Tax and benefit system to be overhauled by GST

Press, 30 September 1986, Page 6

Tax and benefit system to be overhauled by GST

PA Wellington New Zealand’s tax and benefit system will be overhauled tomorrow, with goods and services tax removing some of the tax burden from personal incomes and putting it on spending. Sales taxes will be replaced by GST, but excise will be retained on alcoholic drinks, cigarettes, cars, petrol and betting. Income tax will be cut and benefits increased. The present five in-come-tax margins, the highest of which takes 66c from every dollar earned over $38,000, will be replaced by a three-step scale with a new maximum 48c in the dollar margin above $30,000. The resulting tax cuts vary widely. Someone earning $lOOO gross a week will pay about $lO2 less tax and a worker, with no children, who grosses $2OO a week will have an $8 a week tax cut.

Family Support will replace Family Care, the family tax rebate and beneficiaries’ child supplements. The family

benefit stays unchanged at $6 a week. Family Support provides $36 for the first child and $l6 a week for other children, until family income reaches $14,000 a year, when payments start to decline. One-income working families with one child will be guaranteed a minimum family income, including family benefit and Family Support, of $250 a week. The minimum for two-child working families will be $272 and for three-child families $294 a week. All benefits, including national superannuation, will increase 5 per cent. Beneficiaries will also receive increased allowances for children and be allowed higher levels of exempt income before their benefits are reduced. Long-term beneficiaries moving into the workforce will receive a maximum $4O non-taxable allowance for three months to make them better off in employment than on a benefit. All income-tested benefits will become taxable, but beneficiaries will be

able to claim rebates and exemptions taxpayers receive, such as childcare costs. Although GST will add 10 per cent to the price of most goods and services, the Government predicts an over-all increase of about 5 per cent because wholesale sales tax will be removed from many items. Consumer demand, retailer mark-ups, discounts and specials make precise pricing forecasts impossible. But prices of goods now taxed at 20 per cent should fall slightly because a 20 per wholesale tax equates to a tax of about 13 per cent at the retail level. Among these are car parts, cosmetics, icecream, motor-cycles, petroleum products, records, soft drinks, sweets, tapes, toys, tyres, audio gear, firearms, cameras, radios, televisions, videos, watches, jewellery and perfume. Prices of goods now taxed at 10 per cent at the wholesale level should stay the same or rise slightly — a wholesale tax

of 10 per cent equates to 7 per cent retail. In this category are aircraft, boats, caravans, computers, detergents, electrical goods, tools, lawnmowers, soap, toothpaste, and whiteware. Goods and services not at present subject to sales tax — including food, clothing, furniture, books, new houses and rates — should reflect the full 10 per cent impact in their increased prices. Financial services such as mortgages, rents, banking, savings, loans and sharemarket investments are exempt from GST. GST does apply to fire, general or sickness insurance premiums, but not to life insurance. GST will also replace the 5 per cent tax on domestic air travel, but international travel should be cheaper: there is no GST on international air travel or travel packages, and the international departure tax will be scrapped. Private transactions, such as garage sales and car sales, are not subject to GST, but GST will be charged on dealers’ ser-

vices when buying used cars or second-hand goods. From tomorrow, all prices of items selling to the general public should be marked inclusive of GST or with a net price and a statement such as “plus 10 per cent GST.” Legislation does not specifically enforce this, although the Fair Trading Act prohibits “false or misleading representations about the price of goods and services.” Any taxable goods or services supplied from midnight tonight should incur GST — regardless of whether these were paid for or invoiced beforehand. Normally, however, the taxing point for GST is when a supplier either issues an invoice or receives payment. Where building or renovation work has not been completed before tomorrow, independent valuers will have to be employed to certify the value of the work already in place — that proportion of the total job does not attract GST but the rest does.