Reserve Bank Governor, Alan Bollard, wrote a paper in 1992 titled “New Zealand’s Experience with Consumption Tax”. It dealt with the implementation of GST in NZ. He wrote “in 1989 when GST was increased to 12.5% the effect on retail sales and subsequently on growth was marked; after experiencing signs of a pick-up the economy dropped back to recession the following year”.
When asked about history repeating itself in the FEC select committee today, Dr Bollard said that the impact of the proposed GST increase on the economy would depend on the total tax package balance. Interesting. Remember when GST was increased by 2.5% in 1989, kiwis at the top end had just received massive personal tax cuts in 1988: the top rate dropped from 48% to 33%.
I hope for NZs sake, history does not repeat itself with this current budget, because it all looks awfully familiar.
