Benefits would rise with GST, says Key

John Key. Photo / Mark Mitchell

Prime Minister John Key says any increase to GST would have to be compensated for by immediate increases to pensions, benefits and Working for Families payments.

A GST rise to at least 15 per cent was among the recommendations of the Government's Tax Working Group looking at ways to reform the tax system.

Mr Key said the Government was still considering the report and no decisions had been made.

The proposal to increase GST to allow lower business and personal tax rates has caused concern that it would leave families on low incomes struggling to buy basic goods.

Mr Key said if any changes did have implications for lower-income earners, they would have to be compensated.

"For pensioners you would have to have an immediate increase in the pension, for those on Working for Families or benefits there would have to be an immediate increase."

The Tax Working Group had estimated that the costs of compensating those on low incomes would mean increased revenue of just $200 million from an increase to 15 per cent.

However, the Government had to look at wider considerations.

"There's no way we can allow those that are least well off to be put into a worse position. We are not looking to make money on changes we might make, but we are looking to make sure we have a better and fairer system."

Yesterday Maori Party co-leader Pita Sharples said he was interested in a tax on financial transactions rather than an increase to GST - a call echoed by Progressive leader Jim Anderton. Mr Anderton said imposing a small tax for every transaction was a fairer way to broaden the tax base and lower income tax without raising GST.

Dr Sharples said any changes to income tax should be at the lower level - for those earning less than $25,000 - rather than the top rate.

But Mr Key said lowering the top tax rate to 33c so it aligned with the trust rate would help stop people sheltering their income in trusts to try to avoid higher personal taxes.

"If you are a higher-income earner, rightfully you should pay your share. One way to make sure people do that is to make sure the tax rates reflect what people think is fair."

He has also indicated some changes were likely for investment property owners, although he has ruled out a capital gains tax. He said there were some issues the Government needed to consider before deciding on a land tax.

However, there was clearly a hole in the system if there was $220 billion invested in rental properties but the Crown was losing money.

He said nobody should draw conclusions about what the Government would do and any decisions were not likely to emerge until the Budget.

Federated Farmers has objected strongly to the idea of a land tax and yesterday Dr Sharples said although he was generally supportive of taxing wealth and assets, he was concerned about such a tax on Maori lands, especially large non-commercial holdings held under Treaty settlements.