'15 per cent GST' danger within five years

Helen Clark says Labour will not announce any further big-spending policies. Photo / Sarah Ivey

A tax expert predicts GST could have to rise to 15 per cent within five years, to dig the country out of deficits delivered by the worsening world economy - and big election promises.

John Shewan, a specialist tax partner and chairman of PricewaterhouseCoopers New Zealand, said last night that GST could hit 15 per cent and the top personal tax rate increase to 45 per cent.

Goods and services tax now adds 12.5 per cent to purchases and the top personal tax rate is 39 per cent.

Both National and Labour were quick to distance themselves from the suggestion this morning.

National leader John Key said told a press conference this morning that if National is elected and does a "half decent job" at growing the economy, then increasing GST and the top tax rate will not be necessary.

He said his government would be borrowing because "in the short term everyone's going to be borrowing because we've got an anticipated deficit for the year and the year after," Mr Key said.

Labour's Finance Minister Michael Cullen said people "needed to stop panicking" about the 10-year projection based on Treasury forecast.

It only allowed for 2.5 per cent growth each year.

"I'm saying absolutely no (to increasing GST to 15 per cent) because there is no need to panic at all."

Mr Shewan's warning came as Prime Minister Helen Clark, in a dramatic change in Labour's election campaign, declared that her party had closed its wallet and would not offer any further big spending policies before election day.

She emphasised the gravity of the financial and economic risks and said the election campaign had been turned "completely on its head" by the global crisis.

She said she would spend the rest of the election concentrating on the contents of a promised December economic stimulus package.

"New Zealand's reaction to the global downturn will be crucial to determining our country's living standards for years to come.

"It's important that we in Labour are utterly realistic about the international context in which New Zealand finds itself."

Mr Shewan, who chairs the NZ Tax Working Group of the Australia New Zealand Leadership Forum, told the Chartered Accountants tax conference in Christchurch at the weekend that it was conceivable taxes might have to go up to address the deficits.