GST REFORM: CAN NEW ZEALAND OFFER CONSTRUCTIVE GUIDANCE TO
INFORM THE AUSTRALIAN DEBATE?
Adrian Sawyer
Abstract
The Goods and Services Tax (GST) is in the political spotlight again in Australia, this time
with fundamental aspects such as the rate and base of the tax ‘hinted’ by Prime Minister Tony
Abbott as potential candidates for reform. As noted in an opinion article in The Australian,1
the debate needs to be open, focus on the longer term issues, and potentially look to
successful GST (and value added tax - VAT) regimes elsewhere, with New Zealand (NZ) the
model by which GST/VAT regimes are measured globally. In this paper I will provide an
overview of why NZ’s GST has been so successful from a tax policy perspective, including
its development and initial operation, along with more recent major policy reforms that have
incorporated NZ’s unique (and well respected) Generic Tax Policy Process (GTPP). As Ward
suggests I will argue that NZ’s approach to GST “deserves [Australia’s] close attention as a
model for reform”. However, I would go further to suggest that reform of the Australian tax
policy process to something closer to the transparency and broad consultative focus of the
GTPP is a necessary perquisite to achieving the maximum potential of GST reform in
Australia.

Professor of Taxation, Department of Accounting and Information Systems, University of Canterbury,
Christchurch New Zealand. Email: adrian.sawyer@canterbury.ac.nz. This paper was prepared while visiting
Professor at QUT Business School, 2014. This paper draws upon prior research published in Adrian Sawyer,
“New Zealand’s Successful Experience with Introducing GST: Informative Guidance for Hong Kong?” (2013)
43(1) Hong Kong Law Journal, 161-187; and Adrian Sawyer, “Reviewing Tax Policy Development in New
Zealand: Lessons from a Delicate Balancing of Law and Policy” (2013) 28(3) Australian Tax Forum, 401-425.
It sets out the GST debate in Australia as at 21 November 2014. This paper is a draft and should not be cited
without the author’s permission.
1
Rob Ward, “We Need to Talk About Tax” (2014) The Australian (7 November), 14.
1
1.0
Introduction2
It is important to emphasise at the outset that this paper provides a high level policy
perspective of the New Zealand (NZ) Goods and Services Tax (GST) – the first of the value
added taxes (VAT) to move away from the VAT nomenclature to that of GST. This is much
more than just a change in name – it represents a significant move away from the relatively
complex VATs that members of the European Union have developed as part of their
membership. New Zealand’s GST represents the benchmark for an efficient and effective
GST, from which other jurisdictions have based their GSTs (such as Australia, Canada and
Singapore, to name but three examples).
To set the scene, in 1986 NZ’s GST commenced, some 12 months after the legislation was
enacted. The NZ Government’s intention was to improve the fiscal environment through a
broad based tax, changing the tax mix, and ‘compensating’ low income taxpayers affected by
this change in the tax mix. Consultation with individuals and organisations was included prior
to its introduction and with subsequent changes of significance, particularly in 2010.
In contrast to earlier European VATs, a very limited number of concessions were made to
allow zero rating or exemption from GST – most were on grounds of efficiency or practical
measurement issues (indeed, NZ’s GST base has expanded over time, such as to include
business to business financial services). As a consequence NZ’s GST is the ‘purist’ form of a
VAT/GST in operation anywhere in the world of about 99 percent,3 having the highest Cefficiency rating of any VAT/GST.4 However, subsequent amendments have added additional
legislative complexity to the GST but have also clarified some areas of uncertainty. A
significant recent development is the increase in the rate to 15 percent in 2010 which
accompanied a reduction in the top marginal tax rate on income for individuals.
2
Much of this introductory section is taken from a forthcoming paper I will be presenting at the International
Conference of Chinese Tax and Policy, Xiamen University, Xiamen, China, December 13-14, 2014.
See David White, “Comment: Twenty Years of GST: The Best Path Forward” (2007) 13(4) New Zealand
Journal of Taxation Law and Policy 357. See also Gabriel Makhlouf (Secretary to the Treasury), The New
Zealand Economy and Tax Policy, Presentation to the 2012 International Fiscal Association, (17 March 2012,
Queenstown);
available
at:
http://www.treasury.govt.nz/publications/mediaspeeches/speeches/nzeconomytaxpolicy/sp-nzeconomytaxpolicy-17mar12.pdf (emphasis added, accessed 3
August 2012).
3
4
The C-efficiency ratio (or VAT Revenue Ratio - VRR) is the ratio of VAT revenue to consumption
expenditure, divided by the standard tax rate, expressed as a percentage. With NZ having one rate, a
comprehensive base and virtually no exemptions, this high ratio comes as no surprise. This figure is used in the
Tax Foundation’s International Tax Competitiveness Index (2014), where NZ’s VAT base as a percentage of
total consumption is 99 per cent, and Luxembourg’s is 92 per cent. See also OECD, Consumption Tax Trends
2012: VAT/GST and Excise Rates, Trends and Administration Issues (2012, OECD: Paris)
2
In the mid-1990s NZ took a new and innovative route with adoption of the Generic Tax
Policy Process (GTPP), a bi-product of a review of the NZ Inland Revenue Department
(IRD) conducted through a committee (the Organisational Review of Inland Revenue)
chaired by Rt Hon Sir Ivor Richardson, a former President of the NZ Court of Appeal. 5 Sir
Ivor identified a number of problems with the previous (largely non-transparent) tax policy
development process, noting that6:
“… the subject matter is complex, and tax legislation is very complex and difficult to
understand. The tax policy process was not clear, neither were the accountabilities for
each stage of the process. There was insufficient external consultation in the process.”
Essentially the GTPP provides a more rigorous process necessitating public scrutiny within
its various phases, including submissions on both underlying policy and draft legislation. This
is particularly important given NZ only has one house of Parliament, the House of
Representatives. The GTPP has been reviewed by policymakers and academics in several
overseas jurisdictions, with Dirkis and Bondfield viewing it favourably for Australia.7
The motivation behind this paper two-fold; first, it is to share the experiences of NZ’s
successful GST (the international benchmark for efficiency and simplicity), as well as the
innovative and very successful tax policy process, the GTPP. Second, it is to offer potential
guidance of how NZ’s experience with its GST and GTPP could be useful in the GST reform
debate that has ‘commenced’ in Australia.
This paper adopts both positivist and normative philosophies. The analysis of NZ’s GST and
GTPP takes a positivist perspective, combining a review of perspectives of key players and
the author’s observations with respect to policy. It also offers a normative perspective in
regard to how Australia should consider the NZ policy experience with regard to its GST
development and use of a transparent and consultative tax policy process.
5
Rt. Hon Sir I. Richardson, Organisational Review of the Inland Revenue Department, Report to the Minister of
Revenue and the Minister of Finance, (April 1994).
6
Ibid, 5 (emphasis added).
Michael Dirkis and Brett Bondfield, “At the Extremes of a “Good Tax Policy Process”: A Case Study
Contrasting the Role Accorded to Consultation in Tax Policy Development in Australia and New Zealand”,
(2005) 11(2) New Zealand Journal of Taxation Law and Policy, 250-276. Little, Nightingale and Fenwick also
review the GTPP and the role of independent tax reform; see Struan Little, Geof D Nightingale and Ainslie
Fenwick, “Development of Tax Policy in New Zealand: The Generic Tax Policy Process” (2013) 61(4)
Canadian Tax Journal – Revue Fiscale Canadienne 1043-1056. See also C.J. Wales and C.P. Wales,
“Structures, processes and governance in tax policy-making: an initial report” (Presentation to the Structures,
Processes and Governance in Tax Policy-making Conference, Saïd Business School, Oxford, March 8–9, 2012),
where the authors express enthusiasm for the rigour of tax policy-making in NZ.
7
3
The remainder of this paper is organised as follows. In the next section, NZ’s experience with
GST is briefly reviewed, followed by a review of the tax policy framework for NZ (the
GTPP) in section 3. Section 4 provides some insights from the NZ experience with GST that
could be of value to the debate over GST in Australia, with section 5 setting out my
concluding observations.
2.0
New Zealand’s Experience with GST – A Brief Review
Much has been written about the background to how the NZ GST came about, why the GST
was able to be successfully introduced and has remained sustainable, and how it became a
critical component of the NZ tax system.8 NZ’s GST is held up as an aspirational model for
other jurisdictions contemplating introducing or reforming a GST, becoming the basis for the
vast majority of modern VATs/GSTs introduced since the mid-1980s. In this section I will
briefly summarise the prior analysis of NZ’s GST, as well as some international perspectives
of NZ’s GST.
2.1
Summarising the prior analysis of the NZ GST
The sustainability of the GST strategy for nearly 30 years is based on a combination of
economic, legal, geographical and constitutional factors, supported by an open, patient and
politically supported implementation. It is important to remember, as White concludes, that
the NZ GST was designed to produce 20–25 per cent of tax revenue, with the largest
contributor continuing to be the income tax (this tax itself went through major reform in the
1980s, and again in the early 2000s and most recently in 2010).9
The prior literature suggests a number of critical elements to the success of the NZ GST, both
prior to, and following, its implementation. Prior to the implementation NZ was in an
economic crisis, with the economy in need of a radical overhaul, including tax reform with a
system excessively reliant upon income tax and inefficient indirect taxes. As a geographically
isolated nation, heavily reliant on trade and foreign capital, this presented the incoming
Labour Government with greater flexibility in determining its tax mix. This Labour
8
See for example, Richard Krever and David White (eds), GST in Retrospect and Prospect (Thomson Reuters,
2007), as well as prior research by the author: Adrian Sawyer, “New Zealand’s Successful Experience with
Introducing GST: Informative Guidance for Hong Kong?” (2013) 43(1) Hong Kong Law Journal, 161-187.
9
It should not be forgotten that a proposal for a single low rate, broad base income tax in 1987 led to the demise
of the working relationship between the NZ Prime Minister and NZ Minister of Finance. This indicates that and
approach that worked for the development of the GST will not necessarily work for other taxes. The NZ GST,
with the increase to a rate of 15 per cent from 1 October 2010, contributes close to 25 per cent of tax revenues
collected
for
the
year
ended
30
June
2014;
see
Treasury
data
from
http://www.treasury.govt.nz/budget/2014/taxpayers/02.htm#_whopaystax (accessed 6 October 2014).
4
Government comprised several “bold” politicians, no more so than the Minister of Finance,
Roger Douglas. The political and electoral system facilitated a one party government
(operating with a single house in Parliament, the House of Representatives) with a sizeable
majority to implement change following the virtual stagnation of the economy and rising debt
levels with the previous government.
Douglas as Minister of Finance not only drove the development process, but utilised
independent consultative and implementation bodies, drawing upon expertise outside of
Government and the bureaucracy. This environment, along with the tenacity of the GST’s
architect, has been supported over the intervening 20 plus years, with the original GST
conceptually remaining intact. Indeed research indicates that the bureaucrats took an activist
role in policy-making in NZ at this time (and again in the period 2008-10 during which the
Tax Working Group10 operated), encouraging the move in the direction to low rates, board
bases and neutrality in tax policy.11
It is interesting to contemplate whether the same GST would be implemented in 2014 as that
of 1986. Major changes since 1986 include the move to a MMP political system, which has
led to coalition governments (or minority governments dependent on other parties for
support). The 2014 General Election initially looked as if it had resulted in, for the first time
under a Mixed Member Proportional (MMP) system, a single party having a narrow majority
of the party votes, and thereby able to govern alone.12 However, following confirmation of
See Victoria University of Wellington Tax Working Group, A Tax System for New Zealand’s Future (January
2010); available at: http://www.victoria.ac.nz/sacl/cagtr/pdf/tax-report-website.pdf/ (accessed 3 August 2012).
Even with the move to 15 per cent an advisory panel was set up to assist businesses with the transition. For
details of this most recent advisory panel, which include tax practitioners and business leaders, see
http://www.gstadvisory.govt.nz/panel (accessed 3 August 2012).
10
Johan Christensen, “Bringing the bureaucrats back in: neo-liberal tax reform in New Zealand” (2013) 32(2)
Journal of Public Policy 141-168, at 164-165.
11
12
A feature of the MMP system has been (minority) coalition governments, with the major party needing to
work closely with several other smaller parties to develop tax policy. Furthermore, Sawyer comments with
respect to the operation of MMP:
“MMP is an ‘additional member’ voting system used to elect representatives to numerous legislatures
around the world, including New Zealand. MMP is a form of proportional representation in that the
overall total of party members in the elected body is intended to mirror the overall proportion of votes
received. It includes a set of members elected by geographic constituency (currently 60 seats in New
Zealand comprising 5 Maori seats and 55 general electorate seats) who are deducted from the party
totals to maintain overall proportionality. Thus, the additional party seats are compensatory in that they
‘top up’ the electorate seat results to maintain overall proportionality. There are minimum thresholds,
including the need to gain at least 5 per cent of the party vote to gain seats, unless an electorate seat is
secured in which case there is no minimum threshold and party seats are provided to top up.”
See Adrian Sawyer, “Reviewing Tax Policy Development in New Zealand: Lessons from a delicate balancing of
‘Law and Politics”, (2013) 28(2) Australian Tax Forum, 401-425, at 406.
5
the impact of special voting, the National Party ended up with 60 out of 121 seats, meaning it
needed to form of coalition government. It commenced signing agreements with several
minor parties; as a result has formed a coalition government with 64 out of 121 seats enabling
it to govern. It would be much more difficult to implement major policy changes, although
the result of the Tax Working Group’s (TWG’s) recommendations in 2010 led to the largest
tax policy reforms in over 25 years.13 That said several opposition parties and various lobby
groups advocated for the introduction of exemptions into the GST for items such as fresh
fruit and vegetables, and potentially further to include other basic food items and even
property rates.14 With the outcome of the 2014 General Election, any changes of this nature
are not expected to be on the agenda, if at all, until after the 2017 General Election at the
earliest.
2.2
International perspectives
In the context of other countries that introduced a GST based on the NZ model, most have
included exemptions and multiple (lower) rates, leading to a less than optimal GST from a tax
policy perspective when efficiency, neutrality and simplicity are the key principles. Such
decisions may make the GST itself more equitable.
Tenacity is also crucial, with the experience of Australia in 1990 a poignant reminder. The
then Opposition leader (and potentially incoming Prime Minister) lost the “unlosable
election” in proposing a GST, which suggests that timing and the accompanying package are
crucial factors to success.15 The memories of ‘failure’ of 1993 and ‘success’ of 1998 in
For an overview of the key Budget 2010 tax changes, see Adrian J Sawyer, “2010 Budget Brings Biggest Tax
Changes in 25 Years” (2010) 58 Tax Notes International (June 7), 790. Major changes included a reduction in
the top tax rate to 33 per cent (and other changes to rate thresholds), an increase in the GST rate to 15 per cent,
the removal of depreciation for tax purposes on most buildings, changes to the taxation of certain companies and
a number of related reforms, such as changes to the Fringe Benefit Tax rates. The Tax Working Group (TWG)
had recommended that one option could be to introduce some form of land tax; land taxation had ceased to
apply in NZ from 1992. This option was not adopted by the government.
13
14
See for example the arguments raised by the Child Poverty Action Group arguing for a GST exemption on
fruit and vegetables; http://www.cpag.org.nz/topics/tax-policy-1/ (accessed 3 August 2012). This proposal led to
extensive debate in the lead up to the 2011 General Election, with the Labour, Greens, Maori and Mana Parties
all proposing various exemptions to GST (the latter seeking to replace GST with a financial transactions tax).
The NZ First Party proposed reducing the GST rate back to 12.5 per cent. See also the following website with
details on a campaign to remove GST from food: http://www.nogstonfood.org/ (accessed 3 August 2012). In
the lead up to the 2014 General Election, several parties proposed changes to the GST (NZ First Party and
Maori Party exempting GST on food (the former also on property rates; the Mana Party, which had formed an
alliance with the Internet Party, continued with its proposal of replacing GST with a financial transactions tax).
For a personal recount of the “failed” GST attempt in Australia in 1993, see John Hewson, “The Politics of
Tax Reform in Australia” (2014) 1(3) Asia and the Pacific Policy Studies 590-599, at 593-4. See also Kathryn
James, “We of the ‘never ever’: the history of the introduction of a goods and services tax in Australia”, [2007]
3 British Tax Review 320. John Hewson proposed a 15 per cent GST with minimal exemptions, accompanied by
15
6
Australia remain vivid for some, where John Hewson’s GST proposal cost him the 1993
election, and the introduction of GST following the 1998 election required John Howard to
make huge compromises (a significant factor underlying the political complexities of
reviewing the GST).
In 2000, GST was to effect in Australia based on the benefit of an extensive consultation,
although as noted above the coalition composition of the Australian Government’s Senate at
that time led to a number of last minute concessions to enable the GST to be enacted. The
result was a less than optimal GST from a policy perspective.
The European Union (EU) has looked at the NZ GST model. PricewaterhouseCoopers (PwC)
comments:16
“New Zealand’s bold policy approach in the 1980s – of a broad base/(low) standard
rate model – will be a golden lesson to others; and the New Zealand GST model will
be at the forefront of study for European policymakers, which is a fascinating
dimension  [T]he New Zealand model was seen as best practice for a VAT/GST
regime.”
The EU has many problems of its own, taxation and otherwise, both within and outside its
multiple jurisdiction members. Thus it would be unlikely for the EU to focus its attention on
major reform to its members’ VATs until more pressing issues are resolved. Furthermore,
while the NZ GST model is the closest to “perfection” from a tax policy design perspective, it
can still be improved.
Thus could I be as bold to suggest that NZ’s GST should be the blueprint that is used by
jurisdictions when contemplating enacting a GST/VAT or refining their existing GST/VAT.
However, while NZ’s GST is ‘fit for purpose’ for NZ does this not mean it is entirely
appropriate for other jurisdictions, such as Australia (where there is a complex federationCommonwealth agreement underlying the determination and allocation GST revenues). This
issue comes to the fore in Australia as it contemplates reforming its current GST. Before
undertaking this analysis, it is important to examine the process by which tax policy is
a reduction in income tax and a tidying up of indirect taxes. A scare campaign by the waning Labour
Government saw them retain the government benches. For a more extensive analysis of the tax reform agenda in
Australia, see Richard Eccleston, “The Tax Reform Agenda in Australia” (2013) 72(2) Australian Journal of
Public Administration 103-113.
Eugen Trombitas (PwC), “GST: One of our Best Exports” (2012) PwC Media release (28 January); available
at: http://www.pwc.co.nz/media-centre/opinion-pieces/gst-one-of-our-best-exports/ (accessed 3 August 2012;
emphasis added). The NZ Retailers Association has also called for the exemption from GST for imports less
than
$NZ400
(approximately
$HK2,600)
to
be
scrapped;
see
http://www.stuff.co.nz/business/industries/4514945/Call-to-scrap-GST-policy-on-some-imports (accessed 3
August 2012).
16
7
developed and implemented in NZ.
3.0
New Zealand’s Tax Policy Approach – the Generic Tax Policy Process
In this section of the paper, I set out a summary of the experience of the operation of the
GTPP in NZ, along with the approach and impact that the Tax Working Group (TWG) had as
the most significant recent contribution to tax reform in NZ in the last five years.
3.1
The GTPP
The following discussion is based on a recently published review of the NZ GTPP, reflecting
upon its perseverance over the almost twenty years since it was first proposed, and
subsequently adopted by the NZ Government. As I have commented elsewhere,17 NZ chose
to take a new and innovative route in the mid-1990s with the adoption of the GTPP, a
blueprint for formulating tax policy. As noted in the introduction to this paper, the GTPP
emerged as a bi-product of a review of the NZIRD conducted through the Organisational
Review of Inland Revenue chaired by Rt Hon Sir Ivor Richardson.18
A Cabinet directive implemented the GTPP during the review process as a form of
administrative or customary practice, rather than formally by way of legislation or regulation.
This approach in part, as noted elsewhere, reflects both the strengths and weaknesses of the
GTPP.19 In part the GTPP arose from consultation undertaken by the Organisational Review
Committee with tax experts from both the private and public sectors. Importantly, the GTPP
is in stark contrast to the previous policy environment, characterised by an absence of clarity
and ascertainable accountabilities during each stage of the process. Furthermore, the
perception was that the external consultation was insufficient to the extent of being virtually
ineffective.20
With the GTPP, the NZ government and officials are able to draw upon the technical and
practical expertise of the business community, and to factor in compliance and administrative
effects of potential policy changes. Furthermore, it also provides a mechanism to
17
Sawyer, above n 12.
18
Rt. Hon Sir Ivor Richardson, Organisational Review of the Inland Revenue Department, Report to the
Minister of Revenue and the Minister of Finance, (April 1994). Sir Ivor Richardson was also instrumental in his
oversight of the Rewrite Advisory Panel that worked alongside the NZ Government’s fourteen year project to
rewrite the Income Tax Act; for an analysis see Adrian Sawyer, “RAP(ping) in Taxation: A Review of New
Zealand’s Rewrite Advisory Panel and its Potential for Adaptation to Other Jurisdictions” (2008) 37(3)
Australian Tax Review 148–163.
19
Sawyer, above n 12, 403.
20
Ibid, 403.
8
communicate the rationale for policy changes. The GTPP may appear to be complex and
potentially unwieldy, but when examined closely, it provides a comprehensive and robust
structure for the development, refinement and enactment of tax policy into legislation.21
Figure 1 sets out the GTPP in diagrammatical form.
Figure 1: The Generic Tax Policy Process (Organisational Review Committee, 1994)
For an in-depth early discussion of the various stages of the GTPP, see Adrian Sawyer, “Broadening the
Scope of Consultation and Strategic Focus in Tax Policy Formulation: Some Recent Developments” (1996) 2(1)
New Zealand Journal of Taxation Law and Policy 17–39.
21
9
The GTPP has five core stages, each of which has their own phases, totalling 16 phases. The
GTPP contains a number of external inputs and feedback loops, including a post
implementation of legislation review. Throughout the GTPP, the linkages and feedback loops
are intended to reflect a flexible process that recognises that some activities may occur
simultaneously or in a slightly modified order, such as the timing of legislative drafting
(within Phases 6–12). Essentially the GTPP is designed to improve the technical quality of
the tax reform process, whatever the political background of the government at the time.
Nevertheless, the subject matter of reform is usually firmly based on the government of the
time’s economic, fiscal and revenue strategies (Phases 1–3). A further feature of the GTPP is
the requirement for the government to announce annually its Rolling Three Year Work
Programme.
Furthermore, the GTPP has three main objectives which stimulated the government’s
decision to adopt the process.22 First, the GTPP encourages earlier and explicit consideration
of key tax policy elements and trade-offs through linking the first three stages. Secondly, the
GTPP provides an opportunity for external input into the process for formulating tax policy to
increase both the actual and perceived transparency of the process, and provide for greater
contestability and quality of policy advice. Importantly, consultation can occur at the initial
stage of policy consideration, the detailed design stage, the legislative drafting phase, the
select committee stage and the post-implementation review. Thirdly, the process sets out to
clarify the responsibilities and accountabilities of the two major departments actively
involved in the process, namely the NZIRD and the NZ Treasury.
Within the Passage of Legislation Phase (Step 13), there are several key steps, as set out in
Figure 2, which follows:
22
Sawyer, above n 12, 404.
10
Figure 2: Process for enacting government initiated changes to NZ’s laws23
One minor but yet important weakness in the GTPP is that late policy or legislative
developments may be added by way of a Supplementary Order Paper (SOP)24 during the
23
Source: NZ Parliament, How a Bill becomes Law (2014); available at: http://www.parliament.nz/resource/ennz/00CLOOCHowPWorksLawsHow1/f072ccbc5a57287160d2511b5504c7de078915fd (accessed 7 October
2014).
11
parliamentary phase (post select committee), and as a consequence such policy is not exposed
to public scrutiny via formal consultation. Where the change is remedial and corrective of
minor defects in existing legislation this is not of significant concern. 25 However, with the
introduction of significant new developments, this effectively bypasses the GTPP and is a
real concern since this late political involvement may fail to maintain the technical quality of
the legislation that the GTPP provides.26 I have previously27 reviewed the prior literature on
the GTPP and examined why it has been successful and managed to survive the highly
political policy environment that operates in NZ. One important element has been its
adaptability to change to the various manifestations of political policy development in NZ,
along with the electoral system, and a general acceptance of its merits from politicians across
the spectrum.
A further challenge to the GTPP came about with the commencement of the MMP political
system shortly after adoption of the GTPP in 1996. When the GTPP was introduced, NZ had
a First Past the Post (FPP)28 election system for its single house Parliament, the House of
Representatives. However, since the 1996 General Election, all general elections utilise a
MMP representation system. While MMP was anticipated to lead to less significant and much
more protracted tax policy development, it has not prevented major tax reform in NZ. This is
where the TWG, most recently, has complemented the contributions of the GTPP to tax
policy development in NZ.
3.2
The Victoria University of Wellington Tax Working Group
I have commented previously29 that, following a conference held at Victoria University of
Wellington (VUW), it was decided to establish an independent group (known as the TWG)
24
An SOP is a late legislative amendment introduced by the government at the Second Reading of the Bill stage
(during Step 13 in the GTPP) after the Select Committee has reported on the Bill (i.e., after the consultation
process has been completed). Step 13 in reality involves several steps, as shown in Figure 2.
25
Sawyer, above n 12, 404.
See the comments of Peter Vial, “The Generic Tax Policy Process: A “Jewel in Our Policy Formation
Crown”?” (2012) 25(2) New Zealand Universities Law Review 318–346.
26
27
Sawyer, above n 12, 404–425.
28
FFP is a system whereby the person who receives the highest number of votes for their electorate seat will
win that seat. The party with the highest number of electorate seats will then be asked to form a government. If
that party has more than 50 per cent of the electorate seats then it can become the government without needing
to form a collation with one or more additional parties. Usually a government would be formed by a single
political party that held a majority of electoral seats.
Adrian Sawyer, ‘Moving on from the Tax Legislation Rewrite Projects: A Comparison of New Zealand Tax
Working Group/Generic Tax Policy Process and the United Kingdom Office of Tax Simplification’, (2013)
British Tax Review, No 3, 321-344.
29
12
comprising experts from academia, NZIRD, NZ Treasury and tax practice, to undertake a
review of the NZ tax system from a core principles policy focused perspective. 30 The TWG
differed from earlier reviews of the tax system in NZ, such as the Tax Review 2001,31
specifically in that it was not a NZ Government initiative, and that its terms of reference were
self-generated. Furthermore, while the TWG received resource support from the NZIRD and
the NZ Treasury, it operated separately from and outside the “government appointed
committee” framework of earlier tax reviews.32 It is arguable that this was a critical factor in
its success, in that the TWG complemented the role of the GTPP which seeks to remove, as
far as practicable, political influences on the process of tax reform (after the Strategic Phase),
with respect to producing high quality legislation. In this regard the TWG is not a necessity
for an effective GTPP, but it facilitated the development of higher quality policy and
legislation through its input into the GTPP.33
The TWG undertook widespread consultation and extensive reporting to government, which
resulted in a series of recommended options for major tax policy reform. 34 The TWG sought
to:35
(1)
identify concerns with the current taxation system;
(2)
describe what a good tax system should be like;
(3)
consider options for reform; and
(4)
evaluate the pros and cons of these options.
Details of independent, Inland Revenue and Treasury members of the TWG can be found at “The Centre for
Accounting, Governance and Taxation Research – VUW Tax Working Group” available at
http://www.victoria.ac.nz/sacl/cagtr/twg (accessed 21 May 2013). Details of the number of experts who assisted
the TWG are also provided.
30
31
The Tax Review 2001 (also known as the McLeod Review) was established by the NZ Government in 2001
to carry out a public review into the tax system. The functions of the Tax Review 2001 were to: examine and
inquire into the structure and effects of the tax system in NZ; to formulate proposals for improving that system,
either by way of making changes to the system, abolishing any existing form of tax, or introducing new forms of
tax; and to report to the NZ Parliament through the Minister of Finance, the Minister of Revenue and the
Minister of Economic Development. The terms of reference were set within the constraints of maintaining
revenue
neutrality
with
any
recommendations
for
change;
available
at
http://www.treasury.govt.nz/publications/reviews-consultation/taxreview2001 (accessed 21 May 2013).
32
These operate within the External Input phase of the GTPP.
33
Sawyer, above n 29, 323.
Tax Working Group, A Tax System for New Zealand’s Future Report of the Victoria University of Wellington
Tax Working Group, (Centre for Accounting, Governance and Taxation Research, Victoria University of
Wellington, January 2010) (A Tax System for New Zealand’s Future).
34
See A Tax System for New Zealand’s Future, above n 34, 19. For further details, see The TWG Report
available at http://www.victoria.ac.nz/sacl/cagtr/twg/report (accessed 21 May 2013).
35
13
In its 2010 Report, the TWG concluded that NZ’s tax system faced three critical issues:36
(1)
its structure was inappropriate;
(2)
it lacked coherence, integrity and fairness; and
(3)
significant risks to the sustainability of the tax revenue base existed.
Consequently, the TWG established six principles for reform,37 and made a number of
significant recommendations for reform, including major changes to tax rates, structures and
bases.38 The TWG referred its recommendations, which included a series of options or
combinations of structural tax reforms, to the NZ Government for its consideration.39 Several
months later, in its Budget delivered on 20 May 2010, the NZ Government announced a
major overhaul of the NZ tax system, adopting many of the recommendations of the TWG.40
3.3
Interaction between the TWG and GTPP
Turning the focus on how the TWG operated within the GTPP, prior analysis41 reviews the
comments on the contributions of the TWG within the GTPP environment from those
involved either as members of the GTPP, advisors, and expert consultants. Collectively these
commentators/academics emphasise the importance of the interdisciplinary backgrounds and
expertise of those involved, the attempt to rationalise tax policy debate, and engaging the
public in the debate. A major constraining factor with most reviews, the TWG being no
exception, is the revenue neutral constraint placed on reviews. Focussing on addressing issues
of fairness, especially horizontal equity, was also crucial to the TWG’s success.
I have observed that the work of the TWG illustrates a recent example of the operation of the
GTPP, through an extension of the usual external input into the policy making process,
namely an independent temporary advisory body that has made one of the more significant
contributions to tax policy development in NZ.42 The GTPP has continued to operate largely
36
Ibid.
37
The six principles are: the overall coherence of the system; efficiency and growth; equity and fairness;
revenue integrity; fiscal cost; and compliance and administration costs.
38
For a summary, see Tax Working Group, above n 34, 10–11.
The recommendations were included in the TWG’s January 2010 report that was publicly available; see Tax
Working Group, above n 34.
39
40
For details of the New Zealand Budget 2010 announcements see: http://www.treasury.govt.nz/budget/2010
(accessed 21 May 2013).
41
Sawyer, above n 29, 322–327.
42
Ibid, 329. See also Vial, above n 26.
14
unscathed under both left-of-centre and right-of-centre governments. Thus, it is my
contention that the GTPP (even without the TWG), has facilitated a surprisingly high level of
tax policy review that in turn has led to significant structural and legislative tax reform. This
is all the more remarkable in that NZ operates under a MMP system that usually leads to
coalition (minority) governments, although the outcome of the most recent 2014 General
Election offered the party with the largest party vote the opportunity to govern alone.
Overall, I would argue that the GTPP, (even without the contribution of the TWG), is
genuinely world-class, illustrating how politics can be separated from much of the tax reform
and review process.43 Nevertheless, this comment should not be interpreted as indicating that
taxation is not inherently political – policy ideas will almost always be put forward by
politicians and governments. In that regard the GTPP offers an alternative approach from
which other jurisdictions, such as Australia, may be inclined to examine further, with the
GST reform debate a potential catalyst for examining NZ’s GTPP more closely.
4.0
The Debate over Reforming Australia’s GST
To recap – why has NZ’s GST been successful (and potentially why Australia’s GST has not
reached its full potential)? First, extensive consultation was undertaken prior to
implementation – this included key policy framework and later a detailed operative structure
emerged. Initially this was undertaken without the GTPP, but recent reforms (including those
in 2010), were undertaken via the GTPP.
Second, the consultation led to minimal compromise with NZ’s GST, where there was
arguably greater focus on efficiency, less so on equity. To support this observation, NZ has a
C-efficiency rating of around 99 percent from OECD – no other GST/VAT comes close.
However, this is at the expense of taxpayer equity/fairness in relation to lower income
earners. Most other jurisdictions have adopted a more equitable, and less efficient and simple
GST/VAT.44 This may suggest that taxpayers (and the government) in those jurisdictions are
‘different’ that those in NZ. This may be the result of a range of factors such as different
patterns of industrialisation and urbanisation, and different perspectives regarding such issues
43
This point was made at presentation made by invitation to officials from the Australian Treasury, Australian
Tax Office, and Office of Australian Small Business Commissioner; see Adrian Sawyer, A Review of (Tax)
Policy Development in New Zealand: A Conversation (16 April 2014).
For comments on the UK’s reasons for implementing their VAT, see Simon James, “The contribution of
behavioural economics to tax reform in the United Kingdom” (2012) 41 The Journal of Socio-Economics 468,
472-474.
44
15
as the expected roles of government in areas such as income redistribution, food pricing,
agriculture and ‘essential’ goods and services.
Establishing itself as the international benchmark, no other jurisdiction has had the same level
of political will to recommend and retain a theoretically pure GST from an efficiency
perspective. As far as I am aware no non-OECD member country has a GST/VAT that comes
close to the NZ GST on the basis of this measure, but whether this is the most appropriate
measure to assess a VAT/GST is a debatable point. Other measures, such as the degree of
equity, may be more appropriate for some jurisdictions.
Third, the economic environment of the time of proposing the VAT/GST is an important
factor. New Zealand was facing a dire situation economically and fiscally in 1984, whereas
few countries that implement a VAT/GST have been in that situation at the time. While
Australia is not facing the same environment at NZ did in the mid 1980s, the pressure for
raising additional government revenue, as well as the tax mix and ‘failure’ to review GST as
part of the Henry Review, suggest the environment is ‘right’ to review the Australian GST
now.
Fourth, there is evidence of the success of the NZ approach through the sustainability of the
consumption tax. Thus, even after nearly 30 years of operation, only minimal changes have
been made, largely to increase reliance in indirect taxes by increasing the rate, to expand the
base and to clarify some key concepts.
In relation to policy development, an important observation is that both the GTPP (and to a
lesser extent the TWG) are structures that emerged following recommendations of review
groups that were not set up by the NZ Government to reform tax policy. The GTPP was a
recommendation from the Organisational Review of the NZIRD,45 and arguably while it was
not the most significant of its recommendations for the NZIRD and the NZ Government, it is
one that has had a substantial impact on tax policy development in NZ since it adoption in
1994. That said the GTPP’s course has not always been one with smooth sailing, with a
number of obstacles and challenges faced along its journey, especially in 1999–2000 and
more recently in 2010.46 One factor behind its resilience47 can be attributed to the insights and
perceptions of the GTPP’s architect, Sir Ivor Richardson.
45
See Richardson, above n 5.
46
For a discussion on the GTPP’s most recent “failing”, see Vial, above n 26.
47
See Sawyer, above n 29, 329.
16
Furthermore, its strength is attributable to NZ’s constitutional framework and unicameral
Parliament, along with the conscious decision each Government must make to using it as the
basis for tax policy development. Nevertheless, the relative ease with which a government
can bypass or circumvent the GTPP’s processes demonstrates its major weakness, and to that
extent, demonstrates the GTPP’s relative ‘fragility’.
Little et al. comment in relation to the transportability of the GTPP:48
“When considering the transportability of the GTPP, it is important to recognize that
because New Zealand’s relatively small size facilitates interactions between key tax
practitioners and officials, it is easier for the GTPP to work in New Zealand than would
likely be the case in a much larger economy. The GTPP also works well in New
Zealand because there is a clear and coherent policy paradigm that is well understood,
and the private sector has bought into the process. To that extent, policy settings that
are amenable to the GTPP will be less flexible than would otherwise be the case.”
While there are substantial differences between the legislative and constitutional frameworks
in NZ and Australia I do not see these differences as necessarily preventing the development
of a tax policy process based upon the GTPP model that could fit within Australia’s
constitutional and legislative structure, assuming that transparency and broader consultation
are considered to be essential features of tax policy development. This is perhaps a debate
best left to another day. Returning to the focus of this paper, what could be the way forward
for Australia in its GST reform debate?
It is useful to first briefly review the development of GST in Australia. Australia’s GST law
was introduced into Parliament on 2 December 1998. It came into effect in 2000 with
enactment of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). The
introduction of GST is arguably the last significant economic reform implemented in
Australia. Like NZ in the mid 1980s, it achieved a major broadening of the tax base, with a
move towards higher levels of indirect taxation. However, the Australian GST regime was
‘hampered’ by political compromise from the outset, something that was not necessary with
NZ’s GST introduction.49 The Democrats demanded that food be exempted from GST in
order for their support. The annual ‘cost’ of this exemption in terms of lost potential revenue
48
Little et al, above n 7, 1055 (emphasis added).
49
For a comprehensive review of the history of the introduction of the GST in Australia, including the role of
the Democrats, see Anika Gauja, “The Pitfalls of Participatory Democracy: A Study of the Australian
Democrats’ GST” (2006) 40(1) Australian Journal of Political Science 71-85. See also Graeme S Cooper and
Richard J Vann, “Implementing the Goods and Services Tax” (1999) 21 Sydney Law Review 337-436; and
Susan S Morse, “How Australia Got a VAT” (2011) The VAT Bible, University of California, Hastings College
of Law (Tax Analysts).
17
is estimated to be more than $A5 billion.50 Broadening the base by removing the exemptions
for food (without removing those for health and education), as well as an increase in the rate
to 12.5 percent, could raise up to an additional $A14 billion (net of financial compensation to
lower income households) to be allocated amongst the states.51 These exemptions also make
the GST regime significantly more complex and therefore more costly in compliance terms.
Stitt states in relation to the exemption for food:52
“The social objective of the Democrats in exempting food from GST was to protect
those on lower incomes. The biggest beneficiaries of that decision are, in fact, the rich.
The final report of the Henry Tax Review highlighted this, stating that ‘absolute
expenditure on GST free food is almost six times greater for the highest than the lowest
income groups’. The report also stated that ‘it is very difficult to target GST exemptions
on some products to certain groups’ and that ‘income redistribution to make Australia
fairer is primarily the job of the personal income tax and transfer system’. The message
was clear. Food should be subject to GST and low income groups should be
compensated by other means.”
Furthermore, Australia’s GST regime currently applies to just over half the consumption
base, giving it a relatively low C-efficiency rating of 48 percent. This figure is below the
OECD average of 55 percent.53 Furthermore, at 10 percent the rate is low by international
standards. New Zealand’s rate is now 15 percent and the tax applies to nearly 100 percent of
the consumption base, reflected in its very high C-efficiency rating of 99 percent. In the
United Kingdom (UK), VAT is imposed at the rate of 20 percent, and in Sweden it is 25
percent.
Should there be an increase in Australia’s GST rate to 12.5 percent (as NZ did in 1989), or
even further, as high as 15 percent (like NZ)? Furthermore, should the exemption for food be
removed entirely? A rate increase would involve minimal additional compliance costs and the
exemption for food removal would in all likelihood reduce compliance costs. Issues of
fairness could be addressed through the income tax and transfer system, something that NZ
did in 1986 and in 2010. The additional GST revenue could be used to fund substantial
income tax cuts as part of an overall package. So why is this potentially so difficult? Any
Ross Stitt, “Politics Trumps Policy to Silence GST Debate” (2011) Allens Insights; available at:
http://www.allens.com.au/med/insights/insights29julXI.htm (accessed 19 November 2014).
50
The Gratton Institute’s estimates from the broadening the GST tax base could bring in an additional $A31
billion; see Jack Snelling, “State Tax Reform and GST” (2013) 47(9) Taxation in Australia 555-559, at 556.
51
52
See Stitt, above note 50, emphasis added.
53
See further OECD, Second Meeting of the Global Forum on VAT (April 2014); available at:
http://www.oecd.org/ctp/consumption/presentation-session-1-aujean-taj-second-global-forum-on-vat.pdf
(accessed 21 November 2014).
18
progress with GST reform in Australia requires a resolution of the difficulties inherent in the
entitlement of the states to GST revenue while the Federal Government legislates and collects
it.
A ‘perfect opportunity’ for this debate over GST was the Henry Tax Review.54 The Federal
Government excluded GST from the terms of reference for the Henry Tax Review, yet GST
was the subject of a number of comments in the final report. In particular the final report
specifically stated that ‘a narrower GST does not mean it is fairer, but adds complexity’. As
Stitt states:55
“Given the views expressed by the International Monetary Fund, the Productivity
Commissioner, the Henry Tax Review, why is it that our politicians, whatever their
party, will not even countenance a review of the GST regime? Depressingly, the simple
answer is that politics trumps policy in Australia. Over the last decade the politics of
fear and greed have supplanted political leadership and moral authority. Short term selfinterest has replaced the national good. Voters are now bought not persuaded, and
economic reform is hostage to entitlement politics. ... It’s not hard to imagine the level
of political discourse that would ensue if either major party called for a review of
GST.”
An opportunity was lost to include GST in the debate of the Tax Forum in October 2011.56
Furthermore, in the GST Distribution Review, which was announced in March 2011, there
was potentially an opportunity to examine the rate and base of the GST. The scope of terms
of reference and guidance provided to the GST Distribution Review Panel effectively
prevented any consideration of changes to the rate of GST or the base. Furthermore,
equalisation was considered to have served the federation well and would not be able to be
dispensed with, but the GST Distribution Review Panel could change aspects of it. The GST
Distribution Review noted that the GST was far from comprehensive, with the major
exemptions being areas where the greatest growth in consumption will occur with rises in
income and an aging population.57 If the GST model is left unaddressed, this will place
54
Commonwealth of Australia, Australia’s Future Tax System: Report to the Treasurer (2010).
55
See Stitt, above note 50, emphasis added.
56
See further: http://www.treasury.gov.au/Policy-Topics/Taxation/Tax-Forum (accessed 19 November 2014).
57
See GST Distribution Review, Final Report (October 2012), Chapter 11; available at:
http://www.gstdistributionreview.gov.au (accessed 20 November 2014). For further discussion see, Snelling,
above n 51; and Bruce Carter, “GST Distribution Review” (2013) 47(9) Taxation in Australia 560-566.
19
increasing strain on States’ budgets. The GST Distribution Panel emphasises the need for
taking a longer term vision, including reviewing the base and rate of GST, stating:58
“Specifically, the Panel believes that, in the longer term, the national debate around
matters such as the rate and the base of the GST, and public financing arrangements
more generally, needs to be ‘unfrozen’.”
This is reinforced by Carter’s comments:59
“The problem with the GST, and again the Treasurer spoke about that, it only covers
60% of expenditure and the 40% that it doesn’t cover is where all the growth is. So this
growth tax is now centred upon the non-growth part of the economy. Things like health
and education, and fresh food and all the other exemptions that are left uncovered by
GST, growth facilitates some of these changes.
The other aspect of GST, and it’s set out in the back of our report, is that our rate at
10% is amongst the lowest of the comparator OECD countries. Indeed, when you look
at the other countries that are lower than us, a lot of them — so Canada’s an example
— a lot of them have their own provincial sales taxes, or their own provincial taxes.
There’s a chart that sets that out in the back there.
So both sides of parliament have said that there is no proposal or support for
increasing the cover of GST, or the rate, but when you look at it from the point of view
of where else do you go, it’s very difficult, as the Treasurer said, to ignore the
opportunities that may or may not exist there.”
Until Prime Minister Abbott’s speech of 25 October 2014,60 the Federal Government has
continued to reaffirm that it would not change either the rate or the scope of GST. Perhaps
now we will see the level of political discourse increase, or as the Prime Minister would put
it, to be had in the context of “... a mature debate on reform of the Federation”.61 However, is
a debate on GST reform in this context less likely to lead to meaningful and rational debate,
than one where the GST is separated out of the federation debate?
So what has led to the reinvigoration of the GST debate? At issue is an amount of
approximately $A54 billion of tax revenue collected by the Federal Government and
allocated to the states, couched within the guise of reviewing the state of the Australian
federation. States are facing collectively an estimated shortfall in their budgets of $80 billion
58
See GST Distribution Review, above n 57, section 11.3. One significant recommendation was to lower the
threshold for inclusion of imports into the GST net from the current $A1,000 to $A500; see recommendation
11.2.
59
See GST Distribution Review, above note 57, at 563 (emphasis added).
60
Tony Abbott, Speech given at the Sir Henry Parkes Commemorative Dinner, Tenterfield (25 October 2014).
Samantha Maiden, “Tony Abbott floats increased GST, relinquishing education, health to states and tax cuts
for workers” (2014) The Sunday Telegraph (November 9). Mr Abbott stated: “I’m inviting Australians to enter
into a debate, a mature debate about an important subject rather than dig trenches and hurl insights at each
other.”
61
20
in 2014, and reliant upon the Federal Government for special purpose payments.62 This is a
‘political fire ready to spark’. Prime Minister Abbott included hints at reviewing GST in his
address:63
“Alternatively, the Commonwealth could stop funding programmes in areas of state
responsibility and stop using its financial power to influence how the states deliver
services. In that case, the Commonwealth would be ready to work with states on a
range of tax reforms that could permanently improve the states’ tax base – including
changes to the indirect tax base with compensating reductions in income tax. ...
Together, the Commonwealth and the states should be prepared to look at all our
existing taxes to make them lower, simpler and fairer.”
Fueling the politicization of the debate were comments made in the Prime Minister’s speech,
when placing the Commonwealth-State divide at the heart of federation and tax policy
challenges, such as: “We would be failing in our duty not to consider better management of
the ‘dog’s breakfast of divided responsibilities’ that characterises this Australian federation
today.”64
Arguably given the history of policy debates, this will be at the expense of rational policy
analysis? Will it be more like scenes from the famous BBC comedy Yes Minister and Yes
Prime Minister?65 The Queensland Economy Watch sums it up aptly:66
“The budgetary challenges facing the Commonwealth and State Governments across
Australia certainly mean that raising more revenue from the GST is a very attractive
proposition for Governments. The Commonwealth can blame the States, saying they
wanted it, while the States can say they were forced into it by reductions in
Commonwealth funding. The States, which get the increased GST revenue, get more
revenue to meet their budgetary challenges, and the Commonwealth can save money
Gareth Hutchens and James Massola, “Tony Abbott takes gamble on federation reform” (2014) The Sydney
Morning Herald (1 November); available at: http://www.smh.com.au/federal-politics/political-news/tonyabbott-takes-gamble-on-federation-reform-20141031-11eqzu.html (accessed 19 November 2014).
62
63
See Abbot, above note 57, emphasis added.
64
Ibid, emphasis added. For a discussion on how to fix the Australian federalism situation, see Robert Carling,
“Fixing Australian Federalism” (2008) 24(1) Policy 30-37; and Robyn Hollander and Haig Patapan, “Pragmatic
Federalism: Australian Federalism from Hawke to Howard” (2007) 66(3) Australian Journal of Public
Administration 280-297.
65
An analogy to the famous TV series was made in relation to the GST Distribution Review, commissioned by
the Gillard government, where Tasmanians were encouraged to recall Sir Humphrey's advice when thinking
about the implications of the GST Distribution Review. See Saul Eslake, “Redistribution of GST would hit state
hard”
(2011)
The
Examiner
(11
October);
available
at:
http://www.examiner.com.au/story/435225/redistribution-of-gst-would-hit-state-hard/ (accessed 19 November
2014). To the author’s knowledge, no significant recommendations for change were ever put forward, other
than the threshold level for inclusion of imported goods. This outcome is largely a casualty of the scope of the
review.
66
Queensland Economy Watch, GST hike appears very likely, but Commonwealth retreat less so (2014);
available at: http://queenslandeconomywatch.com/2014/10/27/gst-hike-appears-very-likely-but-commonwealthretreat-less-so/ (accessed 19 November 2014).
21
through reducing other grants to the States. Ultimately, the States and the
Commonwealth all win and everyone blames each other.”
Achieving a change in GST necessitates following an intergovernmental agreement between
the Federal Government and the State Governments that changing the GST rate or base
requires unanimous support from the Commonwealth and all the States and territories, as well
as successful package of legislation through the Federal Parliament.67 Previous Treasurer,
Wayne Swann, hinted that unanimity may not be necessary between the states and territories
before making changes.68
Behind the scene discussions with state leaders suggest that the Prime Minister has hinted
that any increase in GST, which would not occur until after the the next election, would
require the agreement of the states, and include tax cuts to compensate pensioners, families
and low income earners.69 Politically, has the Prime Minister got the support of his Cabinet,
his Government, and the states and territories, for this debate?
Prior to the Prime Minister’s recent speech, a call was made for having a debate over GST:
“The time for a proper debate is upon us, even if the government has warned there would be
no change in the life of this parliament.”70 While not the focus of the commentary, the author
states:71
“Australia’s GST is less efficient than it should be. It is certainly less efficient than its
counterpart in New Zealand. There are sound arguments for expanding the base of the
GST in Australia to make it more efficient. The arguments in favour of increasing the
rate are less clear. ... “
One early salvo into the debate comes from the Institute of Public Affairs Australia72 which is
firmly against any increase in the GST tax base or rate. Using equity grounds, the growth in
67
The Intergovernmental Agreements signed in 1999 and again in November 2008 by the Prime Minister, the
Premiers of the six States and the Chief Ministers of the two Territories require all the revenue from the GST to
be passed to the States and Territories. They also state that the GST should be distributed among the States on
the basis of horizontal fiscal equalisation. The methods used to derive the GST shares are reviewed every five
years. See further John Spasovejic and Malcolm Nicholas, “Fiscal Equalisation in Australia” (2013) 72(3)
Australian Journal of Public Administration 316-329.
68
See Queensland Economy Watch, above note 66. However, given the composition of the GST Redistribution
Panel, and the restrictive terms of reference, the likelihood of the Treasurer needing to consider making good on
this statement were slim at best.
69
See Hutchens and Massola, above n 62.
70
BJM, “Commentary: The Use and Abuses of GST Reform in Australia” (2013) 23(1) Revenue Law Journal 1-
2.
71
Ibid, at 1 (emphasis added).
Mikayla Novak, “No to increasing GST” (2014) Online Opinion (3 November); available at:
http://ipa.org.au/news/3191/no-to-increasing-the-gst (accessed 19 November 2014).
72
22
GST revenues, and the challenges involved in gaining unanimity of approval between the
states and the Commonwealth, it advocates against increasing GST. This is a common stance
taken from those with a ‘left of centre’ perspective, where equity as a principle trumps all
others in importance.
A further contribution to the politicisation of the debate misrepresents the NZ GST situation,
attributing the NZ GST model as the catalyst for the change in political system to MMP.
Reith, a former minister in the Howard Government, states:73
“In reality, the rationale to change the GST base is limited. Australia has an
internationally, efficient, modern GST. The GST’s 58 per cent coverage of household
consumption is similar to other advanced economies. Yes, New Zealand has the purest
GST of any country but they ended up with a voter backlash that produced proportional
representation in their unilateral parliament.”
Comments such as these do little to inform the debate. Fifty eight percent coverage of the
base is low and certainly does not suggest that the GST is highly efficient. Mistaken
assumptions (or perhaps mischief making?) about the consequences of NZ’s GST only serve
to heighten the polarisation of taxpayers. MMP in NZ arose due to a general distrust of
politicians and the dominance of two political parties, with smaller parties not being
represented in Parliament. The MMP debate commenced in earnest in the early 1990s, with
MMP operating first with the 1996 general election; this was well after GST was put in place
in the mid 1980s. To be fair, discontent with the increase in the GST rate to 12.5 percent in
1989, without any compensation for lower income earners, may have been a contributing
factor to the subsequent MMP debate.
In contrast to Reith’s comments, Ward observes:74
“Australia can learn a lot from New Zealand’s ongoing tax reform ... Successive New
Zealand governments have sought to maintain a broad base, low-rate approach to their
tax base because it promotes fairness, economic efficiency and revenue integrity, and
keeps administration and compliance costs low. ...
In 2010 the New Zealand tax reform package increased its GST rate from 12.5 percent
to 15 percent and made the tax broader than it is in most other developed countries.
Successive governments rightly resisted calls to narrow it. New Zealand’s GST is the
Peter Reith, “Benefits of raising GST are not worth the political cost” (2014) The Canberra Times (November
5); available at: http://www.canberratimes.com.au/comment/benefits-of-raising-gst-are-not-worth-the-politicalcost-20141103-11fz21.html (accessed 19 November 2014).
73
74
See Ward, above note 1, plus a similar article available from Chartered Accountants Australia and New
Zealand: see https://www.charteredaccountants.com.au/secure/myCommunity/blogs/593665/leadership-andadvocacy/556/changes-in-gst-and-broader-tax-reform-should-be-on-tony-abbotts-agenda (emphasis added accessed 19 November 2014).
23
envy of many other countries and represents 10 percent of gross domestic product,
compared with 3.3 percent in Australia.
Providing taxpayers with a reasonable degree of certainty is critical to maintaining the
integrity of the tax system. Another lesson we could learn from New Zealand is in its
generic tax policy process, which has been followed by successive New Zealand
governments since 1994.
The GTPP sets out the rules on developing, enacting, implementing and reviewing tax
policy, and is admired internationally as a reform process that enables the government
to develop tax law in close consultation with business, tax professionals and
stakeholders, encouraging early consideration of key policy elements.”
The advantages of a holistic bipartisan approach to tax reform, such as exercised under NZ’s
GTPP, include balancing the views of various sectors in society, examining the implications
rigorous research, and depoliticizing much of the tax policy development process.
Hull offers one of the most ‘mature’ and ‘balanced’ contributions to the GST debate yet to
emerge.75 Outside of the political rhetoric, Hull suggests the debate needs to incorporate
issues such as the base for the GST, through inclusion of education, at least to the extent of
private school fees; pseudo health; unprocessed foods; rents (but why stop there)? One major
concern about such ad hoc extensions will be determining the scope of the modified
exemption, adding complexity and compliance costs. In return there could be changes in the
income tax rates and thresholds as a form of compensation. Why not increase the rate to as
much as 15 percent (which would applies to the value added, not just the final consumer)?
Returning to Australia, the White Paper(s) on federation and reforming the tax system have
yet to emerge, and are promised by the Prime Minister to be released in the later part of 2015.
Feedback by way of consultation will form part of the debate, and potentially provide a
mandate for the Government to take to the next Federal Election in 2016. The Treasurer, Joe
Hockey, has stated that the Federal Government would take the case to broadening the GST
to the public at the next election provided that the states and territories agreed. Does this
proviso provide an ‘out’ and potential to blame the lack of progress on the states and
territories? Treasurer Hockey stated back in May 2014:76
“We promised the Australian people we would not introduce, increase or widen or
broaden or change the GST in this term of government. We’re honouring our promise
Crispin Hull, “Debate must be mature and included [sic] GST” (2014) The Canberra Times (1 November);
available at: http://www.crispinhull.com.au/2014/11/06/debate-must-be-mature-and-included-gst/ (accessed 25
November 2014).
75
Shalailah Medhora, “Tony Abbott pushes for reform of ‘dog’s breakfast’ of federalism” (2014) The Guardian
(26 October); available at: http://www.theguardian.com/australia-news/2014/oct/26/tony-abbott-pushes-forreform-of-dogs-breakfast-of-federalism (accessed 19 November 2014).
76
24
… If there is to be a change to the GST, or substantial changes in taxation, we will take
that to the next election. The process at the moment is to sit down with the states and
work through all the issues and also be up-front with the Australian people.”
The relationship between the states/territories and the Commonwealth continues to
experience tension, especially with the states and territories concerning how they should
divide up the GST collected by the Commonwealth. This is part of what is known as the
‘horizontal fiscal equalisation argument”: the idea that funds are distributed around Australia
on a basis that is intended to give all citizens access to the same level of services no matter
where they live.
Prior to the latest salvo in the GST debate, Apps and Rees have argued that the introduction
of GST in Australia shifted the tax burden towards middle and lower income earners, arguing
that the top marginal tax rates should be increased and not GST.77 GST is well known to be a
regressionary tax in that it has a higher impact on lower income earners, especially when it
has few exemptions for essential items, such as food, health and education.
When examining the equity effects of a GST, it is important to look beyond the tax itself and
the overall operation of the tax and transfer system. Barrett undertakes comparative analysis
of the VATs/GSTs in each of Australia, New Zealand, South Africa and the UK.78 From his
application of various tax philosophers, his conclusion is that the GST does not do well in
isolation on the grounds of equity, but with a wider perspective taking into account the justice
of the tax-transfer system, the position can be defended. To this end he concludes with a
quote from the Henry Tax Review in Australia:79
“Income redistribution to make [a country] fairer is primarily the job of the income tax
and transfer system … other taxes and charges can be used in the most efficient way,
reducing the overall complexity of the system. It is very difficult to target GST
exemptions on some products to certain groups.”
Without revisiting whether there should be a GST,80 the concern is that the Federal
Government, in order to meet the expectations and needs of the citizens, will need to increase
income tax rates and/or reduce the amount it pays to the states by way of specific purpose
77
Patricia Apps and Ray Rees, “Raise top tax rates, not the GST” (2013) 28 Australian Tax Forum 679-693.
78
Jonathan Barrett, “Equity and GST Policy” (2010) Journal of Applied Law and Policy 15-31.
79
Ibid, 31; citing Commonwealth of Australia, above note 53, vol 1, [D 2–1] (emphasis added).
80
Calls remain for the abolition of the GST in Australia from those at the political left of centre; see for
example, Alex Bainbridge, Abolish the GST, don’t increase it (November 5, 2014); at
http://www.greenleft.org.au (accessed 20 November 2014).
25
payments or national partnership agreement. Thus GST is at the centre of the debate over the
perceived imbalance between the states and the Commonwealth.
What is the chance of movement in the area of the GST base and rate, given the history of tax
reform in Australia? Eccleston suggest that there are three key conclusions, namely:81
1.
Given the political risks associated with tax reform, governments increasingly will only
promote proposals for tax policy change if they are convinced that inaction and nondecision making will be more politically damaging;
2.
With the contested nature of tax politics the turning point in the Australian policy
agenda, or the point at which the content and nature of the policy debates changes,
occurred with the second term of the Hawke Government (1984–87);82
3.
Despite the fierce partisan conflict concerning tax policy over the past two decades
there has been remarkably little difference between Australia’s two major parties at the
level of substantive policy content.
Eccleston suggests that while implementation style and rhetoric may be shaped by political
objectives, the content of policy is determined by underlying economic imperatives. Thus
there may be some hope that rational debate may emerge with the future of the GST in
Australia.
How then to move forward? In revisiting the tax mix Tingle suggest that a starting point
could be evening up the state taxing and spending powers:83
“If you looked at personal tax cuts purely from the perspective of compensating people
for higher indirect tax cuts, ... the government would have to give back, at a bare
minimum, $1 in every $6 raised – or about $2 billion a year.
When John Howard introduced the GST in 2000, ... he gave back as compensation 55
per cent of the revenue raised, about one in every $2 raised.
If you add into the equation the complexities of redrawing the personal income tax
scales to address bracket creep, and the fact the GST is seen as a deeply regressive tax –
which hits low-income earners hard – things get really complicated.”
81
See Eccleston, above note 15, 110-111.
82
This corresponds to the most significant period of tax reform in NZ with the Labour Government of 19841987.
Laura Tingle, “The Tax Carve Up” (2014) The Australian Financial Review (1 November); available at:
http://www.afr.com/p/national/economy/the_tax_carve_up_45OwfulGU9ccSj6ZaVlkRI (accessed 19 November
2014).
83
26
This is where the NZ experience, especially that with introducing the GST in 1985, and major
review in 2010 by the TWG, provide useful guidance. Given that this is not a question of
introducing a GST, then it is the 2010 TWG recommendations that led to major reform
through Budget 2010 are on point. As Ward observes,84 these changes have seen a further
move towards indirect taxation with further broadening of the GST base, a decrease in
income tax rates, and financial support for lower income earners through the tax and welfare
systems.
The success of NZ’s GST reform since its enactment would arguably not have been as
effective had it not been for the GTPP that operates in NZ since 1994. Openness and
transparency in the debate, involving business, tax professionals and other stakeholders,
encourages early consideration of key policy issues and reduces the level of remedial work
needed post implementation. The focus is on longer term issues, rather than political
expediency directed at achieving short term gains in advance of the next general election. It
also removes much of the ‘politics’ out of the consultation, directing attention to the
underlying issues informed by rigorous research and analysis.
However, as discussed in prior research,85 there is not universal acceptance of NZ’s GST
model, although all major political parties appear to accept that the creation of exemptions for
certain items, such as certain foods, should be avoided. Some minor parties continue to
advocate for a reduction in the rate to 12.5 percent or certain exemptions, although there is no
expectation of any moves to revisit the GST rate or base before the 2017 general elections.
Furthermore, the experience with the GTPP has not always been ‘smooth sailing’, evidence
by two significant departures in 1999 and 2010, concerning the move to a 39 percent top
marginal tax rate (since repealed), and the introduction of the Look Through Company (LTC)
regime to replace Loss Attributing Qualifying Companies (LAQCs).86
5.0
Conclusions
Taxes are inherently political, and unsurprisingly any debate over tax policy will involve
political rhetoric and posturing. Nevertheless, debate can be less political when politicians
involve other stakeholders, including businesses, tax professionals and citizens, in a process
84
See Ward, above note 1.
See for example, Adrian Sawyer, “New Zealand’s Successful Experience with Introducing GST: Informative
Guidance for Hong Kong?” (2013) 43(1) Hong Kong Law Journal, 161-187.
85
For discussion on these ‘challenges’ to the GTPP, see Sawyer, above note 12. In relation to the 2010 ‘failure’
to utilise the GTPP with regard to LTCs, see Vial above note 26.
86
27
that strives to look beyond the political ramifications of tax policy, and instead focus on what
is in the best interests of a country, including the stakeholders in the policy debate.
New Zealand has been successful with most of its tax policy debates, premised upon a
number of key principles. With regard to GST, NZ arguably has a major (and unfair)
advantage over Australia – it started with a GST close to the theoretical (and practical) ideal
model in terms of efficiency, effectiveness and minimising compliance costs (with equity
issues dealt with through the tax and transfer systems separately). Outside of the GST itself,
NZ has other key principles that facilitate tax policy development, which include:

fundamental structures such as the GTPP, which encourages transparency and
consultation;

the involvement of independent experts, including the use of consultative bodies (such
as the TWG most recently);

an independent and well-respected public service (with regard to tax policy and
administration); and

the advantage of being smaller and less complex, in terms of population, economic
scale, and constitutional structures, compared to Australia.
What of the prospects for Australia in its GST debate? One major hurdle is whether it will be
possible (assuming this is feasible and desirable) to separate out the GST debate from that of
the constitutional issues of the Federation, including the relationships between the states and
territories, with the Commonwealth. I acknowledge that the GST debate is closely aligned
with the constitutional debate with the Federation, but for any chance of an effective debate
over GST will require the constitutional aspects of the Federation be ‘put to one side, with all
stakeholders involved debating the issues and not the personnel. Perhaps a special panel
needs to be established, similar to that for the GST Distribution Review, with a mandate for
reviewing fundamental GST policy, such as the scope of the base, and the rate.
Fundamentally this requires a debate over the relative mix of taxes, and whether a broad
based low rate (BBLR) model should apply. Indeed while it is often argued that the people
should decide, Australia’s history with allowing major tax policy to be decided by the
electoral, has led to adverse outcomes for the political proponents. This is well illustrated by
John Hewson in 1993, and the compromises John Howard made in 1998 with the Democrats
to facilitate the enactment of the GST in Australia.
28
I would encourage Australia to look across the Tasman to its smaller neighbour, NZ, and
study closely its experience with introducing GST in the 1980s (in which the benchmark for
efficient and broad-based GSTs was set), and major reforms to it (especially in 2010), along
with the seriously examining improving the tax policy development process. The GTPP
provides an excellent framework and starting point for this discussion.
My fears though, as an ‘outsider’ and realist, are that the ‘politics’ will overwhelm the debate,
and an opportunity for fundamental long term policy review lost with short term politicallyexpedient decisions made, should any significant review of GST actually occur.
29