Brian Fallow: Time to add GST to rents and mortgages

Here's a suggestion for the tax working group set up to figure out how to put the tax system on a more durable and efficient footing to consider: scrap the provision exempting mortgage payments and rents from GST.

People tend to snort derisively when first presented with this proposition and utter various phrases ending in "off". The reaction would be reasonable if that was all that changed.

But remember, any recommendations the working group comes up with are expected to be revenue-neutral, taken as a whole. And the broader the tax base the lower rates can be.

The biggest problem the tax system faces is that in a globalised era we are taxing all the wrong things. Tax economists at the OECD and elsewhere tell us that property and consumption are the best things to tax, and corporate and personal incomes the worst, in terms of their impact on economic growth.

More than 40 per cent of the income tax - much the biggest single source of Government revenue - comes from the top 10 per cent of taxpayers ranked by income, which is dangerous when labour is as mobile as it is and the income gap with Australia and most other developed countries is as large as it is.

To read the full NZ Herald article click here

Posted: 27 Aug 2009

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