English next for a roasting on sales tax promise

Finance Minister Bill English yesterday talked of creating a "bright line test" if a property is sold within a certain time limit. Photo / Mark Mitchell

Labour is expected to create more discomfort for the Government today over its commitment not to raise GST, but this time the heat will be on Finance Minister Bill English.

It follows a day of embarrassment for National yesterday over promises by Prime Minister John Key during the 2008 election campaign not to raise GST.

Mr English made his statement last February, after National had been elected, but it was volunteered in a speech and was unequivocal.

Mr Key made his statement before being elected but says it was in the context of being asked whether GST would be increased to 15 per cent to help fund the deficits.

He also said that if National were doing "a half decent job as a Government at growing our economy" he was confident that would not happen.

Labour leader Phil Goff tossed the words back at Mr Key in Parliament yesterday and accused Mr Key of breaking his word.

Mr Key said: "My word was that I would not raise GST to 15 per cent to cover deficits and I will not do so."

Mr English will not be able to find similar refuge from the comments in his speech a year ago to the Centre for Accounting, Governance and Taxation Research Forum.

National's proposed tax package, roughly outlined on Tuesday, aims to be fiscally neutral: it aims to redistribute tax obligations from the same amount of tax revenue, not to increase the tax take.

Mr Key strongly pointed to a rise in GST from 12.5 per cent to 15 per cent, and fewer tax breaks for investment property owners to fund significant cuts in personal tax rates.

He promised that low income earners, beneficiaries, superannuitants and working for families recipients would be compensated and would be no worse off as a result of a rise in GST. The final package will be announced in the May Budget.

Various options for tax reform were recommended by the tax working group but Mr English yesterday questioned some of its costings when he appeared at the finance and expenditure select committee, in particular on what the compensation costs might be for GST.

Later he confirmed another option that the Government was considering was making it easier to collect the existing capital gains tax on professional property speculators by creating a "bright line test" of making it payable if a property is sold within a time limit, say after a year or two.

Another possibility on the table is "ring-fencing" property investors and preventing them offsetting business losses against other income earned.

"There's not much point in doing something people regard as big and bold which doesn't survive the next election," English said.

Meanwhile, Te Tai Tonga MP Rahui Katene put a bill in the private members' ballot yesterday to remove GST tax from "healthy food".

It won't be debated unless it is drawn from a lottery of about 30 bills at a time.

KEY'S PACKAGE

Landlords feared a raft of new tax rules would hit their wallets. Here is how they have fared so far.

ON THE TABLES

Scrap building depreciation: Remove the ability to claim depreciation on buildings as a taxable expense if empirical evidence shows they do not depreciate in value.

Ring-fencing: Prevent property investors from offsetting business losses against other income.

OFF THE TABLE

Land tax: 0.5 per cent tax on the estimated value of the property.

Risk free rate of return formula applied to rental properties: A tax on assumed value of owner's equity, regardless of actual return.

Comprehensive capital gains tax: A tax on profit made through selling a house.

QUOTED

John Key

"National is not going to be raising GST. National wants to cut taxes, not raise taxes.

He's [tax specialist John Shewan] talking about having to raise GST and the top personal tax rate maybe in five years' time and what I am saying is if we do a half-decent job as a government at growing our economy I am confident that won't be happening."

- Press conference, October 2008

Bill English

"We want to maintain GST as it is - probably one of the best examples of indirect tax in the world. We want to keep that rate and no doubt there will be continuing debate about where the corporate tax level should go and the need for a capital gains tax."

- Speech, February 2009