It's GST's 30th birthday and a leading university lecturer says it's time to address the imbalance caused by the consumption tax in New Zealand's overall tax system.
"Put simply, New Zealand continues to tax the workers and the spenders but not the asset holders," says Mark Keating, senior lecturer in tax at the University of Auckland Business School.
New Zealand's GST has proved a huge success at raising significant revenue - 30 per cent of all government revenue - with low compliance costs, he says.
"After 30 years it has proven its ruthless efficiency - but that success hides a number of other problems in our tax system which the extra revenue from GST has allowed successive Governments to ignore.
"We are still the only OECD country with no capital gains tax. We also have no land tax, thereby encouraging 'land banking' of unproductive land that could be developed for better uses. We also no longer have any death duties or inheritance taxes - which are raising increasing revenues worldwide as wealthy but aging baby boomers begin to die."
As a result, Keating says "the entire New Zealand tax system is badly unbalanced with an over-reliance on taxes from employee wages, business profits and consumption.
"All of those are prone to fall drastically during an economic shock or resulting recession. By contrast, we collect virtually no tax on the ownership or transfer of capital assets," he says, illustrating his contention that workers and spenders bear the bulk of the tax burden while asset holders do not.
"Given the reality of politics it will probably take another financial crisis for a New Zealand Government to rectify this imbalance," Keating says.
He will be part of a group of tax professionals, government officials and academics who will meet next month to mark the important role of GST in the entire New Zealand tax system - though not everyone may be celebrating GST's 30th anniversary.
"GST was introduced in haste on October 1, 1986 by the third Labour Government of David Lange and Roger Douglas as a desperate measure to address the parlous state of Government revenue in the mid-1980s," says Keating. "It was part of a package of tax measures which completely re-designed the tax regime.
"Because of that rush, it was determined New Zealand's GST should apply to everything equally. It therefore contains none of the exceptions and exemptions that devil similar regimes overseas. As a result, GST even applies to basic foods, education and medicines."
Most other countries attempted to reduce this GST burden on such staple items - but the trade-off made their GST systems more complex. Australia's GST, for example, exempts basic foods and medical supplies - but then needs voluminous regulations and Australian Tax Office rulings to set the limits of those exemptions.
Likewise, the UK system imposes higher rates of GST on "luxury items" and lower rates on "basic items" - which has led to repeated litigation over how the boundary between those items should be drawn.
"The real winners from this complexity have been the lawyers and accountants paid to make those systems work," says Keating.
New Zealand has none of those boundary issues as GST applies at the same rate to everything - meaning our comprehensive system is therefore remarkably easy to comply with and administer, leading to lower compliance costs for New Zealand taxpayers.
GST started at 10 per cent but, even at that comparatively low rate, revenue generated exceeded expectations. That led, says Keating, to the rate being "quickly fattened up" to 12.5 per cent before gaining some "middle-aged spread" and increased further to the current 15 per cent.
"It's not beyond imagination a future Government may counter another fiscal shock with further increases in the rate of GST," he says. "That's because our current 15 per cent rate compares favourably with most counties. A rate of up to 25 per cent applies commonly in many European countries. The UK rate is 20 per cent - so there is plenty of room for increase."
Our 15 per cent rate is, however, significantly above the 10 per cent rate applied in Australia and the 5 per cent in Canada. The USA stands alone as the only major country without any sort of GST system after India finally broke its political deadlock and voted recently to introduce a GST system at 15 per cent.
"But while New Zealand's rate of GST sits in the middle of the pack, the amount of Government revenue it generates exceeds all other countries because of our lack of exemptions and exceptions," says Keating.
"GST collects approximately 30 per cent of all New Zealand government revenue, compared with an average of 22 per cent within the OECD. Australia's GST raises only 14 per cent of Government revenue - that's why some feel New Zealand's GST creates such an imbalance."
*The conference "Thirty years on: GST at a crossroads" takes place at the University of Auckland on September 1. For more information and to register visit the Business School website.