CTU policy director Bill Rosenberg says that it is still not clear how workers will be compensated“ for an increase in GST.
“We don’t know how changes to Working for Families, income tax cuts, or other measures will offset the increase. This will only become clear in the Budget on 20 May.”
The prime minister John Key has stated “I expect that the vast bulk of New Zealanders will be better off under a tax switch that comprises an increase in the rate of GST to 15 percent, together with a reduction in personal income taxes across the board and upfront increases in benefits, New Zealand superannuation, and Working for Families payments.”
Dr Rosenberg says GST is likely to rise from 12.5 percent to 15.0 percent.” Taking into account some items that do not have GST, some GST costs that will not be passed on to consumers, and some consumer money that will be saved rather than spent, Statistics New Zealand estimates the net effect on average of a 2.5 percent increase in GST will be an increase of “about” 2 percent in the Consumer Price Index (CPI).
However, as Dr Rosenberg notes, even the estimated increase of 2 percent is only an average.
“We know that people on low incomes face a higher rate of GST increase on their incomes than people on high incomes because they can save less (and may in fact be spending more than they earn), they spend more on necessities, which almost always have a GST component, and spend less on items that don’t attract GST. So an argument can be mounted that low income workers require more than 2.0 percent compensation.”
“Very little attention has been given to the effect a rise in GST has on wage increases via CPI increases. Employers may argue that they do not need to compensate for GST increases in wages because the tax changes include compensation. Some unions may argue that income tax is not a wages issue, and some collective agreements have a built-in CPI adjustment, so workers covered by those agreements will automatically get compensation for GST in their wages at some point. But workers are bound to argue that if wages do not match CPI increases, then real wages are decreasing.