IRD hot under the collar with GST

I occasionally have the pleasure of speaking to people in various public organisations and I generally find them to be mild-mannered, even-tempered individuals who are dedicated to their job.

So I was taken aback when, in a discussion with someone from the IRD – whom I will refer to as Mr Taxman – he started spewing forth with what would, in other circumstances, be considered hate speech.

We were having a perfectly nice chat – catching up, talking about whatever – when I remembered the last time we spoke Mr Taxman told me of a delightful anecdote about the number of letters he receives from the public asking for GST to be taken off food.

A chill breeze insinuates itself through the room.

“Hah, yeah, we’re still getting those.  It’s hard to tell how many come in though, because they  get spread around every department.”

The last part is said in a tone suggestive of fecal matter.

This is the first time I have heard anything other than bland neutrality from Mr Taxman. And GST isn’t the sort of thing you’d expect most people to get in a twist over.  

Introduced in 1986, the tax has become part of the market landscape and hasn’t really been a political issue for over a decade.

But high oil prices and rising inflation have put GST back on the political agenda as a grassroots movement – which has been partially co-opted by minor parties – has campaigned for the tax to be taken off essentials like food.

I’m intrigued to hear more from Mr Taxman and I don’t want to scare him off by being too blunt with my questions.

“But, ummm, lower taxes sound like a good idea.  It’ll, errr, help people through the tough times.”   

“God!  Why do people think that?”

Success.

“If we take GST off food, we have to make up the shortfall elsewhere and then inflation continues.”

He tells me that 80 per cent of the government’s $15 billion GST income comes from food. That’s $12 billion which would have to be found from somewhere else.  Other GST items would have to be taxed at a rate of 37.5 per cent to make up that loss. This seems high, but before I get a chance to question that figure he has moved onto Australia.    

“You know how Australia took GST off food?  They’re having all sorts of economic and legislative nightmares keeping that system in place.

“Look at it from a shopkeeper’s point of view.  They have to go and remove the GST from all their food based products but not their other items.  

“Admin costs are increased for all and we open ourselves up for tax avoidance.”

I mention the name of a certain politician who has expressed support for removing GST from food.

Hate issues forth.  I am forced to take a proverbial step back.

The quote, “he doesn’t have a clue about economics” is probably the only thing which can be repeated here.

The economics Mr Taxman is referring to here is the common assumption that by removing the 12.5 per cent GST, food prices will similarly drop by 12.5 per cent.  

Every reputable economist will tell you this simply isn’t true.  

For one, high fuel prices are squeezing suppliers’ profit margins, so the removal of GST will allow suppliers to bring their margins back to healthier levels.  In other words, of the 12.5 per cent, consumers may not see any of it.

“Food producers know people are willing to pay the current price for food.  They will just raise their food prices so people will end up paying the same price for food as they are now, but with increased other taxes.”

It seems the idea of taking GST off food is an indecent assault on the very core of his existence.  And to add further insult to injury, it would ruin the beautiful balance already in place.

“Our GST system is the best in the world.  Every other country wants to be like us because we’re low rate and broad base.  It all starts falling apart if we lose that broad base.”

I throw out a joke that a beautifully crafted taxation system is something which will keep families warm at night.

It dies, cold and alone, in the space between us.

When it comes to the IRD, GST is Serious Business.