National campaigned on a proposal to adjust the existing tax thresholds, but as part of coalition negotiations with ACT last year, it agreed to consider whether the “concepts” of ACT’s tax policy could be incorporated “subject to no earner being worse off than they would be under National’s plan”.
In simple terms, ACT would immediately axe the lowest tax threshold of 10.5 percent, meaning the government would collect more revenue from all income earners.
Some of that extra revenue would then be returned to low-and-middle income earners through a targeted tax credit to ensure they were not worse off.
The money left over would allow the government to reduce the higher tax rates at the top of the income scale - dropping the 33 percent rate to 30, and the 39 percent rate to 33
Its a regressive tax, because the greater proportion of your income you spend, the greater proportion of your income ends up taxed. And if you’re poor, you spend all of your income (and then some), so all of your income ends up getting hit with a 2nd round of tax via GST.
But if you’re rich, you don’t have to (hell, at some incomes, can’t) spend all your money, so you put that excess money in the bank, then leverage it to buy a house to let to the poor person, who pays your mortgage for you, but you offset your costs to reduce your own tax further, then sell the house a couple years later for some sweet tax free capital gains.
Just an edit to add:
Using GST to dampen consumption by raising it when there’s high inflation, and lowering it when there’s not could be a useful purpose for it; but its not used that way here. I suspect taxing excess cash out of the economy would be a less awful way than ramping up unemployment through interest rate hikes, but old white people won’t vote for tax hikes. GST is also a way to get tax off some people who might not have an income otherwise taxable; but I would think wealth taxes, or capital gains taxes would be far better ways of achieving that.
This is its one good point: We collect tax from travellers who, if there was no VAT, would pay zero tax while visiting NZ.
Not quite zero, if you count some airport fees etc. But otherwise yeah, it is a gap. Albeit we do end up collecting tax on that money once its counted as income for the companies or individuals providing services to those tourists.
It also gets around off-shoring profit to avoid income tax.
It’s not perfect, is regressive and, imho, is too high. But it does have SOME benefits.
If I were made dictator I would lower gst to 10%, meddle with the income tax rates (including a tax free bottom bracket and higher tax for the top brackets) and add CGT.
But that’s just me.
Thanks! That makes lots of sense