Finance Minister English has confirmed the worst kept secret of the 2010 budget – GST is going to increase to 15%. Now I accept the Tax Working Group’s argument that the tax base needs to be broadened, but what I find so offensive about this particular tax increase, is that the money gathered from every single New Zealander is going to be used to pay for the tax cuts given to the 8% of kiwis who are fortunate to earn enough to pay the top marginal tax rate.
We have been here before - I know – but let me illustrate an example of why this isn’t going to be as simple as the government has outlined:
Businesses price items strategically. For example, an item is priced at $49.95 to psychologically convince the buyer that it costs less than $50. Add 2.5% onto this and you get $51.20c. No retailer is going to sell an item at this price point – the next psychological point is $54.95, which is around 10% higher – not 2.5% – or they will leave the price the same. Either way there is a loser – the purchaser, who has had to pay 10% more for an item, or the retailer who has had to forgo margin. If, however, the retailer leaves the item at $49.95, then, as sure as eggs, they will double the increase in price on other items to make up for this margin erosion.
My point is that the government is kidding itself if it thinks that the increase in GST is going to be smooth, seamless and painless. Those who will really feel the pinch are the 75% of people earning under the average wage, as costs increase above any level of compensation that the government may provide.
It would have been harder to argue against a GST increase in order to broaden the tax base IF AND ONLY IF the resulting personal tax cuts had been equitable to all in our society. Why is someone earning the median wage of around $33k/ann worth less than someone on $100k/ann.? Why shouldn’t everyone who works hard and pays tax be compensated equally? Of course the answer is they should.
The message this government is sending, however, is that not all New Zealand workers are equal. I wonder how Mr Key and Mr English will be able to look the guys in the eye who come in to clean their offices at midnight or who make sure they are kept safe during the day, when all parties know that Messers Key and English will be now be getting around $300/wk in the hand extra, when the cleaners and security personal will have got next-to-nothing. Is that fair? Not in my book.!