1 Oct 2016

GST 30 years old and going strong

10:32 am on 1 October 2016

The Goods and Services Tax (GST) is 30 years old today and a tax expert sees no prospect of it ever going away.

Birthday cake at a children's party.

Photo: 123RF

It was introduced by the former finance Minister Roger Douglas on 1 October 1986 as a catch-all tax by the fourth Labour government, which was in a desperate fiscal plight.

Thirty years later, the government is praising it as a model for other nations.

"For 30 years now, the basic concepts of GST have remained unchanged, and have rightly been seen as a model for other nations," Revenue Minister Michael Woodhouse said.

PricewaterhouseCoopers (PwC) director Michelle MacDonald said was an efficient tax.

"I can't see any government reversing the policy on GST," she said. "It is a very broad based and easy-to-apply tax and is much easier to administer than it is in other jurisdictions."

GST was at first levied at 10 percent, raised to 12.5 percent in 1989 and pushed up again to 15 percent in 2010.

Government reaps $17.17bn in GST a year

Today, it is the government's second most productive tax, earning $17,169 billion in the 2015 year, compared with $30,076 billion in individual tax and $10,296 in corporate tax.

GST has been widely criticised as regressive, since low income people are forced to spend most of their money on making ends meet, and so incur the tax on almost everything they earn.

By contrast, wealthy people are able to avoid the tax by saving money.

But a counter argument says wealthy people spend more money in total and therefore pay more GST in gross terms.

GST has also been defended as being almost impossible to evade, since people in the black economy and even criminals have to pay it every time they buy a loaf of bread.

Critics have long argued the tax should not be charged on healthy food purchases such as fruit and vegetables.

The Green Party has called for part of it to be replaced by a tax on greenhouse gas emissions.

But neither National nor Labour led governments have moved to do this, citing high administrative costs.

The tax is even celebrating its birthday by extending its coverage to cross-border services such as e-books and downloaded music.

Michelle MacDonald said GST was definitely here to stay - for at least another 30 years - or longer.

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