Public split over Key's GST plan

00:33, Feb 16 2010

The public appears split on the Government's plan to raise GST to finance income-tax cuts, a Dominion Post poll has found.

National is "carefully considering" increasing GST from 12.5 per cent to 15 per cent this year, which would net the Government about $2 billion a year.

Prime Minister John Key has confirmed across-the-board income tax cuts are on the table in the May Budget, using a GST rise and tougher property-tax rules to pay for it.

An unscientific poll yesterday of 846 readers – asking whether they would be happy to pay more GST if it meant they paid less income tax – found 46.9 per cent in favour, 43.9 per cent opposed and about 8 per cent undecided. The poll indicates many could be persuaded, and ministers have been told to get out and sell the plan to the public before the Budget.

The Government has been forced on to the early defensive, however, after revelations that National previously promised not to raise GST if elected. Mr Key and Finance Minister Bill English were left squirming in Parliament yesterday when Labour unearthed quotes from both in 2008 pledging not to raise GST.

A film of a press conference in October that year, shortly before the election, shows Mr Key being asked whether National would consider raising GST as a way to cut large deficits in the Crown accounts. He replied: "National is not going to be raising GST. National wants to cut taxes, not raise taxes."

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He added that if the Government was "doing a half-decent job" of expanding the economy, a rise in GST "wouldn't be happening, and that's not on our agenda".

Labour leader Phil Goff seized on the apparent about-face, claiming Mr Key had broken his word. "On what basis does he claim a mandate for increasing GST when he explicitly promised the nation he wouldn't do so?" Mr Goff asked Parliament yesterday.

But Mr Key denied ever pledging not to raise GST under any circumstances. "I never made that promise – what I said was I wouldn't raise GST to cover deficits."

Mr English also pledged, in December 2008, not to raise GST. "We won't be doing that ... It is not our policy," he said then. He told Parliament yesterday that while he had made the pledge, "the previous government left the economy in such a mess we've had to ... design a tax package that will help strengthen our economic performance".

Yesterday the Government again sought to reassure the public no-one would be worse off due to a rise in GST. Mr Key said cuts to all three main income-tax bands, including the bottom one, were being considered. He ruled out introducing a tax-free threshold, however, saying it was "too expensive".

He did not think retailers would take advantage of a rise in GST to raise prices by more than the GST increase. "We are in a competitive environment."

National ally the Maori Party is nervous, however. MP Rahui Katene said the party was retaining the option of walking away from its confidence and supply agreement with National over a GST rise. Mr Key hoped the party would not cross the floor. "In my view there's some real strength in potentially raising GST to lower personal taxes."

Mr English said advice was sought from Te Puni Kokiri on the effects of a rise in GST on Maori families, but the impact depended on what level of assistance package the Government proposed.