it's been done elsewhere and whether it really has actually led to any of the touted benefits. Do Australians really eat better than us because their GST system is 50 times more complicated? Or are most people who don't have good eating practices doing it for reasons that have jack-shit to do with tax?
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There's a limit to how much fruit and veg you can eat, whether you're John Key or a student. So the amount anyone will save from this tax is limited.
Poorer people spend more of their money on food, so this change would make more difference to the poor than the rich.
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Bart:
FFS having a really good nanny in government would suit me just fine.
Funny how free-market cheerleaders who point to Singapore as a model to follow, typically overlook one of Lee Kuan Yew's bigger gems:
If Singapore is a nanny state, then I am proud to have fostered one.
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