2 Feb 2011

Government rules out suggested GST rise

6:06 am on 2 February 2011

The Government has ruled out considering another increase to GST as suggested by the group set up to advise it on ways of improving New Zealand's savings.

In its final report released on Tuesday, the Savings Working Group recommended lower taxes on savings, and increasing the goods and services tax to 17.5% would encourage people to spend less and save more. It suggested full compensation for a GST rise for people on lower incomes.

The group stopped short of recommending making retirement savings scheme KiwiSaver compulsory, but says membership should be increased through automatic enrolments to all employees and those over 16, with the ability for workers to opt out.

Finance Minister Bill English says the Government is not interested in considering another increase in GST, which rose in October last year from 12.5% to 15%.

However, Mr English says the working group has provided a wide range of practical options for boosting savings, and nothing else is being ruled in or out at this stage.

The Savings Working Group says the pressure on the government's books from an ageing population means people need to save more.

The group's chairman, Kerry McDonald, says its recommendations would help people save more if implemented and the pressure on the government's books from an ageing population means people need to save more.

The report also recommended lower tax rates for investors in financial products as a way of making property investment relatively less attractive.

It says better productivity and performance in the state sector would make a substantial difference and should be the immediate priority.

The focus should be on shifting the economy from deficit to fiscal surplus earlier than the projected date of 2016, it says.

Labour Party finance spokesperson David Cunliffe says the group has put too much emphasis on government debt in its report on boosting savings and has not got the balance right.

"The report appears to have confused national savings with government savings and puts too much emphasis on using fiscal cuts and tax increases as the solution to a problem that really lies mainly at the household level."