GST jump would need benefit hikes, says report

Sports car or bread - you pay 12.5pc GST in New Zealand. Pictured: the LP550-2 Valentino Balboni, Lamborghini's only rear-drive car in production.

The Tax Working Group is recommending a jump in the Goods and Services Tax (GST) to 15 per cent, increasing the price of everything from Lamborghini sports cars to bread.

The rise in GST is being recommended by the group as a way to maintain the Government's tax take while dropping personal income tax rates.

It said a rise in GST was necessary to shift away from a tax system dependent on personal income taxes.

"This is also consistent with the reform direction necessitated by the demographic ageing which will intensify over the next 20 years," the report said.

It said a GST increase is less likely to harm growth as it would not discourage savings.

"New Zealand's GST also has a broad base and few exemptions. This means GST has a lower cost of collection and is a relatively efficient tax," the report said.

But it also recognised that a rise in GST would harm those on low incomes and beneficiaries. It said there would need to be tax compensation for low income earners and benefit increases if the GST rate increased.

The group also looked at taking the GST off some necessities, such as food, but found that this would reduce the GST take by 20 per cent.

"This fall in revenue would then need to be recovered by higher rates of GST, or by increasing other taxes," the report said.

Federation of Family Budgeting Services chief executive Raewyn Fox said her clients on low incomes are spending most of their money on consumable goods which they have to pay GST on.

"So the smaller the income, the more effect it is going to have on you.

"So if food costs 2.5 per cent more, you're going to have to buy 2.5 per cent less food," said Fox.

She said it was not possible to talk about the personal tax packages because no data had been provided.

However, she said tax cuts could mean a drop off in numbers of people eligible for the Working for Families benefits.

She said that would mean a net loss for those on low incomes.

"What we've seen in the last year or so is people have had a decrease in income - by either going down to a four day week or losing their overtime so it is hard for them anyway and this just makes it harder," Fox said.

She said any rise in GST could mean an increase in the number of people seeking her organisation's services.