Changes may lead to more hardship

BY ALICE COWDREY

Nelson agencies that help people on low and fixed incomes fear that those struggling to make ends meet are going to face even more hardship if GST is increased.

Prime Minister John Key is understood to be aiming for tax cuts worth well over $20 a week to the "average worker", to compensate for a rise in GST from 12.5 per cent to 15 per cent.

The rise was signalled in Mr Key's opening speech to Parliament yesterday.

No final decisions had been made on GST, but the rise was likely to be confirmed in the May Budget, he said.

Nelson Beneficiaries and Unwaged Workers Trust manager Jill Preston said the Government was increasing the gap between rich and poor.

Most beneficiaries were already going without because they did not have enough money, she said.

"The food is generally the discretionary money, and a tax on food is really, really concerning.

"It's important that [a rise in GST] not happen, because it imposes an extra cost on the health system, too.

"And what other costs are likely to be passed on, with GST increasing costs further down the line in other areas?

"The tax cuts for the upper income are way in excess of the increases being talked about in GST, and yet the people on higher incomes have got much more discretionary money."

Nelson Grey Power vice-president Pam Schouten said that although the Government was proposing a rise in benefits, superannuation and Working for Families payments to compensate for the GST rise, this would have to be done properly.

"It would have to be handled very, very carefully, because a lot of people are on a very fixed income, and unless there's a counterbalance, it's going to be very hard for a lot of people."

Nelson Budget Service manager Marina Gosnell said the biggest worry was whether an increase in income would compensate for higher costs.

"People on low incomes are struggling, so the slightest increase in prices will throw them."

She said people were still being made redundant, and she knew of some who had been laid off after returning from their summer holidays.

Fresh Choice Nelson City supermarket owner Mark A'Court said he was surprised that GST might be increased.

"From a customer's point of view, it's obviously bad news. I have sympathy for them, because everything is going to go up, and food has already increased over the last few years, so it's not going to make the customers happy.

"The industry is competitive to ensure the prices are as sharp as possible, but there's going to be a bit of hardship, I reckon."

Nelson Tasman Chamber of Commerce chief executive Dot Kettle said an increase in GST would particularly affect small businesses, which would have to pass on costs, meaning people would spend less. This would be particularly hard after last year's difficult trading conditions.

Nelson Property Investors Association secretary Glenn Morris said the proposed changes had "missed the target".

"I think with any broad brush changes, it will hit some people wrongly and some people correctly. When you change any tax system, there are winners and losers, and inevitably the objective is often lost."

He said the changes to depreciation could stop investors capitalising on larger items, while still writing off interest on the costs of maintenance.

As a long-term property investor, he thought the changes as a whole would save him money, but younger investors who were more concerned with interest might have to raise rents to cover increased GST.

The head of the specialist tax team at accountants WHK West Yates, Mark Davies, said he was not surprised that there was no move to implement a land tax or a broad-based capital gains tax, and he fully expected the Government to increase GST.

"I personally think a lower tax rate regime will be better overall for the country.

"There is a lot of evidence out there that higher taxes tend to act as disincentives for productive activity, and tend to lead to a hell of a lot more work for tax specialists like myself, and more avoidance or structuring-type activities."

Mr Davies said a broader base and a lower tax rate, in principle, was a positive step.

- © Fairfax NZ News