“Australia should follow NZ GST”?   Leave a comment

NZ’s GST is certainly the most efficient form of VAT in the world.

The “VAT Revenue Ratio” is used by the OECD as a measure of VAT efficiency. The average in the OECD is about 50%.

The least efficient is Turkey’s VAT at about 30%. NZ ranks top at a little more than 95%, followed closely by Luxembourg.

Australia’s VAT Revenue Ratio is around 45%.

The Australian Treasury Secretary thinks they can learn from NZ’s GST and argues for a further shift in Australia from income taxes to GST. See: http://www.stuff.co.nz/business/world/9900014/Aussies-should-follow-our-GST-lead

If efficiency is the goal then the evidence seems compellingly in favour of the Secretary’s argument.

However, political realities seem to pull most countries in the opposite direction.

Yes VAT is spreading around the world as the tax of choice for governments but, increasingly those governments are voting for multiple rates, exemptions and zero rating when designing their version of VAT.

When the GFC hit we saw governments making greater use of reduced rates to stimulate activitiy. There is now a growing trend to use penal VAT rates as policy tools to discourage certain “undesirable” consumption (e.g for environmental reasons). Policies like these make a VAT system less efficient but they also make it more politically acceptable and relevant.

Perhaps the questions are: how long can NZ resist these political pressures and is it more likely we will follow the Aussie lead?

Iain

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

%d bloggers like this: