Govt rules out G.S.T. exemptions

Press, 14 November 1984, Page 1

Govt rules out G.S.T. exemptions

By

MICHAEL HANNAH

in Wellington The Government has, ruled out significant exemptions, such as food, to the goods and services tax. The Minister of Finance, Mr Douglas, said last evening that such an exemption would be a bad way to protect low-income groups from the effects of G.S.T., because the exemption would help everybody. “If we exempted, say, food, in order to help the low-income groups, we would be forgoing tax revenue on the food consumed by, say, the other 75 per cent of the population,

who are not in need,” he said. Instead, he regarded it as more efficient and equitable to compensate the low-in-come groups direct through the welfare benefit system. This would ensure they had sufficient extra cash in their pockets to buy the same amount of food and other necessaries, at the increased prices. Delivering the annual Cook Memorial Lecture to the New Zealand Bankers’ Association in Wellington, Mr Douglas promised comprehensive tax reform over the next 18 months. The reform would benefit

those hurt most by the Budget, but would still protect low-income families, he indicated. He said the reform could lead to the integration of the tax and benefit systems. He promised a review to cover the way benefits and tax rebates were given and paid, the future of the family benefit, and the im-. pact of G.S.T., which will be introduced in 1986.

He also repeated the G.S.T. would enable the Government to make significant reductions in marginal tax rates, and he forecast that this would encourage” investment in productive rather than speculative areas and so help create wealth and jobs. Mr Douglas also justified several Budget measures, which have taken some flak since the Budget was delivered last Thursday. He answered criticisms of measures which raised electricity prices, placed a surtax on national superannuitants, and removed tax exemptions on life insurance and superannuation contributions.

The rise in electricity prices would create jobs in other power projects and energy conservation, he said.

The surtax on national superannuitants was required because the future of the scheme was endangered by its sheer size and cost, amounting to $lOOO million gross as at March 31, this year, and about $5OO million net. Mr Douglas said that the longer-term future of superannuation was of concern, because of growing demographic pressures. The burden of the scheme would increase substantially on the workforce as the population bulge of the postwar “baby boom” moved into the over-60s age-group, and many younger people were pessimistic that they would ever see the national superannuation scheme in its present form. Mr Douglas said that the uncertainty that the scheme would eventually be cut was “unhealthy,” and had to be resolved. It was resolved on the basis that it was not fair to pay national superannuitants 80 per cent of the net average wage when others in society were struggling, and to leave well-off superannuitants alone when cuts were imposed in the standard of living of the working population in order to deal with the deficit.

Referring to the removal of tax exemptions, Mr Douglas said this put life insurance offices and superannuation funds on the same basis as other industries in competing for savings. His speech included a broad look at the economy, and some criticism of the previous Government as having a “highly centralised, one-man band style” which created an unbalanced approach to economic policy. “In essence our problems were being dealt with by the application of ointments and aspirins to alleviate the symptoms, when the economy was really in need of corrective surgery,” he said.

Mr Douglas maintained that the former Prime Minister, Sir Robert Muldoon,

knew the economy was going to flatten out at the end of this year and that Budget measures to reduce the deficit could not be blamed for the flattening out of activity which was likely to occur over the next year or so. However he considered there was cause for optimism. Some businesses would face higher costs, but in return they would get more consistent economic management, a lower fiscal deficit, lower interest rates, and a less inflationary environment Some individuals would face a higher cost of living, higher taxes, and the burden of the tax reform contained in the Budget. But over the next 18 months or so, they would benefit from comprehensive tax reform. “The measures in the 1984 Budget will assist in creating the environment for the creation of long-term sus-

tainable jobs. The basis for growth in our living standards, and the return to a fairer and more equitable society,” Mr Douglas said. He said the Government had dealt with problems that had been debated and argued over for a long time; comprehensive tax reform, reform of industry assistance, protection of the lowpaid and the “difficult issue” of National Superannuation. “New Zealanders must face up to reality and I believe they will accept doing so,” he said.