Flashback - The beginning of GST and radical financial changes for Kiwis

Last updated 05:00 07/10/2017
Alexander Turnbull Library Evening Post photographer Ross Giblin via Alexander Turnbull Library, ref EP/1987/4138/26.

Finance Minister Roger Douglas and Prime Minister David Lange in a rare show of unity after Labour is re-elected on August 15, 1987.

Alexander Turnbull Library reference EP/1985/4054/4-F.
Wellington MPs Peter Dunn, John Terris and Dr Gerard Wall meet with Roger Douglas (Minister of Finance), and Mike Moore (Minister of Tourism) on September 10, 1985.
Alexander Turnbull Library reference EP/1984/5279/12.
Minister of Finance Roger Douglas stands on the steps of Parliament, holding a locked briefcase containing the master copy of the Budget in 1984.
Alexander Turnbull Library Ref EP/1995/4225/30a-F.
Former Finance Minister Sir Roger Douglas, Reserve Bank governor Don Brash, centre, and Saints basketballer Angelo Hill play Monopoly at the Reserve Bank to raise funds for Barnardos family support on the October 18, 1995.

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Debt led to a radical change in New Zealanders' lives during the fourth Labour Government's 1984-87 term. Jessica Long reports.

A snap election in July 1984, fuelled by the country's immense overseas debt, led to the advent of the fourth New Zealand Labour government – and its focus was money.

 Everyone's lives changed in the next three years. Some people prospered, but others suffered as unemployment rose and the state sector shrank. Then came the triple whammy of the stock market crash in 1987.

It was an era of radical social and economic changes within the country with Prime Minister David Lange at the helm. His government inherited a high budget deficit, an over-valued dollar and rocketing inflation.

But Lange's appointment of Roger Douglas as minister of finance promised to set the economy straight when he implemented "new right" reforms.

Douglas said New Zealand would be put on a high-growth path and for a while the country seemed to reinvent itself as a free-market economy.

He brought in policies on deregulation, privatisation, state asset sales, tariffs, and price controls.

The new government's reforms dismantled the centrally organised welfare system and removed farming subsidies.

But the changes caused an onset of purchase panic and newspapers splashed the phrase "Rogernomics". It stuck.

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On October 1, 1986, Douglas  introduced the Goods and Services Tax Act (GST). This added 10 per cent to the cost of most goods and services.

In the leadup to the imposition of GST cartoonists targeted the tax as a "regressive" move that would hurt the poor.

James Lynch depicted Douglas as Little Red Riding Hood setting out to meet the unions, represented by the Big Bad Wolf, carrying his basket of GST.

"And so little Roger Riding Hood set out through the forest to take the Goods and Services to Parliament House."

The script sat above Lange, as Little Red Riding Hood's grandmother. "GST was proving a difficult sell to the unions in particular," Lynch said a year before it arrived. .

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Another cartoonist teased the tax as a bottled "economical cure", a "miracle money saver" sold from a side-show cart.

The masses responded, as thick and as fast as the looming changes, and in September 1986 consumer purchase power increased by an unprecedented $508 million in the retail sector, or 22.9 per cent.

In the first month GST was imposed, there was a  27.6 per cent fall that saw the economy take a $752 million hit, excluding GST.

Sales were low through November but increased slightly, by 0.6 per cent, before a $244m recovery in December.

While the Christmas figures were similar to sales in August, it would be the beginning of ongoing financial issues  for the government that undermined its stability.

The average person steered away from purchasing high-end and durable goods, which meant purchases on items with longer life-spans quickly dropped.

The furniture industry was significantly affected alongside department stores and retailers that sold household appliances and hardware.

By the March 1987 quarter, however, retail purchase volumes had returned to more normal levels.

 As the retail sector took some hits people turned to selling and buying property in the hope of benefiting from capital gains.

New Zealanders also turned their attention to shares, which caused a financial boom. What went up just as quickly came crashing down when stockmarkets around the world came crashing down, starting on October 19,1987. New Zealand's  sharemarket fell 60 per cent from its 1987 peak. .

Some investors suffered severe losses in the collapse and divisions formed within the government. Lange fired Douglas in 1988 and resigned as leader the next year.

"For people who don't want the government in their lives … this [Rogernomics] has been a bonanza," Lange said in 1996. "For people who are disabled, limited, resourceless, uneducated, it has been a tragedy."

- Stuff


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