Cullen Michael: Goods and Services Tax (Exclusion of Rates) Amendment Bill — First Reading 
Cullen Michael: Goods and Services Tax (Exclusion of Rates) Amendment Bill — First Reading 
[Volume:619;Page:14635] 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 Although the Government will be opposing this bill let me say that I think the member who has just sat down made one significant technical error. This member’s bill does not provide for rates to be GST exempt but to be zero rated. Therefore local authorities would be able to continue with the claim back should the bill be passed because as I say the rates are zero rated not GST exempt. That also means therefore that the fiscal cost to central government is much larger than the member might have thought and that is quite an important consideration to be taken into account. 
I also note the sort of National Party approach to budgeting as usual which as I gathered from that speech is one of cutting all tax rates and increasing Government subsidies to local authorities. We have already had National members calling for more spending on health education and almost everything else. Somewhere along the line we might end up with what one might call an emotionally stressed Budget as a consequence of that with practically nothing in the way of certainty except a blooming great deficit which is not surprising because National parties in Government tend to specialise in deficits most of the time. They just revert to type. More and more this National Party looks like a recreation of Sir Robert Muldoon. One would expect it therefore to be coming up with fiscal policy— 
Hon Dr Nick Smith 
: That’s not credible! 
Hon Dr MICHAEL CULLEN 
: Not credible? Playing on race crime welfare and fiscal irresponsibility sounds an awful lot like Sir Robert Muldoon to me. 
New Zealand’s GST is applied to the widest possible range of goods and services supplied in New Zealand because that is the most efficient and fair means of raising revenue by means of a value-added tax. Indeed New Zealand has the best designed value-added tax in the world. The reason is that we are one of the very few countries that have a single rate applying that single rate across nearly all goods and services. Australia would love to have our GST structure. It ended up with a political mess as a result of compromises in the Senate. Businesses in Australia loathe the GST model compared with the New Zealand - type model. They would much prefer to have the New Zealand - type model of GST with its single rate broad-based system without exemptions. It is best practice. 
In 1985 the Government set up the Advisory Panel on Goods and Services Tax to hear submissions on these matters. It declared that the payment of rates should be viewed as a payment for services provided by local authorities as members have said for public goods and services—such as libraries public amenities flood control sewerage rubbish control and so on and so forth. That argument has become stronger not weaker in the intervening nearly 20 years because more of rates is now clearly tied to specific service provision and less to a general collection of a tax based according to ability to pay—in theory at least. In other words it is much less a progressive payment now than it used to be. That is one of the reasons why rates are creating something of a difficulty in practice for many low-income families particularly elderly low-income families—a matter I hope the Government will be addressing in next year’s Budget. 
So rates by and large do represent a payment for local authority services consumed by citizens and ratepayers of the area. But even if this was a tax I think it is a legitimate question to ask: “So what?” because we have other taxes in New Zealand that GST is levied on top of. Obviously excise duties by way of petrol alcohol and tobacco are the primary example of that. Nobody has ever seriously suggested that GST should somehow be levied part way through the process in that respect so it does not seem to me to be a terribly powerful argument. But it is also because of the GST zero-rating proposal that we would end up with local authorities having an undue competitive advantage over other businesses where there is direct competition. In that situation if the business can reclaim its expenses then so can the local authority by means of GST input. But the business has to charge the GST on the service it is providing. Indeed we could end up with a situation of people living next door to each other where one pays GST on water services and the other does not. 
Gordon Copeland 
: Not true. 
Hon Dr MICHAEL CULLEN 
: It is true I am afraid depending on how the service is provided and how it is funded. Even if it was funded through the local authority by means of direct payment it would end up being GST-able; whereas if it was provided as part of a general rate then it would not be GST-able. This is not a sensible provision. It is one that should be rejected by the House.