The GST hike

March 9, 2010 – 12:24 am

The biggest reverse culture shock I'm experiencing (by reverse I mean NZ is obverse side of my little world) is that this country suddenly seems so hopeless. Everything in China, at least in big cities like Beijing and Shanghai is booming, building projects are happening in a lightning speed. China is also a world's second biggest, or biggest? market for luxury goods. My friends there are speeding their money like burning toilet paper, while I'm still counting every cent of my earnings.

Making my feeling worse is the price hike on almost everything. I only left the country for 3 month but everything seemed to have its price increased for several rounds, and I'm hearing the GST is also on the price hike list.

It's very difficult to avoid paying GST, it exists everywhere in people's daily economic life, making it one of the most effective revenue gathering machines for the government. There are many ways to avoid paying too much personal income tax, and tax on specific goods is more likely to decrease demand rather than increase the taxation revenue.

But of course this isn't all about revenue gathering. This is because Mr Key wants to give people tax cut, more specifically, the high income earners. In his speech made to parliament,  Key states that low income earners will be compensated through a upfront increase on benefits and working for families programme, but the trouble is, there's still very little details to see whether the compensation is enough to offset the GST increase.

Another feature of GST is that it treats every one equally, people all pay for the same rate. Statistics New Zealand says GST increase to 15% is likely to affect the CPI by a 2%+ one off increase, theoretically at least. What would really happen after the increase is still subject of a debate. Many New Zealand businesses advertise goods price ends with .99 just to make the price more appealing.  Many businesses will be facing a not so tough choice - whether to absorb the 2.5% increase themselves, or add it to the current price.

Well one of the phrses or excuses businesses just love to use is " we have to make profits".  So my guess is that the actual increase is likely to be more than 2%. Low margin and low price goods are more likely to get a $1.99 to $2.99 type of price hike as businesses are already sturggling making profit on those goods. Statistically, the overall increase would not be that huge, but the fact that troubles me is that low priced goods are more likely to be daily necessities.

I can't really quite understand the ideology behind this tax structuring apart from making high income earners happy. Yes this does give people more choice, as they got more money in hand - whether by more it means another 50cents or $50 in hand, is another problem. However, there are some choices people just don't have the choice, we all need food survive regardless whether you are high or low income earners.  The idea of removing GST on foods and petrol has been floating around for quite some time, but the government seems to have very little interest in it.

Capital gain tax is another thing government isn't very keen on. Speculating on real estate did make a lot of people rich, but that's at the expense of putting even more people at miseray. And most importantly, a healthy economy needs real economic activities,  new money has to be made - in the form of goods or services.  Prosperous property market sounds good, and looks good on GDP, but that's not real economy. It's unsustainable and who knows if he or she isn't the unlucky one or the greatest fool?

Government's very little action on these area does suggest me something they didn't tell. In his election promise John Key said he wants oversea kiwis back to their country and keep the young ones here. However, as a young adult myself,  the outlook of  me to stay in this country looks fainter every day, stuffs this government is doing, or not doing is making a graduate student  more difficult to make a decent living out of average wage.


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