GST and Compensation in Budget


What is changing?
* The rate of GST will increase from 12.5 per cent to 15 per cent from 1 October 2010.
* The Government will provide immediate compensation for the rise in GST, increasing payments from 1 October 2010 by 2.02 per cent for all those receiving:
* New Zealand Superannuation or a Veterans Pension.
* All main benefits, such as the Unemployment Benefit, the Sickness Benefit, the Invalid’s Benefit and the Domestic Purposes Benefit.
* The maximum rates of the Disability Allowance, Child Disability Allowance and Childcare subsidies paid through Work and Income.
* The Family Tax Credit and Minimum Family Tax Credit, which are part of the Working for Families scheme.
* Student Allowances.
* CPI-adjusted payments from the Government Superannuation Fund or National Provident Fund.

* Personal tax cuts plus compensation for GST mean the vast bulk of people are better off, even if they spend all of their income.
* GST does not tax savings. Therefore an across the board reduction in personal income taxes, together with an increase in GST, encourages people to save, or pay off their mortgage, rather than consume.
* New Zealand relies heavily on personal income and corporate taxes, which are harmful for economic growth. Shifting the tax mix away from these taxes, and on to GST, is less distorting and better for the economy.
* GST is a very difficult tax to avoid, no matter how people arrange their financial affairs.

Key facts
* Statistics New Zealand calculates overall prices – as reflected in the CPI – to rise by about 2 per cent as a result of increasing GST to 15 per cent, and that has determined the level of compensation for benefits, NZ Superannuation and other payments.

Media Release from Hon Bill English, Minister of Finance.