English not convinced on GST rise

BY VERNON SMALL
Last updated 05:00 19/10/2009

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Low-income earners would have to be compensated if GST was increased as a result of the current tax review, Finance Minister Bill English says.

But the Government is not yet convinced of the benefits from a rise in GST, or new taxes such as land or capital gains tax.

A working group, chaired by Victoria University's Professor Bob Buckle, is considering changes to the existing system and new "base-broadening" taxes.

It is due to report in December, and Professor Buckle yesterday pointed to New Zealand's high corporate tax rate relative to other countries, and its heavy reliance on personal and business taxes as areas of possible reform.

An increase from 12.5 per cent to 15 per cent in the rate of GST would raise an extra $2 billion a year. That could be used to offset cuts to the corporate tax rate or fund the Government's long-term plan to align maximum tax rates at 30 per cent.

But Mr English said significant changes would only be warranted if the benefits clearly outweighed potential difficulties.

Fairness was the main issue with a rise in GST.

"Low-income earners, in particular, would have to be compensated for any increase in GST," he said in a speech to chartered accountants in Auckland. "The tax working group will have to come up with some fairly compelling reasons to convince us of the overall benefits of further property-related taxes or an increase in GST."

Forecast revenue was falling steeply, and last week the Government said it would need to borrow an average of $250 million a week over the next four years.

Mr English said that as the world economy pulled out of recession other countries wrestling with debt would end up with smaller public services, lower pensions or increased taxes.

"We don't want to go down the route of raising taxes," he said. "The Government has a strong preference not to increase taxes to close the deficit. We prefer more efficient taxes over higher taxes."

Most forms of income should be covered and, where possible, loopholes that allowed income to be sheltered from tax should be closed.

With one of the most mobile workforces among developed countries, New Zealand's tax system must help attract and retain people, businesses and investment.

With that in mind, the Government was watching closely a parallel review in Australia, led by Treasury secretary Ken Henry.

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