GST rise will hurt poor the most

NZ Herald Jan 30, 2010

Raising GST to 15 per cent would increase living costs for the poorest New Zealanders more than twice as much as for the rich, unless low income tax rates are cut to compensate. A Weekend Herald analysis of figures in last week’s tax working group report shows that the proposed GST increase would cost 2.9 per cent of the net after-tax incomes of the poorest tenth of households – but only 1.2 per cent of the net incomes of the richest tenth. The analysis confirms that raising GST by itself would be highly “regressive”, bearing most heavily on the poor. This is mainly because low-income families spend even more than they earn, whereas richer households save much of their incomes and do not pay GST on what they don’t spend. But Professor Bob Buckle, the economist who chaired the tax working group, said yesterday the Government should cut income tax rates on low incomes, as well as high incomes, to compensate for raising GST.