Copeland Gordon: Goods and Services Tax (Exclusion of Rates) Amendment Bill — First Reading 
Copeland Gordon: Goods and Services Tax (Exclusion of Rates) Amendment Bill — First Reading 
[Volume:619;Page:14631] 
GORDON COPELAND (United Future) 
: 
 I move  
That the Goods and Services Tax (Exclusion of Rates) Amendment Bill be now read a first time. 
 I also give notice that at the appropriate time I will move that the bill be considered by the Finance and Expenditure Committee. 
The goods and services tax (GST) should never have been added to local body rates because it constitutes a tax on a tax. According to the dictionary definition rates are a tax levied on property by a local authority. On the other hand GST is a tax that is levied on the supply of goods and services by central government. Since the introduction of GST in 1986 central government has therefore been levying for its own purposes a tax on a tax imposed by local government for quite separate and distinct purposes. 
My bill to exclude GST from rates was drawn from the ballot on Thursday 24 June 2004. At the time it was drawn I was in Canberra with the Finance and Expenditure Committee of which I am deputy chair meeting with the chair and members of the Standing Committee on Economics Finance and Public Administration of the Australian House of Representatives. Part of our discussion centred on rates and taxes in the context of a study recently undertaken by that committee that concerned the financing of local authorities. I asked whether GST was levied on rates and received the immediate answer from David Hawker chair of the committee: “No because that would constitute a tax on a tax.” 
I have since learnt that the position is the same in Canada so that when each of those nations decided to follow New Zealand’s example in introducing a single-rate broad-based GST unlike us they opted to exclude rates in order to avoid a tax on a tax. It is also relevant that VAT is not charged on rates within the European Union. I am very clear that Australia Canada and the European Union have got that one right and that we in introducing GST in 1986 got it wrong. After 18 years surely it is now time to get it right. 
There may be some in this House who would wish to try to justify the unjustifiable by arguing that rates are not really a tax but rather a payment made by citizens for services rendered to them by the local authority. Well members should try that argument on the 80000 members of Grey Power and in particular on the elderly woman in Takapuna mentioned in the House last year who currently faces an annual tax bill of more than $6000. They should try to convince those people that their rate bills are a fair allocation of the goods and services supplied to them by their local councils. 
That argument should be tried on the business community in New Zealand which is very concerned that it is bearing a disproportionate share of rates. Members should speak to the farmer who came all the way up from Wanaka to tell me personally that the rates bill levied on him by the local council had reached the point where the ongoing viability of his operation was jeopardised. The argument should also be put to Genesis Power a State-owned enterprise whose 2003-04 rates bill has increased fortyfold. Yes that is right. It is 4000 percent based on what it regards as a totally unjust and unreasonable rates assessment. 
In all of those cases the concern being expressed is based on the reality that rates do not reflect the value of goods or services supplied by councils but are calculated on the value of the properties occupied by ratepayers. In other words rates are a tax in all but name. In fact in the United States they are actually called property taxes. 
Treasury has estimated that the loss to Government revenue were this unjustified tax to be removed forthwith would be $160 million per annum or just 0.36 of 1 percent of core Crown expenditure. That is a pittance for the Minister of Finance but it is an average of about $100 per annum in the pocket of every ratepayer in this country. Where there is a will there is a way. 
Dr Michael Cullen voted in the Labour caucus against the introduction of GST on rates and was right to do so. I regret that he has now had a change of mind and I challenge him in this debate to spell out how he has come to the conclusion that it is OK for his Government to continue the imposition of GST on rates. 
The levying of GST on rates was proposed to the Government in 1985 by the Advisory Panel on the Goods and Services Tax chaired by Dr Don Brash. I find the panel’s approach to the question of GST on rates interesting in light of what has subsequently happened. Its members began by saying that they were: “considerably perplexed by the logic of applying GST to one form of taxation (rates) but not to others (central government taxation).” However they decided after lengthy discussion that GST should be applied to rates but not to taxes levied by central government. They do not appear to have specifically considered the possibility of zero-rating GST on rates in spite of stating that a proposal to levy GST on rates had “already invoked considerable resentment from taxpayers”. 
The payment of rates continues to invoke considerable resentment from taxpayers and that political reality means contrary to the position envisaged by the panel that councils in fact have every incentive to apply specific user charges including GST to as many of their activities as is practical—thus shrinking the tax collected through rates. Accordingly councils now routinely charge for parking services rubbish collections entry to swimming pools etc. etc. They have no incentive to subsidise services of those kinds from rates because any increase in rates is universally unpopular and there are elections every 3 years. I have met no one who has said to me that he or she resents paying GST on user-pays services provided by councils. Those realities will not change if rates are zero rated for GST as is proposed in my bill. 
Both as a member of Parliament and as a chartered accountant I would like finally to comment on three technicalities that have been raised in connection with this debate. Firstly under the zero rating mechanism proposed in this bill the revenue position of local authorities will remain unchanged. The bill is neutral in that regard. It is not aimed at relieving local authorities; it is aimed at relieving ratepayers. 
Secondly businesses that now claim back GST on rates will likewise be in a neutral position although they will gain a short-term cash-flow advantage. Nor will any compliance costs arise because the GST return already makes provision for zero-rated transactions including some from territorial authorities. User-pays charges will be billed separately by councils and of course will continue to include GST. 
Thirdly the removal of GST from rates does not establish a precedent for GST to be removed from other goods or services—say foodstuffs. That cannot be so because we are talking here about a unique tax-on-tax situation. I want to emphasise that point because even in question time today the same old “annual grey mare” came out: “Oh yes but if we were to do this then we would have to broaden the base to other things as well.” I say “No”. This tax on a tax is a unique situation not only in New Zealand but in the world and if we remove that tax it is ridiculous in my opinion to assume that we would therefore have to extend its removal to foodstuffs and other things. There is no logic whatever in that position. 
Removal of GST from rates will leave at least $160 million in the pockets of the 1.725 million property owners in New Zealand. It will leave money in the pockets of the 465000 superannuitants in New Zealand many of whom are living on a fixed income and struggling to make ends meet. It will leave money in the pockets of the more than 300000 residential property investors in New Zealand who currently pay GST on rates and who cannot claim them back. 
In truth levying GST on rates is unfair and unjust. Indeed after 18 years it is past the time to bring the practice to an end. I commend this bill to the House and I hope that other parties may see fit to think beyond some of the nitty-gritty technicalities to look at the big picture and to decide to give taxation relief in that way to the 1.725 million ratepayers of this country.