Thursday, July 22, 2010

ZenTiger No to No GST

Government exists to protect us from each other. Where government has gone beyond its limits is in deciding to protect us from ourselves. - Ronald Reagan

The Maori Party would like to have GST exemptions on healthy food. They think they've figured out what is healthy and what isn't. Lean meat is healthy, but fatty meat isn't. Tax one and not the other. See, simple.

When differential rates of GST were introduced in other countries, it lead to all sorts of complications and the occasional example of stupidity. After many years of trying to sort out a system, the Australians think they have cracked it with a special database and rules and regulations. That's called bureaucracy, and having a database of products doesn't necessarily make it easy for retailers. It might make it easier than the previous system for handling anomalies, but it's still harder than not having to check every food against the database.

It's not a question of companies not being able to comply though. Of course they can. We could exempt GST on all food and business would grumble and complain, but they'd sort it within a month or two. If it's the law, and you want to stay in business, then that's what you do.

After absorbing the costs of compliance, the prices flow into their products across the board. Creating such compliance is then seen by the politicians as easy and cheap. It isn't. It's just something that businesses are required to do, like the many other requirements the government imposes on them. Guess what? It ultimately drives up the cost of goods, and gives the bigger companies an edge as they can afford to spread the cost of compliance over a bigger turnover.

New Zealand's GST system is good because it is simple and universal. That's why John Key is saying "No" to "No GST" on certain food items.

Whilst I sympathize with the idea of taking tax off essential items, such as healthy food (to encourage us to eat healthy food and to help the poor), I'm not convinced hacking the GST system is the best way to do this.

John Key says he's already adjusted for the increase in GST rates with an upcoming round of PAYE deductions and small increases in benefits. I do not agree with his assertion though. His adjustments do not include the impact of the ETS on food, nor the overall CPI increases, nor the proven increases way above CPI. Something more needs to be done, but it needn't be breaking the GST. It will not benefit us in the long term.

Part II: How to get a 15% reduction in food

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