Red Alert

Archive for the ‘GST’ Category

GST off bananas (and other fresh fruit and vege)

Posted by on November 1st, 2011

The Labour policy of removing GST off fresh fruit and veges is a very good example of evidence-based policy development.

The facts:
NZ is the third fattest country in the OECD (astounding). The productivity and health costs associated with this are huge – and growing.
Auckland University and Otago University medical schools undertook a joint research project into ways to influence consumer behaviour around the purchase healthy foods. Three groups were set up; 1) control group, 2) a group given very targeted information and education about the outcomes of healthy purchases, and 3) a group that were given information and a 12.5% price discount. The result: no change from control group (expected), no change from the group given a high level of education and information only (surprising), however, a 11% increase in the purchase of healthy food by those who received a 12.5% discount.

After consultation with a lead member of this research team, we decided that one of the best ways to influence buyer behaviour and promote healthy choices was provide a price incentive. This works. Six months after the study had finished and prices returned to normal for the third group, the researchers found the majority in this group were still making healthy purchase decisions.

So, education alone will not work in changing the eating habits / purchase decisions of the vast majority of NZers. A price incentive does. If anyone has a more effective way to directly target the obesity problem then I am very interested in hearing, because while it is a problem now, it is set to become an epidemic within a short space of time.

As an aside, we did briefly consider a ‘fat tax’ on unhealthy foods, however, ‘unhealthy’ is very difficult to define (under many definitions, milk and cheese are ‘unhealthy’) and so we decided that in this case, it is easier to remove a tax than add one.

Filed under: GST, health, policy, Tax

Carmel talks about the cost of living

Posted by on August 21st, 2011

Campbell Live – Cost of Living

Posted by on May 13th, 2011

The rising cost of living will be a feature of the election campaign. The median real wage has dropped substantially under the National government.

The cost of putting a healthy meal on the table

Posted by on March 17th, 2011

It is a perversity of modern life that it is cheaper to eat badly than it is to eat healthily. We all know from the visits to the supermarket that the fizzy drinks are often cheaper than the milk. Processed foods are discounted as the price of fresh fruit and vegetables goes up. This is true for everyone, but especially hard work if you are on a modest or low income.

The Regional Public Health service here in Wellington has produced an interesting study on food costs for families, using data from the University of Otago food cost survey.

While the study notes that on average New Zealanders spend 16% of their income on food, the study shows that in order to put a healthy meal on the table, many New Zealanders would need to spend a far greater percentage of their income on food.

International studies indicate that if you are spending more than 30% of your disposable income on food, you are experiencing ‘food stress’. This study shows that to purchase a basic healthy diet, many low income New Zealanders will be spending a far greater percentage than that.

For example for a family living off the minimum wage would need to spend 34% of their income before rent and 50% of their income after rent to do this. For a beneficiary family the situation is even more difficult with a range of 43% (before rent) and 74% (after rent) required.

Obviously this will be next to impossible for many people. The social and economic consequences of an unhealthy diet are obvious, not only for the individuals concerned, but for the country as a whole. Obesity and poor nutrition will contribute to high health costs, poor quality of life and a cost to us all through the health system and the human cost of lost opportunity.

The rising cost of food, and the impact of the GST increase are all contributed to making this situation worse. John Key showed he was getting out of touch when he described going to foodbanks as a lifestyle choice. The unaffordabilty of the basics is the reality that many families are facing.

While some people like to disparage Labour’s policy of removing the GST from fresh fruit and vegetables that is a step in the direction of making healthy food more affordable. Making our tax system fairer, including through the tax free zone and lifting minimum wages are also part of our plans to give people the income they need to provide for their families. It is vital for all our futures.

GST increases by over 2.5% – yr examples please

Posted by on November 3rd, 2010

I have heard many stories regarding goods and services that have increased by more than the 2.5% increase in GST.  I blogged earlier about retailers pricing at psychological price points ($9.95, $19.95, $24.95 etc), however, Key and English assured us that prices wouldn’t increase by more than the 2.5% GST rise.  Okay… 

So, if you have examples of goods and services that have increased by more than 2.5%, please let me know.  I am building a simple database to prove that the increase in the cost of living, brought on by the increase in GST, is having a significant impact on Kiwis who are really struggling with stretched budgets.  I should note that it is not illegal to increase prices in NZ, and a NZ Herald poll highlighted the fact that over 1/3 of companies planned to use the GST rise as an excuse to whack up prices – so are they? 

Especially interested in price increases from state-owned organisations. 

And also interested in organisations that have rebelled and dropped prices (like Saphire and Heath coffee shop in Napier: dropped the price of coffee by 50c in protest)

Bill English & tax cuts – the truth according to Bill

Posted by on November 1st, 2010

Bill English admitted a couple of very interesting things at last Wednesday’s Finance & Expenditure select committee meeting re the $14b worth of tax cuts.

You know, the tax cuts that gave the wealthy substantial coin back ($1m = $1,000/wk extra in the hand), but those on the median wage minimal; and certainly not enough to cover the cost of increases bought on by rises in GST, petrol etc.  Those admissions were:

  1. ‘That the tax cuts aren’t stimulatory’.  Hold on a second: what was that Bill?? We are in the middle of a recession, and the govt spends around $14b on a measure that isn’t stimulatory!  Help me out here, because I don’t understand this one.  If this ‘switch’ was just about ‘rebalancing’ and not about economic stimulation and recession busting, then why not at least wait until the economy is firing again, and in the meantime, spend some of the $14b on getting the economy up and running!!!
  2. ‘That New Zealand is the only country in the world undertaking tax cuts like these’.  Yep.  Wonder why?  Perhaps because trickle down / supply side economic theory that these tax cuts are based on (and confirmed by Treasury Sec Whitehead) died with the dawning of the 21st C.  Perhaps because such theories have been disproven.  Perhaps because Bill English really is mismanaging the economy in the most expensive, worst, diabolical possible way.  Perhaps all of the above…!
  3. That he didn’t think people would start saving and paying down debt so soon’.  Groan.  There are about 1,000 books on JM Keynes, his theories, his philosophies, his thoughts, the implementation of his theories, philosophies and thoughts etc etc.  Know what – they all say that during a recession a govt shouldn’t give tax cuts to the wealthy because… the wealthy save and retire debt and it does nothing to stimulate the economy.  Just like has happened.  It’s not rocket science.  It’s always been out there – and it appears that every finance minister / treasurer in the western world read at least one or two of these books on Keynes; well, all except one Bill English.


Policy Progress on GST exemptions

Posted by on October 5th, 2010

I’ve pushed the relatively new Policy Progress website before. Today they have published two posts on GST exemptions. Both worth reading.

As you do the Saturday shopping

Posted by on October 2nd, 2010

You saw it here first (well not quite first, but for the first time after the election), so a reminder as you look at the bill from shopping this morning that National campaigned explicitly not to increase GST.

Tax cuts – what sort of country do you want to live in.?

Posted by on October 1st, 2010

 Cartoon : Cost of living

Herald’s view this morning…

Today, many kiwis received tax cuts.  Here are some facts about this tax policy:

  • the top 10% of wage and salary earners get 42% of the tax cuts:
  • the bottom 20% get 2%. 
  • people on a $1,000,000 salary (according to the IRD, there are around 650 people who earn $1m or more) have just received around $1,000 per week extra: people on New Zealand’s median wage of $28,000 per year will get just over $4.63 after accounting for the GST increase.
  • the tax cuts will cost just over $4b per year, or $14.3b over 4 years. 
  • after accounting for the greater revenue due to the increase in GST to 15%, the government will still need to borrow around $1b to fund tax cuts.
  • New Zealand Institute of Economic Research (NZIER), in its Sept 2010 update said: “We estimate around 50% of households will be worse off than a year earlier as rising food prices, GST and other one-off charges more than offset personal tax cuts” (p8)

When I bring up the argument around fairness and equity, some say the top earners pay a disproportionate share of the tax therefore deserve tax cuts.  I don’t buy into this, because whilst the top 10% of tax payers do pay a disproportionate amount of the tax, they also earn around 32% of all income

But it comes back to the question of ‘what sort of society do we want to live in?’  Lets face it, New Zealand has a pretty good standard of living.  For example, our schools are well resourced and our hospitals are first world.  Due to universal superannuation, we have the lowest level of geriatric poverty in the OECD (2% v Australia’s 24%), our Accident Compensation system is generally acknowledged as a great model (well, it was until Nick Smith started butchering it).  All these, and many more, services are paid for from tax revenue.  The more money that is spent on tax cuts, the less there is to provide the essential services that New Zealanders have come to expect. 

In many cities, these tax cuts will increase the gap between the few that have a lot and the many who are struggling with higher costs associated with the increase in GST, ETS and 4.5% inflation.  This angers me greatly. 

Some of the country’s richest men have been responsible for causing the most harm to our nation and its citizens.  The sort of society I wish to live in is one where every citizen is treated with respect and dignity and is valued for who they are, not how much they earn.  This is what I will fight for as long as I represent you in parliament.

National’s Tax cuts – is it fair?

Posted by on September 27th, 2010

Is it fair that the top 10% of wage and salary earners get 42% of the tax cuts and the bottom 20% get 2%?

Is it fair that someone on $1,000,000 gets $1,000 a week extra in the hand per week, and someone on the median income of $28,053 gets $4.64 in the hand per week after GST?

Is it fair that a regressive tax is increased to make a progressive tax less so?

Is it fair that the Minister of Revenue gets a tax cut of around $140 per week in the hand whereas someone on the median wage in his electorate gets about $5?

Nope didn’t think so – and neither do the vast majority of New Zealanders.

Filed under: GST, Tax

GST off fresh fruit and veg

Posted by on September 27th, 2010

Apple GST Poster distro

Today in Mana in front of a packed audience, Phil Goff announced the Labour policy of zero-rating GST on fresh fruit and veges once we become government next year.  The reasons for this policy are two-fold:

  1. at 15%, GST is no longer a ‘low rate’ consumption tax.  This regressive tax will now be at a level where it influences behaviour to the point where many people will be forced to make very difficult economic choices that have the potential to impact upon their health and well-being.  We recognise this and want to ensure that fresh fruit and vegetables are affordable to all New Zealanders. 
  2. NZ is now the 3rd fattest country in the world (behind US and Mexico).  The cost to the tax payer and the health system of obesity-related disease is around $500m per year.  It is time to do something about this.

In New Zealand, 75% of the people earn below the average income, and the cost of living is about to rise for everyone as a result of the increase in GST to 15%.  With inflation forecast to be around 4.5% next year, the ability of many kiwis to survive the resulting increases in the cost of living is hugely concerning for us.

GST at 15% will increase the cost of all food, and I do not think it is acceptable that in our country fresh fruit and vegetables start to become luxury items as the increases in the cost of living forces people to make choices that are not in the best interests of the health of themselves and their family.  

New Zealanders have to be able to afford to make choices around the type of food they fill their supermarket shopping trolley with.  And fresh fruit and vege needs to be at the top of the shopping list, and therefore affordable.  A University of Auckland medical school study shows that the price elasticity of healthy food is around 0.85 (i.e. for every 1% drop in price there is almost a 1% increase in purchase).  So price mechanisms do work in influencing behaviour – both ways (its the main reason why the govt increased excise tax on tobacco earlier this year).   

Let me give you a Napier example of how this policy will help many New Zealanders: the median income in Napier is $23,000.  According to the government’s tax calculator, this will deliver an after GST benefit of $3.17 per week in the hand.  If a family were to spend only $25 on fresh fruit and veges a week, the 15% GST on this mount is around $3.26.  So the cost of the fruit and veges is $21.74 – and the rest is tax.  We will put this tax back into the pockets of hard working Kiwis who will really struggle under the weight of increased GST.

If you are wealthy – really wealthy – and earn $1,000,000 per year, you will get about $1,000 in the hand per week extra under the Nat tax cuts on 1st October.  In Napier, if you are on the median wage you get $3.17 in the hand per week extra after GST.  That’s simply not fair.  Labour removing GST from fresh fruit and vegetables is fair.  And that is why we are doing it.

Filed under: GST, Tax

The Tax Switch/Swindle

Posted by on September 26th, 2010

The last few days in the electorate have been marked by an increasing number of people, of all political persuasions working out that the tax switch is going to see them no better off, and in many cases worse off. The GST increase, and the associated price increases are top of mind. In Wellington 6% increases in power bills and the increasing costs of bus travel will wipe out the meagre tax cut benefits for those on low to middle incomes. Everything from the increased cost of rates, rents, stamps and food have also been raised with me.

The NZ Herald had a feature story on this yesterday as well, and the experience of the family who have had the benefit of tax cuts wiped out by the government’s funding cut to early childhood education is another commonly raised issue.

The Sunday Star Times story today, though, makes clear the real problem with the tax switch

The real winners from the cuts are people earning more than $70,000 a year. Anyone earning $100,000, for instance, can expect nearly $70 more in their pay, making them $42 better off after paying that extra GST. For low income earners, the impact is marginal. Someone on $20,000 will be nearly $3 better off, while someone on $30,000 will be $6 richer.

No wonder John Key has instructed his MPs to try to sell the tax switch. The problem is people know their own budgets and costs, and no amount of spin will change that.

Stuart’s Sunday Serve – Maori party / Moral Hazard and SCF

Posted by on September 12th, 2010

1. The Maori party’s private members bill to remove GST from healthy food… what a joke.!  Mr Flavell had the nerve to say in his speech that there was no politics in the Bill.  Ummm Okay…  This is the party that voted to INCREASE the goods and service tax on ALL food (including healthy food) not 6 months ago.  If the Maori party had the courage of their convictions, they would have voted against National’s budget: a budget that hurt a hell of a lot of kiwis – including many of that party’s constituents – by paving the way for a very inequitable ‘tax switch’ (more like a tax swindle).  There is a word that we are banned from using in the House to describe such actions, and it begins with H – I am sure you know what it is..!

2. We are going to hear a lot more about South Canterbury Finance in the days and weeks to come.  Moral hazard (occurs when a party insulated from risk behaves differently than it would behave if it were fully exposed to the risk) is a principle that needs to be incredibly carefully managed – and the moral hazard consequences understood – in situations where ultimate responsibility does not rest with the organisation making the investment decision.  Theoretically, risk is rewarded. 

The govt effectively removed all risk from depositors, and all responsibility from SCF, by including the company in the retail guarantee scheme.  Okay so far (maybe) but my understanding is the govt had received advice that the company was in pretty serious trouble BEFORE it decided to include it in the RGS.  Now that doesn’t make sense to me.  Can someone please explain this, because I seem to have missed the logic boat on this one.

I spoke about this in the committee stage of the retail guarantee scheme extension provisions: when this scheme expires there will be a run on those institutions that are suddenly seen to be carrying  ‘unacceptably high risk’, whereas at the moment, there is no risk to depositors in companies included in this scheme, because the govt has guaranteed all deposits up to $250k.  Moral hazard occured as SCF channelled a significant chunk of its portfolio into high risk investments in the knowledge that final responsibility to pay if it turned to custard rested with the government.  Some investors invested with the same knowledge that their investments were guaranteed no matter what.

Before anyone pipes up and says that Stuart spoke in favour of – and Labour voted for – the Retail Guarantee scheme and its extension; what i will say is that I would never have expected a company that was known to be in rather serious trouble to be included in such a scheme in the first place.  I don’t think any reasonable NZer would.!

Filed under: GST, Tax

Sticky Fingers Key

Posted by on August 18th, 2010

John Key’s all but endorsement of Christchurch Mayor Bob Parker last night indicates how out of touch he is with Christchurch voters. Key attended a widely-promoted ‘John and Bob’ gathering at Sticky Fingers in Christchurch last night, their handshake making the front page of The Press.

Key praises Parker as having done “a very good job.”

Ok, as a Labour MP I’m not dispassionate here. I totally support Jim Anderton’s bid (though I will say Parker is an extraordinarily gifited speaker and his full-time unpaid Mayoress wife Jo deserves better than to be remembered for having muffins and coffee with the Mayor – (even Key referred to ‘muffingate’ last night)

Point is that it’s not just Labour supporters who are openly saying they want to see Parker go. So are card-carrying Nats and many others. On Monday my dentist, just returned from his European holiday, couldn’t wait to say  how much he wanted to see a change. Last night at Saunders Unsworth’s bash, yet another senior Christcurch business leader told me he won’t be voting for Parker. His reason? The way Parker responded to criticism of the $17m bail-out of property developer Dave Henderson. To compound matters for Parker, ‘Hendo’, once praised, defended and befriended by Rodney Hide, has recently been exposed as having not paid IRD for the GST on the $17m paid  to him. So ratepayers and taxpayers are both out of pocket from the deal.

Add to that, the council’s attempt to hike council tenants’ rents by 24% in one go (defeated in the High Court) and the $3m purchase of the “Ellerslie” flower show for Christchurch, have all led to a city-wide view that Bob has to go. Not that Jim is resting on his laurels; he has had a large and vigorous  campaign team from before his launch several weeks ago capitalising on the mood for change.

Key’s handshake alingment with Parker at Sticky Fingers might be a touch of the tar baby for both of them.

GST increase and rates

Posted by on August 10th, 2010

The GST increase on 1 October is going to have a lot of consequences, from the price of stamps going up, to schools struggling to work out how they will pay for an additional costs. Marcus Ganley, the Labour Candidate for Lambton Ward of the Wellington City Council has drawn another matter to my attention in his recent post.

The Wellington City Council has sent out a note to ratepayers suggesting that one way they can avoid the GST increase is to make their next three rate payments before the 1st of October. A nice idea, but many Wellington ratepayers are struggling to make one payment at the moment, let alone, as Marcus says three payments in the next seven weeks.

BUDGET 2010: feedback so far

Posted by on June 22nd, 2010

Hi RA readers – I’ve been off air a bit lately due to running around the country on the post- Budget speaking tour, and because my laptop died!

Today parliament shifted into a new stage of the Budget debate – the Appropriations Bill that legitimises the Supplmentary Estimates (amended spending lines) between Budgets 2009 and 2010.   It was remarkable for what it does not say – nothing about a plan for protecting  jobs or lifting incomes during the worst of the Great Recession.   No new ideas over there.

Quick feedback from the Budget tour: spoke to about 20 groups, a mixture of Labour-organised public meetings, community sector groups and businesses.  Hard to tote up exactly but would have seen close to 800 people face to face: groups of 160 down to about 25, plus individual business site visits.

The feedback was clear:  most Kiwis understand that by the time inflation of 5.9% next year eats away the tax swindle, and wage growth is held down, they will be worse off.   That includes increased govt charges like ACC and ECE, plus power bills, rent and higher mortgages.  The Government made the classic mistake of overpromising and under-delivering.   Kiwis hate the rise in GST.   They know the tax cuts aimed primarily at the wealthy are unjust and inefficient. 

Was it a coincidence the govt’s polling fell 5% in the week after the Budget?   

Second, businesses and commentators understand that the Budget lacks a real plan for jobs, incomes and growth.  Fiscal prudence matters, but it is no substitute for a strategy to address the yawning triple deficit around the savings gap, current account deficit and innovation deficit.  Gutting Kiwisaver, the R and D tax credits and NZSF prefunding made these worse.  The Govt’s innovation package, which represents only 39% of the value earlier striped out, has been almost universally panned.     

Third, the added debt from the unaffordable tax cuts has opended up $1.1 bn fiscal hole over 4 years, $9.2bn over 12 years, and that makes the job of turning the boat around ever harder.  National will seek to fill this “strategic deficit”  through asset sales and service cuts.  Don’t let them!

Future posts are going to broaden out somewhat to the rlated issues of monetary and fiscal settings that surround the needed economic strategy.

BUDGET 2010: English – A Fudge Too Far

Posted by on June 1st, 2010

Good fun in the House today grilling Bill English here and here on why the Government’s online tax/benefit calulator leaves out the forecast inflation rate of 5.9% in 2010, and thus overstates benefits.  Its a blatant case of misleading the public.   The Speaker rules it is a straight question that deserves a fair answer: Bill English doesn’t get it, and digs a hole deeper than the original mistake…

…It would be funny except it has misled many average income Kiwis who were encouraged by the Govt to believe that the budget left them “better off”, when in reality it left them behind until at least 2014.   It will be no fun at the checkout queue for many hard working families.

BUDGET 2010: Jigsaw Pieces Click

Posted by on June 1st, 2010

The jigsaw pireces of the Budget are starting to click in the public mind if recent polls are any indication.  In the last week :

  • The IMF described NZ’s savings gap and net international indebtedness as “among the largest of any advanced nation”
  • Analysis shows a $9.2bn additional fiscal hole in the Budget by 2023 arising from the tax changes
  • Budget documents show expenditure as a % of GDP falling from 33% to 28%
  • Bill English floats Kiwibank sale as one example of a number of SOEs ripe for partial privatisation.

In other words: give away taxes up front (very largely to their mates); run an out year deficit (deliberately); compress spending (as ‘prudence ” then demands); and flog off what is left of the family silver to fill the remaining gap (dressed up as mum and dad savings products, of course).

What does all this mean for the average Kiwi?

  • despite the govt spin, they are worse off for the next four years at least due to the toxic cocktail of GST, inflation, other govt charges and taxes, and slow wage growth;
  • public services like Heatlh and Early Childhood Education will be slashed as new spending lags inflation ($300m short in Health) or deliberate policy changes bite;
  • the outlook for public services gets dramatically worse as the National Party tries to resize the state to 28% of GDP – although they won’t want to talk much about that before the election;
  • the underlying economic problems reamin unresolved and get more intractable over time.   There is no credible plan for growth and jobs.

Moral of story: do NOT let National get a second term   Stop the malign juggernaut before it does irrepairable damage.

Another Budget Video

Posted by on May 25th, 2010

Tags: , ,
Filed under: Budget, GST, Tax

BUDGET 2010: The Sucker Punch

Posted by on May 25th, 2010

We all know Budget 2010 was full of broken promises – from NOT raising GST  – to being “fiscally neutral” while borrowing an extra $1.1 billion to fund tax cuts – to being “fair” while giving a third of all those tax rebate $ to the top 5%.

Most people now realise that the gains they thought they might get are more apparent than real:  the proof – even on the Governmnet’s own numbers average gross incomes don’t catch up with inflation unitl 2014!  That’s two elections away!

 Most now know the results are economically desultory – the current account blows out to 7% of GDP, growth is static (taking 7 years to accumulate a measley 1% extra), and what empoyment growth there is is largely unrelated to Budget meaures.  

What has become clearer as the debate has progressed is just how cynically National has attempted to buy votes through a Budget increasingly seen as highly political.   John Armstrong – who is no Labour acolyte to say the least – politely nailed that in Saturday’s Herald.

The game afoot is this: fool middle income voters into thinking they have a win.  Push through much larger tax cuts for the upper end under this smokescreen.  Deliberately stretch the government balance sheet by borrowing more to fund the cuts.  Begin compressing public services, but slowly, and hope the rosy glow lasts until the election…

But Bill English could not help the Freudian slip about selling off KiwiBank.  (As if anyone believes that a mom-and-pop share issue would mean shares didn’t end up in institutional hands eventually – remember Contact Energy?)

This is important as a foretaste of things to come: extensive privatisation of assets the public already owns, and deep Budget cuts to balance the books that this Government has deliberately run up by cutting taxes too far.   Both add up to shrinking the state, and with it the essential services that all Kiwi families need.

Budget 2010 is not a step change,  and not a step up.  It’s a set up – a sucker punch for the full flowering of the Right’s agenda should New Zelanders allow them a second term.