GST rise “helping the poor”

Hone said that the increase in GST will hurt the poor.  His justification is:

GST hits poor people the hardest because nearly all of their money is spent on things that you pay GST on – food, petrol, electricity – so any increase is going to really hurt them

Interesting.  I was under the impression that low income households spent proportionally more of their income on “housing services” (read rents) which are exempt from GST …

Also if we believe that the poor have borrowed relatively more of their income in the past, then an unexpected decrease in a flat portion of income tax and an increase in the flat portion of GST will actually be a transfer too them from people who have saved.

It would be pretty easy to spin the idea that higher GST and broadly lower income taxes would help the poor … but I guess that wouldn’t roll with his politicking now would it ;)

  • Ken

    Although Hone is wrong in saying that poor people spend nearly all of their money on things you pay GST on, isn’t he still right about the increase in GST hurting the poor? With changes in property tax leading to increases in the cost of renting, won’t this mean low income households will spend an even larger proportion of their income on housing services?

  • http://www.tvhe.co.nz Matt Nolan

    @Ken

    Some of the incidence of the tax from property will partially fall on the poor for sure. And a higher GST rate also costs the poor yes.

    But lower income taxes benefit the poor. Higher income transfers based on the increase in GST benefit those on low incomes too.

    Hone’s point was that the poor would be relatively worse off from this budget – but that doesn’t seem to be the case at all. Prices and transfers will change, but the figures do not tell us that the very poorest will be poorer.

  • Ken

    Ah sweet.
    Thanks :)