How we deal with GST in New Zealand
I HAVE been following some of the debate about whether GST should be introduced at 5% as a means of generating additional income for the island going forward. As someone who was born in Guernsey and lived there for 44 years prior to emigration to New Zealand in 2005 I thought readers might find it interesting to know what happens over here as regards GST. Let me stress however that I am not an accountant or tax expert and therefore I am not making arguments for or against, but rather listing certain facts and other observations as I see them.
Most other territories in the world have some form of GST (or VAT), ranging mostly between 5% to 20%. Guernsey at 5% is clearly at the lower end. In New Zealand GST came in at 10% on 1/10/86 and has since been increased twice….to 12.5% on 1/07/89 and to 15% on 1/10/10. GST ‘creep’ is therefore an easy tax increase to make. And in New Zealand there are very few exemptions to the application of GST (residential rent is one example), so you pay 15% on all foodstuffs, water, clothes, medical bills, insurance, building works and so on. And yes we have to contend with the ‘immorality’ of taxing taxes, so GST applies to rates, petrol, alcohol/tobacco products and fire service levies under insurance policies, even though these are themselves taxes or have a duty component within them. The reality is of course that most people rarely think about GST….there’s a price you pay for something and that’s that, with few people breaking down the cost in their own mind. So one gets used to it fairly quickly.
As mentioned GST applies to most things in New Zealand but of course it can be applied selectively (like in the UK) or even have different rates applying to different goods or services, so it can be flexible. In Guernsey there are frequent calls to trim the number of civil servants and thereby cut costs. Well GST is a simple income stream for governments to collect as businesses will have to implement systems to account for it. Presumably it would also be possible to adjust the income rates to assist the lower paid.
A further interesting point here is that there is no threshold in New Zealand before paying income tax, i.e. you pay tax on the first dollar you earn, rates starting at 10.5% and going up to 39%, although currently there is limited ‘capital gains’ tax.
In reality I would imagine no one decision can solve a fiscal black hole. GST, in whatever form it may take, is a part solution along with corporate taxation and even looking at income tax rates. In New Zealand the main source of tax is still income tax, but GST is a significant second. And why shouldn’t visitors pay something when purchasing goods and services on the island? I doubt it is front of mind when they will be paying GST just about everywhere else they go in the world. And one final thought: a boss of mine here in NZ once told me he was pleased that if a criminal type, living off stolen or immoral earnings, ever went to put fuel in their vehicle, or went shopping for items rather than stealing them, they too would be paying tax. He had a point….it is hard to avoid paying GST.
Whatever the outcome in Guernsey on the GST debate it can learn from what other territories have done in this regard, whilst not being obligated to do as they have done. I wish you success in solving the tax issues and can say for certain that GST, if implemented, will not put me off visiting the island this summer.
BRIAN MARTEL
Auckland
New Zealand