The shift to a wider tax base

Press, 2 December 1985, Page 16

The shift to a wider tax base

By

MARTIN FREETH,

in Wellington

The final form of the Government’s goods and services tax has been settled after the legislation for it completed passage through Parliament in marathon sittings Inst week. After the process of public con-, sultation and Parliamentary scrutiny and debate, GST retains the purity of concept first intended by the Government. The new tax will be applied from October 1 at one single rate and across a comprehensive range of activities. Since detailed proposals for GST were first set out in a White Paper last April, numerous changes have been made in how the tax will be applied to different activities. Modifications have been made also to lower the cost of compliance by businesses and other organisations within the systems. Nevertheless, local body rates and educational fees, and the activities of charities and sports bodies, remain within the tax net. These were the areas targetted for zero-rating or effective exclusion from the tax, by lobby groups and the Opposition in Parliament. The three-man panel headed by Dr Don Brash, which reviewed

public submissions on the White Paper, held to the universality of coverage for GST. The Government stuck to the principle in the legislation amended after Parliamentary Select Committee consideration. The Opposition’s taxation, spokesman, Mr Michael Cox, says some Government members did want to amend the tax to exclude’ rates and charities but were overridden by their caucus. Mr Cox led the Opposition’s fight against GST in the 27-hour Parliamentary debate before the legislation passed its final reading on Thursday. The Opposition treated it as a major debate, putting up 101 speakers to the Government’s 41. Mr Cox told “The Press” later that he was pleased with the way the Opposition’s “clear cut strategy” to point up GST’s weak areas had gone. It followed release of the National Party’s economic policy “position” paper, with a commitment to repeal GST in favour of a less costly, alternative form of indirect tax. Amendments moved to the legislation last week would have zero-

rated charitable organisations, sports body subscriptions, books and other publications purchased by libraries, all medical fees, education tuition fees, all local" body rates, and the sale of land. Application of the GST to land has been the last big change to the tax. The bill as reported back from the Select Committee extended the application of the tax to sales of unimproved land, as well as improved, because of the compliance costs which would otherwise be involved in making that distinction. The Government knocked back the Opposition amendments for zero rating and claimed they would mean a $9O million cut in, the estimated revenue which GST will bring in during its first year. The Government has been less affirmative in answering Opposition claims, that the rate of GST will be hiked from 10 per cent, to 12 per cent and then 15 per cent. The 10 per cent rate has been written into the law. That is something which the Parliamentary Finance Under-secretary, Mr Trevor de Cleene, says will preserve the central role of GST as the means to achieve personal income tax reform.

Any future law change to lift the tax rate will provide the opportunity for questioning on how the extra revenue will be used, he says. After the bill was passed, Mr de Cleene said he did not consider the rate would be reviewed in “the foreseeable future.” He said one of the main advantages of 10 per cent was that it was the easiest rate for traders to learn calculating their tax liability within the first stages of GST. At that time, he predicted, New Zealanders also would be pleased the tax was kept simple through being applied comprehensively at one rate. the Government has been keen throughout to keep -GST widelybased, because this avoids complex arguments of definition about the limits of the tax’s application, and also allows a relatively lower rate. Overseas experience with similar turnover-type taxes has shown a shrinking tax base puts pressure on for the tax rate to rise in order ;to maintain the same level of Government revenue. . Mr de Cleene also dismissed the suggestion that GST could now be introduced in the middle of next

year, before the present official start date, October 1. The country will have to wait . until after then to learn more about the alternative National has to offer. Mr Cox said his party’s indirect tax policy would not be released until six to three months before the next General Election, assumed to be in September, 1987. Mr Cox said the policy options were still wide open for National' to find an indirect tax which was fairer and less costly to apply than GST. It is his job to research and draw up a policy for the Opposition. “We’ve got an awful lot of work to do on the alternatives but all you’ve got to do is go through the McCaw (tax reform) Report to see the alternatives he suggested, and frankly there are a couple outside that I’m interested in,’’ Mr Cox said. He said the field covered wholesale and retail sales taxes, direct ’expenditure tax, and variations on. these. Whatever it does adopt, the National position paper also commits the party to a compensatory trade-off between lower personal income tax and greater revenue from some form of indirect tax.