Australia top scorer in GST game

By DENHAM MARTIN

It will come as no surprise to readers of this column that Australians contest tax reforms with the same fierce competitiveness that they approach sporting events.

Take Australian gst for example, a subject I spend considerable amounts of time advising on in Australia.

After several attempts to introduce the tax in the early part of the 1990s failed because of stiff opposition, a GST, closely modelled on the New Zealand legislation, will take effect there on July 1.

While very similar in design to New Zealand's legislation in certain key areas it is quite different. Most importantly, supplies of health and education services and products and most food are GST-free.

Though some would argue that not subjecting items of this type to GST will make the tax less effective and more complex than in New Zealand, these concessions were widely debated, critiqued closely by economists and other analysts, and were generally hard fought ones intended to benefit less privileged taxpayers.

Without them, the gst reform package would surely have died and, though it will soon be operational, rarely a day goes by without some key point being subjected to extensive media coverage and debate.

The Australian's vigorous and questioning approach to contesting tax reforms like GST is a desirable and healthy one.

It has to be because, at least in a financial sense, it would be hard to find a topic that touches our lives so materially and directly than the obligation to pay tax. A person earning $70,000 a year for the next 20 years will, at present tax rates, pay the state $400,000 in income tax. That person will also have paid 12.5 per cent GST as a consumer on almost every purchase of goods and services made during that period. This is a substantial financial contribution to the government and society.

As a New Zealander and taxpayer it concerns me that we are so apathetic about requiring accountability from our politicians regarding tax changes, particularly as no political party seems to have any coherent or credible theory about what the foundations of our tax system should be. Taxation contestability should not be an issue just for the highly paid, because the Australia's GST concessions on food, health and education are foregone in New Zealand, but are of immediate benefit for the lower paid.

It may be that Kiwis (as, we are constantly told, surveys indicate) are prepared to pay more tax for better health and education services. But how should this translate into actual tax rates and tax policy reform. Have our tax reforms in recent times been successful? Have they encouraged economic growth? Is a move to a lower and comprehensive flat rate of tax on income, as certain international literature would suggest, the desired goal for a country such as New Zealand? If so, why has New Zealand recently increased its top rate of income tax? Does a lower flat tax rate policy on income only make sense if wealth is in some way taxed by way of an inheritance tax, capital gains tax or estate duty? Should we be moving away from income taxes in any event or at least reforming them as the Ralph Committee has advocated in Australia? Does a differential in tax rate between individuals and companies and trusts have any tax policy justification, particularly if it requires soon-to-be-released anti-avoidance rules to police the distinction?

If it does not then why is such a measure being introduced? Should there be exemptions in our GST like those in Australia? Should business get tax breaks for research and development expenditure or environmentally - friendly operations?

Given how significant a business and personal cost taxation is, it is alarming how little serious public debate and consideration of these issues there is. If as much time was spent in exploring these topics as went into reviewing the operations of the Inland Revenue, we would be far better off.

Though most people are happy to pay their fair share of tax, views as to what is "fair" differ markedly. When it comes to tax rates, the little public discussion there has been from politicians about "fairness" has invariably comprised uninformed and unsubstantiated moralistic assertions about what they think is "fair."

If taxation and its payment is an important factor to be weighed when deciding whether to reside in New Zealand, then we must follow the Australian lead and start talking about - and, if necessary contesting - tax reforms that are supposedly good for us.

* Denham Martin is the principal of Denham Martin & Associates, lawyers specialising in advice on taxation and related matters.