GST was first introduced in 1986. Most workplaces used typewriters. Businesses were coming to grips with the fax machine. EFTPOS was still in its trial phase.
There was no internet in New Zealand. Share trading and currency speculation were not a significant feature of the economy. Personal overseas shopping had to be done in person, overseas.
Three decades on GST is no match for the global marketplace that is now accessible to everyone with a PC and an internet connection. No amount of tinkering will change that.
GST was a trade off to allow the government to lower the top income tax rate and move towards the neoliberal holy grail, a flat tax rate, without sacrificing tax revenue. The downside is greater inequality.
Low and middle income earners who spend all of their income on living expenses pay an extra 15% tax on 100% of their income. Higher earners who are able to squirrel a portion of their income away pay GST on a much lesser percentage of their income.
Financial services have, inexplicably, never been subject to GST, to the detriment of New Zealand businesses who have to cope with the effects of GST exempt currency speculators on the New Zealand dollar.
Only overseas purchases over $400 attract GST because it would cost more to collect GST from smaller purchases than it would yield in tax revenue. Now the frequency and ease of overseas shopping has local retailers calling foul. But GST is inherently unfair.
A very small financial transactions tax, on the other hand, for example 2c per $100, deducted by banks on all withdrawals from NZ financial institutions, would be simple, effective, and fair. It would include all overseas purchases. it would capture parasitic activities such as currency speculation and high frequency share trading. And it would free local businesses from the tedious and time consuming administrative task of collecting GST on behalf of the government.
We would argue GST should never have been rolled out in the first place. In 2015 it is definitely past its use by date. It should be consigned to the rubbish bin forthwith and replaced with a financial transactions tax that is much better fit with today’s world.