Readers React Over GST

The column – about the government’s proposed increase in GST from 12.5 to 15 per cent – said the change would encourage people to save more, because saved money isn’t subject to GST.

True, some people say they can’t save, as they spend all they earn and often borrow to spend. But, I said, we shouldn’t necessarily view a rise in GST as an attack on lower income people.

The government says it would compensate them with tax cuts, and rises in benefits and NZ Super. Both angry readers are sceptical about this, but I reckon the government will be under scrutiny to get it right.

Also, I said, most people on low incomes – the young, students, self-employed, some on Working for Families, second earners in families, and people going through a bad patch – are either not poor or won’t stay that way for long.

I then argued against exempting food from GST, because it would cost more to run; could encourage unhealthy eating; and would give rise to disputes over what is food. Such an exemption would be a blunt instrument for helping the poor, who spend only a slightly bigger proportion of their income on food than do the rich.

"Your article itself is nonsense," said a reader I’ll call George. He and the other reader, "Susan", pointed out that several countries tax food at lower rates than other items. But that proves nothing. Having researched and written about tax for newspapers in the US and Australia, I reckon our system is clearly more efficient. And efficiency frees up resources for other good things.

George and Susan also asked how I know that higher GST would boost saving. Common sense. Sure, those on low incomes who are no better off might not save, but middle income and wealthier people would have a strong incentive to save. Raising GST would surely make some difference.

Speaking of those on lower incomes, Susan objected to my saying some people "feel" the option to save is not open to them. She suggested that I think that "if they just tried harder they could be saving." The truth is that I think that’s correct about some non-savers but not others.

I’ve interviewed families struggling to buy shoes for their schoolchildren, and large immigrant families living in a couple of rooms. I know times can be really tough. I’ve also seen data that show few people stay in the bottom income group for many years. While most don’t end up rich, as Susan points out, a surprisingly large number work their way up to reasonable circumstances.

That’s not to say some aren’t stuck on low incomes. "There are countless numbers of people that do not have the inner resources to work their way out of emotional, mental and/or physical poverty," said Susan. "Many people are not taught how to learn new skills and how to be resourceful."

I agree. And I also agree with Susan that it’s a real pity the government has cut funding for adult education courses, including some skills courses that were really helping people.

That gets to my point that exempting food from GST is a blunt instrument. Better to keep GST on food and spend that money on programmes such as skills education.

My conclusion is the same as last time: I’m not saying "the poor be damned". I’m just saying that maintaining GST at 12.5 per cent or exempting food are not efficient ways to help those who need support. Let’s do the best we can with the money we have.