Easy Fix for Avalanche of Wage Claims
The government could head off the avalanche of wage claims that is coming at them like a runaway freight train by scrapping GST and replacing it with a transactions tax.
The wage claims, from nurses, teachers, police, IRD and MBIE staff, and others, have the potential to wreck the economy by kick starting inflation and pushing up interest rates.
Private sector employers will likewise be under pressure to raise wages, increasing their costs substantially.
The cumulative effect will be to drive up interest rates, causing a major correction in house prices and hundreds of mortgage defaults.
Replacing GST with a transactions tax at less than a quarter of one percent (a quarter of a cent in every hundred dollars) on all withdrawals from bank accounts would give workers across the board a substantial increase in purchasing power greater than they would get from wage rises.
It would generate roughly the same in tax revenue as GST, but with a substantial amount coming from the speculative sector of the economy.
That raft of financial transactions such as credit default swaps, debt securities, convertible and exchangeable bonds, currency trading, derivatives etc, currently avoid the GST net.
The recent introduction of GST to on-line purchases is complicated and messy and will produce minimal tax revenue, whereas transactions tax is simple and would immediately put Kiwi retailers on an even footing with all overseas sellers.
Additionally businesses would be relieved of the burden of accounting for GST, filing returns, and audits.
It will be very simple for the banking system to implement FTT, and very difficult for anyone to avoid payment.
Banks would deduct the tax automatically in the same way they already withdraw their own account fees and Resident Withholding Tax, and remit it straight to the IRD.
The removal of GST would contribute to a reduction in child poverty by putting more money in the hands of lower paid New Zealanders who currently pay tax far out of proportion to their incomes.
It would be fitting that Labour, the party that first introduced GST and unleashed the neo-liberal economic experiment on the country were the ones that finally scrapped it