media release
20 August 2009

Raising GST a good way to patch up New Zealand’s leaky tax base

“The Government should bite the bullet and use GST more for collecting tax, as the Tax Working Group has recommended,” says Steve Thomas, Researcher at the Maxim Institute. “That way we could lower personal income and corporate taxes.”

“Research shows again and again that top marginal tax rates are the most harmful to individuals’ and firms’ incentives to work, save, start a business or invest more in things like education or physical infrastructure,” says Steve Thomas.

“Because GST taxes everyone in the same way on the products and services that we buy everyday it does not penalise the sorts of activities that are good for economic growth and greater prosperity,”says Steve Thomas. “Encouraging these sorts of activities is vital if we are to grow our economy faster out of the recession and boost living standards.”

“The GST is also a fair tax. It treats people more equally than many taxes do, because it applies the same standards and rules to everyone. More and more taxpayers are finding ways to dodge high marginal tax rates on income by sheltering it in companies and trusts for example—that’s not fair on the taxpayers who pay all their tax,” according to Steve Thomas. “GST is harder to avoid paying, so it would help to shore-up New Zealand’s leaky tax base.”

“While raising the GST rate would mean low income households would probably pay more tax in the short-term, this should even out over a lifetime, with GST likely to collect the same proportion of tax from the most of us,” says Steve Thomas.

Maxim Institute is an independent research and public policy think tank, incorporated as a charitable trust.

ENDS

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