Special report: 10 reasons why GST should not be hiked

Watch on our video page here Watch on YouTube here Bernard Hickey delivers a special report in association with BNZ, including a look at 10 reasons why the government should not increase GST from 12.5% to 15%.

The include: 1. The amount raised after compensation for poor to middle income taxpayers is unlikely to be enough to close the gap much between the top income tax rate of 38 cents and the family trust rate of 33 cents, which was one of the aims of the tax system transformation Prime Minister John Key was arguing for. 2. It creates an inflationary risk, particularly if retailers choose to throw in other cost increases such as credit card surcharges to confuse customers. 3. It creates a risk for the overseas tourism industry, given a 15% GST rate here would be well above the 10% in Australia, which is our major competitor and provides most of our tourists. 4. A hike opens a big gap with Australia and risks encouraging workers to leave New Zealand for lower living costs there, which defeats the purpose of the reforms. 5. Retailers face significant costs from repricing goods  and changing IT systems which will either reduce profits and dividends, or be passed on to consumers in the form of higher costs. 6. A big political risk is opening up as Labour and the Maori Party oppose the move. 7. It creates the risk of online leakage as New Zealanders buy anything they can from sites offshore without the GST 8. It doesn't fix the ruinously high marginal tax traps and the dead weight of an inefficient tax system producing legions of bureaucrats. 9. A higher GST increases the political pressure at some stage for exemptions, which would make the tax less efficient. 10. A higher GST increases the risk of the growth of an underground cash economy where services in particular are not reported, all of which increases the risks of crime and money laundering.