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Fundamentals of GST as it applies to dealings in real property

Published: 10-08-2010 Author(s): Denham Martin Pages: 45
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Published: 10 August, 2010
Pages: 45

Report of tax working group

As the Report of the Victoria University of Wellington Tax Working Group (A Tax System for New Zealand’s Future, January, 2010) (“Tax Working Group Report”) noted earlier this year over the last twenty years New Zealand has chosen for a range of reasons (including tax efficiency, tax fairness, tax stability and to discourage tax avoidance) to take a broad-base low-rate approach in the design of its tax system.

The taxation centrepiece in this broad-base low-rate design approach is goods and services tax (“GST”) which currently is imposed at a rate of 12.5% under the Goods and Services Tax 1985 (“Act”). In 2009 GST contributed 21% of New Zealand’s total tax revenue ($11.6 billion in a total of $54.2 billion of taxes collected).

After considering a range of reform options for the tax system the Tax Working Group recommended inter alia that GST “should continue to apply broadly” with “no exemptions” (Report, at 11) and most members of the Group also favoured an increase in the GST rate to 15%, at least on the basis that any increase “was accompanied by compensation to those on lower incomes” (Report, at 11). These recommendations have been adopted by the government and the new 15% rate of GST and its application date will be confirmed in the government’s upcoming 2010 Budget.

Of all the tax reform options canvassed in the Report the tax policy case in support of an increase in GST was the most compelling and logical one, at least on the assumption that any disadvantage suffered by lower income households is compensated for (which the government has indicated it intends to do through lower income tax and other concessional adjustments). Few changes will need to be made to the structure and rules of the Act to accommodate the increased rate in GST and, as no new exemptions for things like food are contemplated, the broad-based and administratively simple features and integrity of the tax will be preserved. In this latter regard it is worth noting that while there was some pressure on the government to exempt things like food the tax arguments for such an exemption were not made out, particularly as in the Report’s view such a move would likely “lose the government 20% of GST revenue” (Report, at 47).

Denham Martin  
Denham Martin
Barrister
Auckland		  

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