Rise in GST could strain 'no exceptions' pact, expert warns

Former Treasury secretary Graham Scott has warned that further rises in GST risk straining the political consensus that the indirect tax apply to all goods and services without exemption.

Dr Scott, who was a senior Treasury official when GST was introduced in 1986 and subsequently raised in 1989, said the advice at the time from the International Monetary Fund was that there tended to be a trade-off between the level of GST and exemptions for certain items such as food and children's clothing.

The Government is likely to announce a rise in GST from 12.5 to 15 per cent in the Budget in May to take effect from next October.

Dr Scott said the Treasury had been very strong in its advice before the introduction of the tax - and the Government had agreed - that there should be a single rate that applied to everything.

However, the higher the rate went, the greater the likelihood a political party would come out in favour of exemptions particularly in an MMP environment.

The Maori Party has already tried - and failed - to persuade National to remove GST on healthy foods.

Dr Scott was unwilling to predict how high GST would have to go before the consensus was under serious threat, but said that consensus really hinged on Labour's stance as the major Opposition party.