According to conclusions drawn in new research published by the World Health Organization, New Zealand has one of the highest rates of diabetes sufferers in the world. The report has prompted Labour Party leader Phil Goff to stand up in renewed support of cutting the Goods and Service Tax (GST) on fresh fruits and vegetables.

At a press conference held in Wellington on the same day, Grant Robertson, health spokesperson for Labour, said that that the National party’s refusal to cut GST fro fruits and vegetables “exposes the folly of the Government’s refusal to promote healthy eating policies”. He added that the newest study on diabetes provides concrete evidence on the government’s inaction towards the “diabetes epidemic”.

Adding his opinion on the topic, Jim Anderton, leader of the Progressive Party, insisted that a new levy be charged on sugary drinks, so as to raise greater money for diabetes programs. He added,”…without a levy, everyone has to pay more tax to the health system to help pay for diabetes treatment.” All parties involved in the support of tax measures to fight diabetes have shown interest in backing a public program to help fight obesity and related health issues.

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On the February 1st the government appointed Savings Working Group (SWG) released its long awaited final report, with suggestions on reducing New Zealand’s overall reliance on overseas debt. According to research within the report, the country’s net foreign liability currently stands at 85 percent of the GDP. Comparatively, Australia is only at a level of 58 percent. The comparatively large liabilities level means that New Zealand is particularly vulnerable to large overseas financial movements. According to the SWG, urgent action is needed to address the situation.

The report recommends that the national savings level should increase to 3 percent of the GDP, amounting to approximately NZD 5 billion annually. The government should lead the way in these efforts, shifting to a fiscal surplus before the projected date of 2016. This level should also be maintained for the medium term.

The SWG suggested a series of changes to the Kiwisaver regime, which should encourage a greater number of people to voluntarily join the system, although the Group did not go far as to say that it should be mandatory. The report stated that it should not be allowed for employers to offer employees increased wages in return for not joining Kiwisaver. Additionally, rule changes should be carried out on the scheme to allow for partial early withdrawal from Kiwisaver for individuals with low-life expectancies.

Within the report it was claimed that the government should shift the national taxation focus away from income taxes and towards consumption taxes. This would have the double effect of increasing production and encouraging savings. The SWG claimed that the GST level should rise to 17.5 percent, with compensatory tax system changes for low-income earners. Prime Minister John Key has already replied, saying that the GST rate would not be increased.

It was suggested that interest rates be reinstated on student loans, on the condition that the charges are only applied upon commencement of employment. The Prime Minister has already stated that such changes would not be considered unless the National party was reelected for a second term.

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Last week it was revealed that the recent hike in the national Goods and Service tax (GST) rate bumped the quarterly inflation level to the highest it has been in 22 years. According to official data released by the Reserve Bank of New Zealand (RBNZ), inflation for the three months to December 2010 rose to 2.3 percent, the highest quarterly increase, since the last GST rate increase in September 1989.

The rapid price rise has been attributed to the October 1st 2010 2.5 percent hike to the GST rate. The disproportionately high results during the quarter brought the cumulative inflation rate for the 2010 year to 4 percent. If the effect of the GST increase is accounted for, the inflation rate is estimated to have only been 2 percent.

The seemingly heavy inflation increase has prompted the Automobile Association of New Zealand (AA) to renew its campaign to persuade the Government to drop the Goods and Service Tax (GST) levy on petrol, as it is already subjected to the petrol excise tax. The AA claimed that by removing the GST on petrol, motorists could save nearly 8 cents per liter, greatly compensating for the increased prices arising from the GST rate increase.

The AA’s calls for actions regarding the GST fueled inflation increase were downplayed by New Zealand economist Christina Leung, who claimed that key economic indicators show that inflationary pressures in the New Zealand economy has been contained for the time being, and there is no immediate need to investigate tax changes.

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On a visit to New Zealand last week Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said that it is possible that the New Zealand Government could once again raise the Goods and Service Tax (GST) within the foreseeable future.

Chas Roy-Chowdhury pointed to the UK and other European nation, saying that there has been a recent precedent of steadily increasing the levied rate of consumption taxes. Citing the UK specifically, Chas Roy-Chowdhury said that the Value-Added Tax rose to 20 percent earlier this year, and added that: “…it seems like a similar trend is happening in New Zealand. It is a concern that these taxes creep up.”

Chas Roy-Chowdhury also voiced a concern towards what he perceived as the Government attempting to “privatize the administration of the taxation system.” He stated that as consumption tax rate increased, the responsibilities of tax administration shifted to businesses, under the increased self-assessment requirements.

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Over the weekend several researchers and retailers in New Zealand claimed that the upcoming GST rate increase would be used by some sellers to increase their prices above the prescribed rate. According to John Albertson, Chief Executive of the Retail Association, claimed that some retailers might attempt to round-up their prices after the increase, capitalizing on any confusion shoppers might have. As an example he pointed to an item which would ordinarily be priced at NZD 9.99, after the October 1st increase the price should be NZD 10.21. He claimed that it is conceivable that this will be rounded to NZD 10.90, as not all customers will be aware of the appropriate level.

John Albertson said that most low profit margin items will be charged at the appropriate rate, as customers typically are well aware of their proper price. However, items with inconsistent inter-store pricing could easily have an extra NZD 1 charge. However, he added that products that are more expensive and grouped by price-bands might not even increase with the GST rate.

Andrew Parsons, Associate Professor of Retailing at Auckland University of Technology, added that the payment method will affect the way the price change will handled. He explained that vending machines and small-price items are likely to see upward costs due to New Zealand’s lack of a 5 cent coin. Although, he admitted that most retailers are currently seeking pricing guidance from their distributors before making a decision.

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On June 21st the New Zealand Inland Revenue Department (IRD) announced the launch of the GST Advisory Panel. According to Peter Dunne, New Zealand Revenue Minister, the panel was created to aid the GST-rate transition for the generation of businesses who have not have not yet faced a sales tax increase.

Peter Dunne explained that the Advisory Panel will act as an intermediary for the IRD and the national business community. The Panel will communicate in both directions by attempting to clarify ambiguities for the business community, while possibly suggesting legislative amendments to the IRD. The Panel will field queries via an online submission or telephones communication.

The GST Advisory Panel consist of five primary members, consisting of: the Chairman Frank Owen, a retired chartered accountant and ex-chairman of KPMG New Zealand; David McLay, a practising tax barrister; Craig Macalister, Tax Director of the New Zealand Institute of Chartered Accountants; Phil O’Reilly, Chief Executive of Business New Zealand; Karen Bradford, Director of the New Zealand Retailers’ Association.

The Panel has already held one meeting in which pre-emptive answers were discussed for expected business sector inquiries. The implementation of GST on services rendered throughout the implementation of the GST rate increase was discussed in particular.

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On June 5th Cameron Brewer, CEO of the Newmarket Business Association, issued a statement supporting Ann Lockhart, CEO of the Queenstown Chamber of Commerce, who on the same day called for a revised GST-exemption program to be instituted for foreign visitors. Under the proposal, overseas nationals could present their purchase invoices at a New Zealand international airport and be granted an exemption on any GST paid on purchases throughout their visit.

The comments were sparked by a speech given by Bill English, Finance Minister of New Zealand, in which he refuted the possibility of a GST-exemption system being created in the near future. Bill English stated that he is not in favor of contributing complications to the country’s current “clean” GST system. He added further opinion, saying he does not believe that tourists would not cease visiting New Zealand simply because of a lack of GST refunds.

According to Ann Lockhart, the refunds would not be aimed at attracting new tourist to the country, but increasing the amount of spending that visiting tourist do, during their visits. Cameron Brewer’s statement claimed that even if only 5 percent of tourist utilized the scheme, an additional NZD 30 million extra spending would occur as a direct result. Cameron Brewer added a note of consolation, saying that despite Bill English’s words, John Key, Prime Minister of New Zealand and national Tourism Minister, is interested in perusing the matter further.

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On May 20th the New Zealand Government revealed its latest budget, introducing numerous personal income tax rate decreases, measures to close loopholes in the tax treatment of rental properties, and an unexpected cut to the level of corporate taxation. According to a poll conducted by New Zealand Taxation, nearly 60 percent of respondents claimed to be neutral in satisfaction regarding the tax changes, while over a quarter of survey takers said they were “Very Unsatisfied” with the Budgets. Additionally, 16 percent were “Very Satisfied” or “Mildly Satisfied” with the cumulative fiscal change package.

Phil O’Reilly, Business New Zealand Chief Executive, has been an outspoken supporter of the 2 percent decrease to corporate taxation and PIE levy rates, announced in the Budget. he claimed that the new rates will lead to competitive and higher-earning economy. Commenting on the fiscal package he said, “These tax decisions are targeted at the long term health of the economy. It is to be hoped that future budgets will continue this positive approach.” Although he went onto to ask what measures will be implemented next to ensure the competitiveness of New Zealand’s economy against the Australian market.

As a cumulative package, the new Budget has received general praise, with commentators lauding the numerous tax cuts. Although several commentators have claimed that the Budget is of greater benefit to high-income earners with little advancement for low-income New Zealanders. David Cunliffe, Finance Spokesperson for the National Party, commented further, saying, “When the rosy glow of Beehive spin wears off, New Zealanders will know they’ve been swindled.”

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On May 20th the New Zealand Government revealed its national budget for the year 2010. The latest budget aims to reduce the impact of last year’s recession while introducing a range of fiscal stimulus measures and providing a solid base with which the Government can maintain control of the nation’s economy.

The Budget announcement revealed a number of significant alterations to New Zealand’s tax system. As expected by most economists, the Government has confirmed that the Goods & Service Tax (GST) rate will be raised to 15 percent from the current rate of 12.5 percent.

The increase in GST is offset by decreases to personal income tax rates at all income levels. Taxpayers earning below NZD 14 000 (approx. USD 9 507) will face a tax rate of 10.5 percent, compared to the current rate of 12.5 percent. The tax rates levied on the NZD 14 001 to NZD 48 000 income bracket will be reduced by 2.5 percent to 17.5 percent. Marginal incomes between NZD 48 001 and NZD 70 000 will be taxed at 30 percent, 3 percent below the current rate. The top marginal rate, currently applied to incomes above NZD 70 000 (approx. USD 47 538), will experience the biggest reduction, falling from 38 percent to 33 percent. The drops in personal tax and rises in GST are intended to encourage taxpayers to lessen personal consumption and increase the national saving propensity. Both changes are scheduled to take effect on October 1st 2010. Government income support, student allowance payments and numerous other payouts are scheduled to increase by 2.02 percent to compensate for the increased GST.

To further encourage savings amongst New Zealanders, the Budget includes a 2 percent decreases to the tax rates levied on corporate incomes, top-marginal Portfolio Investment Entity (PIE) earnings, and tax rates on life insurance policy holders and widely-held savings vehicles. Effectively, the change will result in tax levies of only 28 percent for the three types of income. The reduced rates will be introduced in the 2011-2012 financial year for corporate rates and insurance rates, and on October 1st 2010 for PIEs.

In line with Government promises, changes have been outlined which aim to remove the currently existing tax bias towards misbalanced investment in rental properties. Applying from the start of the 2011 financial year, depreciation deductions will no longer be allowed for buildings with an estimated useful life exceeding 50 years. Additionally, the current Working for Families scheme will be altered to exclude investment losses (including rental property losses) from taxpayers’ entitlement calculations.

According to the Government, the costs of the tax reform package are fiscally neutral in the medium term. Although, the cumulative monetary cost over the first four years, including the Government’s estimated macro-economic benefit assumption, will be NZD 415 million (approx. USD 282 million).

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On May 17th John Key, Prime Minister of New Zealand, appeared in a television interview and made it clear that the upcoming budget will feature cuts to personal taxes across all levels, but with special emphasis on top-marginal rates. John Key’s comments led economist to believe that the anticipated increase in Goods and Service Tax (GST) will also be announced within the Budget, to offset the decreased tax personal tax revenues.

When questioned on the fairness of increased tax cuts for high earners, John Key claimed that the move was vital for the future economic situation of the country. According to the Prime Minister, it is important that efforts are made to retain the highest skilled workers in the nation, both for their large tax contribution and provided services. He summarized the intentions of the change, saying, “Part of what you are going to see on Thursday is a deliberate attempt to get people to say here and contribute to the economy.”

Overall, John Key stated that the Budget will be aimed at improving the economic growth of the entire nation. He said that it will also deliver increased benefits, opportunities and welfare for everyone in the economy.

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