Should the Government help at the checkout?
Been to the supermarket recently? I've been astounded by the increase in food prices - not just dairy products, but almost across the board - bread, cereal, rice, pasta, tinned food, biscuits, the works, even in the past few weeks.
A survey in the Weekend Herald that found that a basic trolley load of items had gone up by 28% in the past year didn't surprise me at all - it pretty much concurred with my own experience.
The Government is, unsurprisingly, being asked to do something about this. The question is, can it, and should it? Leaving aside, for once, the personal tax cut debate -whether or not the Government should have cut taxes three years ago, and therefore people would have more money in their pockets now - is there more that can be done to ease the squeeze on struggling families?
I remember a while back there were calls for the Government to cut the GST on petrol, or the fuel excise tax, or both - anything to reduce the pain at the pump. These calls were resolutely rebuffed, with the Government arguing that any erosion of its tax base would mean it finding more somewhere else.
Now, the clamour is on to cut GST on food. The Government is again refusing to entertain the idea. The argument this time is that New Zealand has one of the cleanest GST systems in the world, and trying to complicate it by reducing or eliminating GST on foodstuffs would not only be a huge headache but would cost the Government some $2 billion a year.
This time, I'm a little less convinced. Another way of saying that our GST system is one of the cleanest in the world is to say that almost no other country taxes food at the same rate as other goods and services.
We are in the company of only Denmark and Japan in the entire OECD in levying GST on food at the same rate, in fact. The vast majority of developed nations either have no tax at all on food (America, Britain, Ireland), no tax on basic food (Australia, Canada, Mexico, South Korea), or a lower tax on food (the rest of the OECD).
Is the fact that we are almost alone in taxing people to buy food at the same rate as if they were purchasing cosmetics or a new boat something to be proud of?
A bigger problem, however, is the erosion of the tax base. If the Government had to cope with a cut of $2 billion in its revenue, it obviously has to cut its cloth somewhere else. It may well be simpler to cut personal taxes, and let people decide how to spend their money.
The problem, however, is this: Michael Cullen's $20 a week tax cut is no longer going to cut the mustard. People are spending this much in the extra cost of filling their car each week. Any form of meaningful relief from the astronomical increases in the cost of living right now is going to cost a great deal more - somewhere between $50 and $100 a week, I'd say.
The Government can't afford to do this across the board. Not only would it cost too much, it would result in such an enormous fiscal stimulus that the Reserve Bank would almost certainly react by raising interest rates, which defeats the main purpose of cutting taxes in the first place.
I'm starting to wonder whether Cullen and Co may be considering extending the income redistribution system known as Working for Families as a way of getting out of this fiscal quagmire. Bang for buck, it would enable Labour to deliver much more effectively to the most needy. But it would be a huge risk politically. If middle- and upper-income New Zealand - and those without children, who are also hurting at the moment - again miss out, or are asked to make do with a measly $20 a week tax cut, there will be hell to pay at the ballot box.
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Colin, I'm dying to have some political journalist explain to me how spending my own money is inflationary but having the Government spend it is not?
If you can't explain it can we please treat that claim with the utter contempt it deserves?
And, by the way, I understand in other countries it has been found that only 25% of tax cuts do get "spent". I presume the rest go into paying of debt or investment - things NZ could do with?
For lower income earners, Petrol price increases are hurting more than food prices, even with the supermarket vouchers for petrol.You cant grow petrol or buy it in bulk. At least with food prices you can make your dollar go further by shopping on the specials, buy in bulk, grow your own vegetables,cooking and baking more, and cut down on things that aren't necessary like alcohol and cakes - and if your family is on less than 35k, get food grants from WINZ when you are having a bad month. If you know when and where to shop it is possible to feed a family of four on around $160.00 a week.
<a href="http://big-news.blogspot.com/2008/04/our-weekly-food-bill-has-nearly-doubled.html rel="nofollow">We do just that</a>
Alan, Kiwis have a poor savings record. In the past they have spent their tax cuts. This time any tax cut will be swallowed up quickly by price increases, rent increases etc. If there was a call for a tax cut everytime things went up in price there would need to be a tax cut nearly every month.
I'm a firm beliver in consumption tax vice income tax. Income tax should be cut to a flat rate of 20 percent to give a set income to the govt and GST increased to 20 percent also. There also should be no tax on investments and savings to encourage this behaviour.
This means those who spend get taxed. I believe in personal choice and responsibility.
I'm also a firm believer that there should not be a tax on a tax.
In all honesty NZders only have themselves to blame for a lot of these things, without the obvious one of `voting` the other is spending too much money that was never theirs in the first place. Just because everyone else was doing it is not a good enough excuse. Why can so many kiwis not see that for the last 5 years you have all been heading for a cliff? Live within your means, not your neighbours'.
Alan is on to it. Currently the average Kiwi works nearly 155 days a year to pay his or her money to the government (tax) whereas the average Aussie works just 130 days for the government (http://www.interest.co.nz/gallery5.asp). In my opinion it is too late for Cullen, he is a "goner" so is Jim Anderton, Helen. They have to go, and "Diddums" to them. "It's the Economy Stupid!" as you and Bill Clinton have said. Bollard, or should I call him Mr. Stagflation who uses his personality as a contraceptive also needs a big wake up call. He is so out of touch with what is going on wearing his Hugo Boss suits and Barclay shoes. If he can't see what is happening then I honestly despair. Even if Diddums Cullen gives the tax cuts now I wouldn't vote for him or Diddums Helen because they screwed us for too long. Hey Bollard have a look at the confidence figures on http://www.interest.co.nz/gallery1.asp and get a life!!! S'pose you graduated from Victoria, subsidised by us taxpayers. Mind you a good place to study on how to be a Public Servant. Well done!
Perhaps if Mr Cullen had been practising what he so often loved to preach to the mere masses i.e. stop spending, the country could well afford a tax cut in some form. Do you really think the man who could not even bring himself to honour the chewing gum budget tax cuts will let any dollar willingly stay with the people who earnt it? No - as he so arrogantly put it when commenting about the attacks on John Key. Its about who holds the POWER in this country, not who best serves the people who elected you. (Or in Cullens' case not elected)
GST is known to be a regressive tax, that is to say that it disproportionatley disadvantages lower socio-economic groups. The reason behind this is that those earning less spend a high proportion of their income on consumer goods as against higher socio-economic groups who are able to save more. As far as I am concerned, to the extent that Cullen wishes tax cuts to be a redistributive measure, cutting GST on food, or cutting GST outright would be a useful mechanism.
There is no way GST on food should be taken off. The fact that GST is on just about everything apart from interest makes GST an almost invisible tax and makes it very easy for companies to comply - the other thing is that having GST so broadly spread means that the rate of GST is very low in NZ compare to most other countries.
So if you start including some things and excluding other the costs of compliance will rocket, because they are so low at the moment and that cost will be passed on. Also the rate of GST will have to go up to cover the revenue lost by the Government, which will force up interest rates or keep rates higher for longer than if GST remains at the same rate. So what you gain on the 'swings' you may well lose on the 'roundabouts'..
Ultimately the people you think you are trying to help may only be marginally better off or even worse off!
Peter Dunne's income splitting idea is a much better way of increase the cash in people's pockets and doesn't mean a huge increase in costs for the business sector.
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How hard can it be to cut GST on basics...Labour were quite happy to draft the EFA in a rush, surely Bread/Cheese/Milk is the staple of their support base and all of NZ, or as i suspect...just give the poor more benefits...hoohummm No doubt next months budget will show it all.