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Another Nat lie on GST

Written By: - Date published: 12:27 pm, February 28th, 2010 - 51 comments
Categories: bill english, gst, john key, phil goff, spin, tax - Tags:

You have to double-check every ‘fact’ the Nats tell you. Bill English, for example, has been lying about Labour’s record on growth and, when he was called out on it, he came up with another lie to cover himself.

For the last couple of weeks, John Key has been claiming that when Labour increased GST from 10% to 12.5% in 1989 there was no compensation for taxpayers. That too is a lie.

The July 1 1989 increase in GST from 10% to 12.5% was announced on March 21 1989 in the Government’s Economic Statement. The same Economic Statement announced income tax cuts that came into effect before the GST increase on April 1 1989.

And those tax cuts went to every taxpayer.

Let me note now that I don’t think Labour should have done these cuts this way. Either it shouldn’t have increased GST or it should have directed more of the cuts at the bottom end, rather than that open-ended cut at the top but the point is Labour did compensate all taxpayers for the GST increase. This shows that, if there is to be a GST increase, it can be done in a way that doesn’t punish low and middle income Kiwis.

So far Phil Goff has sat there and taken it while Key has lied about his record on GST as a minister in the 4th Labour Government. Labour has to learn to check the truth of every factual claim that National makes, and you need to stand up for yourself and your party, Phil.

51 comments on “Another Nat lie on GST ”

  1. Anne 1

    Goff and co. are off on a nation-wide bus tour today so they are going to have every opportunity to expose all the Nat. lies. It’s up to Labour to be on the ball every time it happens but instead they seem to let Key and English get away with it. Is it a lack of preparation or what?

  2. tsmithfield 2

    And your evidence that this pre-GST tax reduction was intended as compensation for the later GST imposition is where?

    Also note that those terrible high income earners that you like to berate actually had the biggest tax decrease of all. Given that the direction above 40875, the wealthy gained much more than the poor under Labour. So much for Labour being for the poor.

    • Marty G 2.1

      My evidence is they were announced together as a package of tax reform. Like your hero Key’s reforms.

      You’re right, I don’t agree with the open-ended tax cut that Labour did in 1989. It’s a bit late for berating them over it but I have added a sentence in the post to reflect that they should have concentrated more of the cuts at the bottom end.

      The point still stands, income tax was cut as GST was increased. Compensation achieved.

    • D14 2.2

      Bottom rate decreased by 30%
      Top rate decreased by 23% approx

    • Don’t forget tsmithfield that Helen and the 5th Labour Government increased the tax rate paid by the top earners early on and then decreased tax for the poorer working families.

      But hey what has history got to do with anything if you can engage in some smearing!

  3. prism 3

    ts what an excuse for a comment. When the revenue of the government is to be changed, then it has to look at all its sources so when it is planned for tax to go up, and at the same time income tax goes down, then of course it is part of a plan to distribute tax rates better. The high tax rate was brought down most because it was seen as part of a fair progressive tax that the top rate not be so punitive. 33% is not an unfair marginal top rate for high earners.

    Labour doesn’t govern just for the benefit of the lower and middle class – it aims to be responsible to the whole country -unlike National which does seem to concentrate on one sector when giving support and bounty – the higher salaried.

    • Draco T Bastard 3.1

      Actually, Labour in the 1980s was governing for the rich.

      • Certainly, economically Labour were acting for the entrepenurial class, but I’d suggest their social focus was still pretty good and benefitted us all. I’m thinking particularly of homosexual law reform and the anti-nuclear position. The last, particularly, made me more proud to be a kiwi than any rugby game will ever come close to matching.

        It was a trade off though and a pretty awful one. Not a mistake Labour will ever make again.

        • Draco T Bastard

          Well, we can hope that they won’t make the same mistake again. They’ve shifted slightly to the left since the last election but aren’t close to their founding principals.

  4. Ed 4

    To be fair John Key was referring to a change in the amount of New Zealand Superannuation payments. He has announced that there will be an increase in the amount of payments by just over 2%. That is different from a tax cut – since he also announced that NZ Super will remain at 66% of average weekly earnings, any increase now will disappear – probably in less than a year.

    So the difference is that Labour gave a tax cut that gave more compensation than National is giving – and National’s ‘compensation’ is very temporary and does not give more net income from savings as Labour did. Most superannuitants have some savings that provide some income – Labour compensated for additional GST on that spending; National has not.

    It is more smoke and mirrors from National – yes they are giving (less than Labour) with one hand while taking away with the other.

    • Marty G 4.1

      Actually, he’s not increasing super. That increase happens automatically due. Super is 66% of the average after tax wage. When the tax on the average wage falls, super goes up.

      • Lanthanide 4.1.1

        National radio on Friday night said that National said they were going to raise superannuation by 2.2% in line with the GST rise. I remember this because I commented on it to my BF at the time that it won’t compensate them completely because inflation will rise by more tahn 2.2%.

        • Marty G

          The thing is that super is tied to the average after tax wage. To increase just super they would have to increase it from 66% of the average after tax wage to 68% or whatever, and I don’t think they’ll be doing that because that’s not just a one-off increase, it means that every year when super is recalculated the increases will be larger.

          I’m pretty sure that what National is actually saying will happen is that tax cuts will raise the after tax average wage and that will lead to a corresponding increase in super when it’s next recalculated.

          • Lanthanide

            I see, with your new post, that you found the report about them raising superannuation directly, as well as via the after-tax automatic mechanism.

  5. Rob 5

    Far from being across the board cuts to everyone those original Labour decreases when increasing GST appear to follow a similar pattern to National’s current ones.

    The lowest bracket had a small drop in tax that probably didn’t compensate the GST rise. the 9500-30000 range got a tax increase. It was predominantly the wealthy who got a cut in that program also. Indeed the top tax rate was dropped by a similar amount as National currently wants to do.

    While those Labour tax balancings were slightly better than the current ones they were no means good or across the board either.

    I have no issue with GST being raised I think it is a good idea but it should come with a cut to incomes for the lowest 50% only. The middle and upper class in New Zealand is currently far from struggling.

    • Marty G 5.1

      GST went up 2.5%, tax for the bottom rate (that was about 50% of people at the time) went down 4.5%

      In the middle bracket, no-one ended up worse off. Even if you were in the position of lowest % tax cut ($30,000) you got over $200 a year.

      • Marty G 5.1.1

        Like I say though. I would have done what you’re suggesting, cut the bottom rates only, they benefit everyone. But it’s a lie by National to say that Labour raised GST without accompanying income tax cuts.

  6. tsmithfield 6

    I agree with Rob. An analysis of the figures above shows that the only group to get any effective compensation for the introduction of GST was the weatlhy. The poor actually got sweet FA from Labour when it is calculated in monetary terms.

    Therefore, it is actually difficult to see how this package was designed as a compensation initiative to moderate the effects of GST on the poor since the poor got hardly anything out of it.There may well have been some other rational behind the changes. As there is little evidence in the changes that offsetting GST for the poor was the objective this may well have been the case.

    Therefore, I don’t see much proof to back up the assertion that National are lying over this.

    • Marty G 6.1

      TS. You’re just ignorant. The bottom 50% at the time was the $9500 bracket. big tax cut there.

      like I say, I disagree with the open ended tax cut at the top but Labour did compensate the poor and middle incomes with that bottom rate cut.

      “difficult to see how this package was designed as a compensation initiative to moderate the effects of GST on the poor since the poor got hardly anything out of it.”

      dumbest comment of the day, the poor got a 4.5% income tax cut. We’ll see if your hero Key matches that.

  7. Jenny 7

    The truth is of course, that the right wing extremist and millionaire Roger Douglas who has always championed the cause of a “flat tax”. Brought in GST, so that he ‘could’ give income tax cuts to his wealthy mates.

    Rather than admit this truth, instead, GST has become something of a shibboleth inside the right wing of the Labour party, ie. not to be questioned on pain of excommunication.

    In my opinion this is behind Goff’s apparent ineffectiveness around this issue. Rather than “a lack of preparation” as Anne posits, or a case of the Labour leader not being able to stand up for himself, or his party which Marty G is guessing at, when he challenges Goff, “to stand up for yourself and your party, Phil.”

    Unfortunately if the Labour leadership are not prepared to grasp the nettle of GST in an effective way, the Labour Party bus tour on this issue will not achieve any media cut through, and the bus tour will disappear from public notice, like Alice down the rabbit hole.

    I see that Labour Party supporter, Voice of Reason has commented that he expects that Phil Goff during progression of the bus tour will announce that a Labour Government will reverse the GST increase to 15%. But personally I have my doubts, and I fear that Labour party rank and file may well be waiting in vain for Phil Goff to announce that a Labour Government will reverse the increase to GST. Without such a statement from Goff voters will decide not to get on Phil Goff’s bus, but wait for next one, which unfortunately may not be around until 2014.

    • ParkDrive 7.1

      I wouldn’t reverse GST if I were Phil. By saying so, he will guarantee Labour will lose given the cost of changing stock prices, yet again, for business.

      A better option would be to say “if GST increases to 15%, then Labour will implement a tax free threshold for lower income earners”

      Tax free threshold, disappearing once you earn a higher amount, therefore paying tax on every dollar earnt, is a far more equitable solution.

      • Lanthanide 7.1.1

        Yes. What Labour needs to say:

        “We would not rise the rate to 15%. If National does raise the rate, we will not take it down to 12.5%, because that would unduly punish all of the bussinesses that had to re-price stock and overhaul their computer systems. What we will do is introduce a tax-free bottom bracket that benefits everyone equally, not just the wealthiest like National’s proposed cuts.”

        A nice nugget of an idea I have is to also make local council rates GST free; would significantly ease pressure on local councils (every $1 they need to raise ends up costing the public $1.15), as well as those on fixed and low incomes that own property.

    • “I see that Labour Party supporter, Voice of Reason has commented that he expects that Phil Goff during progression of the bus tour will announce that a Labour Government will reverse the GST increase to 15%.”

      Nope, never said that at all, Jenny. I said I expected that if the Nats put it up to 15%, we could expect a return to 12.5% as part of Labours’s platform. That’s the election platform in 18 mths time, not during the course of the bus tour over the next few days.

      But I repeat, this is a great opportunity to influence Labour. Go down and talk to the MP’s and let them know what chamges they need to make to win the next election.

      • Jenny 7.2.1

        Sorry for misquoting you VOR, there is no excuse for me not going back and reading your exact quote.

        • Cheers, Jenny, that’s very gracious. I don’t think it diminishes your otherwise excellent points.

          • Jenny

            It is you who are gracious. And VOR, I would like to take up your suggestion. Do you know where I can go for an itinerary of the bus tour.

            PS. I actually saw the bus driving over the Manukau Heights overpass on Sunday. It looked quite impressive with the paint job “Axe the Tax” emblazoned on it in 2m high words.

  8. tsmithfield 8

    “dumbest comment of the day, the poor got a 4.5% income tax cut. We’ll see if your hero Key matches that.”

    No Marty. I think your comment would count as that. You are fixated with percentages rather than the absolute amount of money in the pocket as a result.

    4.5% on 9.5 k is sweet FA in absolute terms. At the next level the rate actually went up 1% somewhat undoing the effect of the 4.5% cut on the lower amount. The effect for someone on 30k, just a mid-range wage even back then, would have been approx $200 per year better off. Sweet FA as I said.

    If the intention was to compensate the needy for the GST increase the tax structure would have looked quite different. It looks more like it was designed to make NZ more competitive with Auz or something like that. It certainly wasn’t a major compensation package for the needy whatever way you look at it.

    • Marty G 8.1

      the increase in GST is a percentage, so any compensation is logically also measured in percentage.

      The poor experienced a 2.5% increase in GST they were more than compensated by a 4.5% decrease in income tax.

      You might regard the tax as ‘sweet FA’ but then you would regard the smaller increase in GST as ‘sweet FA’ too.

      really ts, I expect better from you.

  9. tsmithfield 9

    Further to my comment, I see you mentioned the $200 per year for people on $30000 as I have done. Contrary to me, you seem to see that as wonderful.

    Remember, rent attracts GST. Along with other living costs, many people would have been paying GST on most of their expenditure. Therefore, they would have been paying out much more than $200 dollars per year in GST. Thus, there are many people who would have in no way been compensated for GST.

    • kaplan 9.1

      ‘Remember, rent attracts GST’ ???
      Rent on a home rented as a private dwelling is exempt from GST.

    • felix 9.2

      You make a very good point about GST on rent but you forget to mention that GST is calculated at a different rate when applied to rent, and that rate is 0%, you unbelievably stupid tit.

  10. Lets see, every one of TS assertions have been shot down.

    Yet he swallows every one of Keys big fibs.

  11. John Armstrong 11

    Hi Marty

    Finance Minister Caygill’s economic statement of March 21, 1989 announced a rise in GST from 10 to 12.5 per cent effective from July 1, 1989. There was no mention of associated or other income tax cuts beyond a brief statement that “we (Labour) have broadened tax bases, closed loopholes, and lowered tax rates”. Caygill did cut some excise taxes on fuel and motor vehicles in the same announcement. He also raised company tax from 28 cents to 33 cents (interesting in the context of the current debate about alignment!!). I am not sure where you got your tax table. But checking ((Reserve Bank economic chronology) shows the top income tax rate fell from 48 cents to 33 cents on income above $30,875 on Ocrtober I, 1988, not April 1989. This cut and a 24 cent rate up to $30,875 was announced by the previous Finance Minister Roger Douglas on Februiary 10, 1988 —- more than a year before Caygill’s statement.

    John Armstrong
    Political Correspondent
    New Zealand Herald

    • Marty G 11.1

      Gidday John. I got my numbers from Staples Tax Guide. Don’t have it on me so can’t confirm.

      Maybe those reductions did go through in October. The point still stands that Labour was reducing income taxes while increasing GST, they may not have used the term ‘compensation’ because that’s been something very particular to this debate.

      The most important thing is they showed that you can cut at the bottom end – when you’re switching from taxing income to taxing consumption, people on low incomes don’t have to be screwed over.

      • Marty G 11.1.1

        If I have got that date for the reductions wrong, I’m just going to say I’ve been a bit ‘sloppy’ and grin. 🙂

      • Draco T Bastard 11.1.2

        they may not have used the term ‘compensation’ because that’s been something very particular to this debate.

        I’d go so far as to say that that is a term particular to National to hide the fact that the poor will be paying for the tax cuts that the rich get.

      • John Armstrong 11.1.3

        Hi Marty

        Yes, no disagreement about being able to cut at the bottom end, which is what Labour would do policy-wise, probably by raising income thresholds rather than necessarily cutting actual rates. Back to comparisons with 1989. I think there are a few points worth noting with regard to historical context. First, from my memory of covering Caygill’s statement, the rise in GST was not that big a deal. — cetainly not when compared to the current debate. Second, GST had only been introduced two-and -a-half years earlier. The increase of 2.5 per cent looked small when placed alongside the original 10 per cent on introduction. Although inflation had fallen to 4 per cent by March 1989, New Zealanders were used to living in a relatively high inflation economy — so, again, 2.5 per cent was seen as not very large. Third, the October 1988 tax cuts have to be viewed in the context of the Lange-Douglas battle. The tax cuts announced in the February 1988 economic statement to take effect from October that year were a compromise following Lange’s rejection of Douglas’s flat tax proposal outlined in the December 1987 economic statement which was a response to the stock market crash that year. Interestingly, the December statement flagged a rise in GST from 10 to 12.5 per cent .This never happened because Lange vetoed the whole package a month later. But people would not have been surprised therefore when it did go up. Labour never really made a song and dance about the October 1988 tax cuts, the reason being that by then relations between Lange and Douglas had hit rock bottom with the latter being fired as finance minister two months later. The Government was simply too consumed by what was going on internally to be able to mount arguments externally. You are right — there were income tax cuts nine months before GST rose. But there was no linking of the two events at the time as being some kind of deliberate political trade off. In 1989, Caygill faced a ballooning deficit in the year before an election. He also cut Government spending by $700 million and raised company tax. This may explain why there were no “compensating” income tax cuts iin the March 1989 statement.

        • IrishBill

          I’d have to agree with John on the the tolerance of inflation. But I’m not sure I would say there was no link between the tax-cuts and the gst increase. There may not have been but nobody was allowed to see the economic playbook at the time and so much was going on economically and politically that to deduce a link between the two would be like trying to figure out whether it was house A or its neighbour that burnt to the ground first in the middle of the Dresden firebombing.

          I’d also not hold up the fourth labour government as any kind of a positive example for fear of it being misinterpreted as an attempt to rehabilitate it.

          I’d disagree that the ’87 economic statement was a response to the stockmarket crash so much as another piece of opportunism by Douglas as the measures included in it had been doing the rounds for a while; Douglas just needed a crisis to provide cover for the next stage of his blitzkrieg.

          • John Armstrong

            Fair comment, Irish Bill… And I agree. The mid-to-late 1980s is not a place modern day Labour would want to go.

        • Jenny

          John as you pointed out, in Caygill’s March 1989 statement there was no linking of the tax cuts to the rise in GST. The explanation may be that Labour at the time didn’t want to draw attention to the fact that the tax burden was being taken away from the wealthy and loaded onto the shoulders of the less well off.

          The difference between then and now is that the National Government is proud of it’s partisanship on behalf of it’s constituency, which they identify as business, farmers and the comfortably well off middle classes, and so by raising GST and giving tax cuts they are being loyal to that constituency.

          Whereas the Labour Party’s traditional constituency is workers, trade unionists, beneficiaries and the low paid, therefore they wouldn’t want to draw attention to any link in an increase the regressive GST and cuts in progressive type income taxes.

        • Jenny

          John as you pointed out, in Caygill’s March 1989 statement there was no linking of the tax cuts to the rise in GST. The explanation may be that Labour at the time didn’t want to draw attention to the fact that the tax burden was being taken away from the wealthy and loaded onto the shoulders of the less well off.

          The difference between then and now is that the National Government is proud of it’s partisanship on behalf of it’s constituency, which they identify as business, farmers and the comfortably well off middle classes, and so by raising GST and giving tax cuts they are being loyal to that constituency.

          Whereas the Labour Party’s traditional constituency is workers, trade unionists, beneficiaries and the low paid, therefore they wouldn’t want to draw attention to any link in an increase the regressive GST and cuts in progressive type income taxes.

  12. Anne 12

    @ Jenny
    I bow to your superior analysis @ 3.17pm. I also agree with your hypothesis “If the Labour leadership are not prepared to grasp the nettle of GST in an effective way, the Labour Party bus tour on this issue will not achieve any media cut through…”. It is up to others more experienced than me to analyse what would be considered effective. But it would seem to me that the first step is not – I repeat NOT – to run away from the actions of the 4th Labour Govt. in 1989, but rather to publicly front up to them and explain the difference between then… and now.

    They have given themselves a chance to do so during the next fortnight. I hope they take it!

  13. SPC 13

    As for the actual tax issue – the point is to discourage spending and encourage saving – so the focus on income tax cuts means the exercise is one in futility as the higher GST revenue is not being used to encourage savings. The proper course is to compensate those who cannot afford to save (and thus have higher spending costs) and as for those who can afford to save providing tax incentives so they actually do so rather then cutting their income tax.

  14. tsmithfield 14

    “Rent on a home rented as a private dwelling is exempt from GST.”

    Fair enough point. I am just going by the fact that our business pays GST on the rent on our building. Since I don’t rent privately I wasn’t aware that private rent didn’t attract GST.

  15. prism 15

    I keep thinking about how increasing savings would be more ‘fashionable’ if government stopped taxing every single $ at the rate now – 19% or 33% approx. Also from childhood, watching the small interest on any earnings or gifts put in a bank being speedily plundered by government, there must be a certain amount of cynicism from the potential saver. Add to that the set administration rates of the financial entity which can soon demolish small savings, Overall it could be said that the government itself is penny- wise and pound foolish in being so keen to tax savings, instead of taking steps to encourage more saving.

  16. luva 16

    “You have to double-check every ‘fact’ the Nats tell you”

    “The same Economic Statement announced income tax cuts that came into effect before the GST increase on April 1 1989”

    It appears we also have to double check all of Marty’s facts.

    To use Marty’s hyrsterical phrase…Another MARTY lie on GST

  17. vidiot 17

    “And those tax cuts went to every taxpayer.”

    So that would explain why the rate for 9501 to 30000 increased, and before you bang on about it being offset by the larger decrease in the sub 9500 bracket, if you had an annual income of $30K – prior to 1/10/08 allowed you buy goods to the value of $20556+ GST, yet come July 1 1989, the tax cuts that “everyone got” only allow you to buy goods to the value of $20297+ GST. Ergo you were out of pocket $259 that year.

    • Bright Red 17.1

      Except that not all your spending is on goods and servces that attract GST.


  18. Rob 18

    Marty I thought I would check up on your claim that 50% of people were in the lowest tax rate.

    Statsnz was crashing on me but I found a site that was hosting some similarly dated material from the household economic survey.

    Household market income decile
    1986 1991
    1 200 0
    2 3,500 700
    3 13,800 5,200
    4 25,400 15,100
    5 33,300 25,500
    6 40,700 34,900
    7 48,600 44,600
    8 57,900 55,400
    9 71,400 70,300
    10 113,800 121,500

    This suggests that at most 20% got the 4.5% reduction at the lower end. There were around 20% of people who gained a tax increase. The rest of the people in the top two brackets then got around a 7% decrease in taxes.

    They were more across the board than National’s current ones are likely to be but not by much. If as it appears he plans for the first lot of tax cuts Key only aligns at 33% then Labour would have dropped the top tax rate by more than National. There is however less people in it today thanks to growing wealth inequality. I personally however consider it fairly irrelevant what Labour did in the 90’s period. Care much more what they would do today and that is make our tax system more progressive which I trust them to do when they are next in power. Lets hope that is soon.

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