October 1st will mark thirty years since GST became a part of every New Zealander’s life.
We like to tell ourselves that it’s a very fair tax because it applies to everything in equal measure. Whereas countries such as Australia with a similar tax on goods and services exempt certain items, NZ applies GST right across the board.
The result: GST makes up nearly a third of all taxation revenue collected in New Zealand.
But as Mark Keating, senior lecturer in tax at the University of Auckland Business School said, “After 30 years it has proven its ruthless efficiency – but that success hides a number of other problems in our tax system which the extra revenue from GST has allowed successive Governments to ignore”.
It is clear that the New Zealand government’s heavy reliance on revenue from employee wages, business profits, and consumer spending is not good for the future economic health of the country or for businesses. As Winston Churchill once said, “for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
Does GST reflect NZ’s present and future reality?
And Keating points out that the lack of a capital gains tax or death duties leaves NZ vulnerable to economic recessions. As the only OECD country with no capital gains tax we have fostered a situation where land-banking removes valuable land from productive use without contributing anything to the economy.
The reality is that sooner or later the NZ government will be forced to look at GST and modify taxation laws to better reflect a rapidly changing world.
It’s said that humans never learn from history but it would be a good idea to review the reasons for GST, look at where NZ tax laws are heading and talk to us about how to put your business in the strongest possible position to face the future.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.