07 Dec 2018
The government could head off the avalanche of wage claims that will cause significant disruption for the public, and drive up inflation, by scrapping GST and replacing it with a transactions tax.
The wage claims, from anaesthetists, teachers, public servants, aircraft engineers, and others while justified, have the potential to wreck the economy by kick starting inflation and pushing up interest rates.
More private sector employers will likewise be under pressure to raise wages, increasing their costs substantially along with the cost of their products and services.
The cumulative effect will be to drive up interest rates, with the potential to cause hundreds of house mortgage and farm mortgage defaults.
Replacing GST with a transactions tax at less than a quarter of one percent (25 cents in every hundred dollars) on all withdrawals from bank accounts would give workers across the board a substantial increase in purchasing power far greater than they would get from wage rises.
It would generate roughly the same in tax revenue as GST, but with the majority coming from the speculative sector, rather than the productive sector, of the economy.
That raft of financial transactions such as credit default swaps, debt securities, convertible and exchangeable bonds, currency trading, derivatives etc, currently avoid the GST net.
The recent introduction of GST to on-line purchases is complicated and messy and will produce minimal tax revenue, but scrapping GST and implementing a simple transactions tax would immediately put Kiwi retailers on an even footing with all overseas sellers.
Additionally businesses would be relieved of the burden of accounting for GST, filing returns, and audits.
It will be very simple for the banking system to implement FTT, and very difficult for anyone to avoid payment.
Banks would deduct the tax automatically in the same way they already withdraw their own account fees and Resident Withholding Tax, and remit it straight to the IRD.
The removal of GST would contribute to a reduction in child poverty by putting more money in the hands of lower paid New Zealanders who currently pay tax far out of proportion to their incomes.
It would be fitting that Labour, the party that first introduced GST and unleashed the neo-liberal economic experiment on the country were the ones that finally scrapped it