Posts by Iain milligan

  • Hard News: The GST Punt,

    A lot of this debate about the GST rise and Labours Fruit and Vege policy seems to miss the fundamentals of the issues at stake. GST, or VAT in its original form, is a consumption tax aimed at shifting a portion of the tax base from income to discretionary spending. To encourage saving and promote a reduction in consumption shouldn’t it be the luxury, non essential items that attract the GST?

    It’s been a couple of years since I lived in the UK but when I was there VAT was set at 17.5%. The system was a simple multiple rate system, but not as simple as just having no VAT on fruit and Veges. There was no VAT on most basic food items. Looking at my receipt at the supermarket checkout there was hardly any VAT ever included. I was never too sure what the criteria was but it seemed that only highly processed food items attracted VAT; ready meals, frozen dinners and the like, so ostensibly no VAT on food if you bought basic foodstuffs - milk bread, canned/frozen veges, even sauces, biscuits etc. In addition to this there was only 5% VAT on electricity, heating oil and firewood.

    If the GST system was more like the UK’s VAT system and you were in the bottom income bracket, had to support a family and you currently spent a 1/3 of your income on rent, which does not currently attract GST, 1/3 of your income on food, at 0% GST and most of the other 1/3 on electricity and gas then it is fairly clear that you will be only paying and additional 5% GST on about 1/3 of income. It doesn’t matter where you shop or what the seasonal prices are, as these things are outside the government’s control and all relative anyway, you are going to able to afford 15% more food for your family, or god forbid save some money for a treat that you will be wacked for GST on. Effectively if you are on the breadline you pay very little GST, pretty fair I would have thought.

    Those not on the breadline would also enjoy the same benefits but, as Russell points out, they wouldn’t really notice it because they would still be paying GST on their fast cars and Prego Pizzas. Removing GST from certain food items does not diminish your ability to save even more money by shopping smart but if you are spend all your income on the basics of living it would make a huge difference. Of course if you only aren’t on minimum wage and you shop at either Grey Lynn Fruit World (one of the most expensive Vege shops in town even if it is 100 times cheaper than Countdown) or the Countdown across the road, as I am sometimes prone to do for lack of closer better option, then you are right, an extra 15% here and there on a tiny fraction of total disposable income isn’t really to going to make much difference either way…carry on.

    Auckland • Since Oct 2010 • 1 posts Report Reply