GST’s effects

19 May

Question 24: How does GST affect different income groups?

GST – like all consumption taxes – is unequal in its impact. Because working people spend a higher proportion of their incomes they pay a higher percentage of their income on GST.

CTU economist Bull Rosenberg looked at this in recent CTU Economic Bulletin. He writes:

“Some more detail on how GST affects low and high income people: The graph below comes from research carried out for the Tax Working Group (“Changing the rate of GST: fiscal, efficiency and equity considerations”) It shows the proportion of both income and expenditure that is paid out in GST for each income group in the country.

“On the far left is the 10 percent of households (“decile”) with the lowest annual disposable incomes, corrected (“equivalised”) for the number of people in the household. “Disposable income” means income after income tax and credits such as Working for Families have been

“The two downward sloping lines show the percentage of income that is paid in GST. The higher one (in green) shows it for disposable income, the lower one (in blue) for gross income. For the lowest income households, it is as much as 14 percent of their income. How can it be more than the 12.5 percent GST rate? Because many low income households are spending more than their income – getting further into debt, living on gifts from relatives, or using up their savings. For the highest 10 percent of households, only 4 percent of their total income or 6 percent of their disposable income goes on GST. (See Graph 13)

Graph 13

“The third, much more gently sloping, line (in red) shows the percentage of expenditure that is paid in GST. It is still higher for lower income households, and even if it was perfectly level across the income range doesn’t reflect ability to pay. It is much more painful for a low income household to go without $10 than it is for a high income household.

“So beware of arguments that GST actually affects those on higher incomes more, or to the same extent, as those on low incomes because they pay more in dollar terms or because people at any level of income spend everything they earn over their lifetimes. That assumes wealthy people eventually consume all their income.”

(Part of a series of extracts from “Exposing Right Wing Lies” by Mike Treen, Unite National Director)

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No Responses to “GST’s effects”

  1. nzmike May 19, 2013 at 7:59 pm #

    This is what I have always thought without the stats to back it up .Time GST was gone,especially on food and essentials

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