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Labour's Goff proposes 'tax free zone' for first NZ$5,000 of income, paid for by crackdown on tax dodgers and new tax on high earners

Labour's Goff proposes 'tax free zone' for first NZ$5,000 of income, paid for by crackdown on tax dodgers and new tax on high earners

Labour Opposition Leader Phil Goff has proposed creating a 'tax free zone' for the first NZ$5,000 of income earned annually by all income earners.

Goff said in its State of the Nation address Labour would pay for the tax break by cracking down on tax avoidance and imposing a new higher tax rate on those earning "comfortably into six figures."

Here are key sections of the speech announcing new Labour policy.

I am setting two goals:

• To make it fairer for everyone;

• And to encourage growth and jobs.

We will get rid of loopholes for tax dodgers and cut back tax avoidance.

We will make sure everyone gets their fair share of tax cuts.

And I guarantee everyone will be treated fairly whether you live on main street, struggle street - or easy street. In New Zealand you pay tax on the first dollar you earn.

Under Labour that will change. Labour will introduce a tax free zone in our first Budget and look to increase it during our first term. In Australia your first six thousand dollars of income has no tax on it.

I believe the Aussies have got it right. My goal is to make the first five thousand dollars of your income tax-free.

You wouldn’t pay tax on the first hundred dollars a week you earn. For a couple, that would be worth a thousand dollars a year in take home pay. Everybody gets the same, whether you are single, married, low, middle or high income.

It’s simple. It’s also fair. It will reduce the squeeze on middle-income earners and really help those on low-incomes. A tax free zone gives families struggling to make ends meet the ability to decide how to spend their extra income.

A tax-free zone is a good idea but we have to know how we will pay for it because there can’t be something for nothing. I won’t make any promise that I can’t keep or that the country can’t afford.

So I want to explain some of the options we are exploring to cover the cost. But first I’ll tell what we won’t be doing to pay for it. We are not going to borrow for it. National’s doing that already.

They’re borrowing net $120 million a week - more than the cost of the tax cuts, which they targeted at the most wealthy. So before we introduce the tax free income zone in Government we will show how we are going to pay for it.

The first area we’ll look at is how to crack down on tax evasion and avoidance. No one knows exactly how much is lost by people dodging their tax - but it’s been estimated in the billions.

The Tax Working Group pointed out that only about half of the wealthiest individuals in New Zealand are paying the top tax rate.

It said that many with wealth can restructure their affairs through trusts and companies to shelter income from taxes and even to receive social support they shouldn’t be entitled to.

The Tax Working Group points out that $200 billion worth of rental property doesn’t provide any net tax revenue - it actually generates tax losses.

The incoming Labour Government will immediately set up a highpowered Anti-Avoidance Tax Taskforce to close tax loopholes. A second source of funds to allow us to create a tax free zone will be to claim back some of the windfall tax cuts from the very top income earners. We haven’t yet set a new top tax rate.

Nor have we determined the level of income that it will apply to. But it will only affect incomes comfortably into six figures, the top few per cent of earners.

We will also make sure these very highest earners do not use trusts to avoid paying the top tax rate. We are waiting with interest to see the Law Commission’s work in this area.

How big we can make the tax-free zone will depend on how much we get back by making the tax system fairer and closing the loopholes. I fully expect those who have arranged their affairs to avoid paying their fair share of tax to come after me.

Some people with a lot to lose will attack me on it and campaign loudly against it.

But the fact is, with National’s tax cuts, never has so much been given to so few. And it’s time that some of the windfall goes back to middle and low income earners who work hard and deserve a break.

Unless we do this, the gap between rich and poor will grow. We are seeing two New Zealands developing, with major social and economic consequences for all of us.

Meanwhile, Finance Minister Bill English responded to the speech, saying Labour had not detailed how it would pay for various tax breaks and spending plans.

English described Goff's speech as irresponsible and a very expensive recipe for more borrowing and tax increases.

“Labour has clearly learned nothing from the failed policies of its previous term, when New Zealand’s net liabilities to the rest of the world soared to more than $170 billion and we ran the highest balance of payments deficit in the developed world,” Mr English says.

“When the incoming National Government took office, we faced an economy deep in recession before the rest of the world and Treasury forecasts of never-ending deficits and ever-increasing Government debt.

“Phil Goff has today confirmed he wants to jump back on the conveyer belt of more debt and higher taxes. His recipe will do nothing to help lift New Zealand’s national savings – it will do precisely the opposite. In fact, it will discourage savings and encourage property speculation.”

By Labour’s own calculations, making the first $5000 of income tax-free for all taxpayers plus taking GST off fresh fruit and vegetables would cost more than $1.5 billion a year – with much of the benefit going to high income earners. On the other hand, increasing the top personal tax rate on incomes above, say, $120,000 and ring-fencing property losses would raise only $440 million.

“And that’s the shortfall from just two of Labour’s promises. They also want to restore research and development tax credits (annual cost $330 million); introduce paid parental leave to 18 weeks ($50 million); increase Working for Families for under twos (unknown cost) and not take dividends from State-owned power companies $700 million).

“It’s telling that Phil Goff would not spell out precisely where all this money will come from. It’s now abundantly clear that he will have to borrow it and increase taxes – and New Zealand can’t afford it.

“I’m sure New Zealanders will be interested to know that despite all the rhetoric, Labour still stands for more debt and higher taxes. By contrast, this Government stands for responsible management of the economy.”

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52 Comments

He's skirting the problem, the tax take is falling and he's looking at going after property developers who are losing money as their assets depreciate. A complete waste of time. Any new revenue gathered must result in either less saving or less spending by the parties involved. The issue is about the sustainability of the state sector when revenues are falling. His solution would just involve more borrowing.

 We are over taxed I agree but I think we need less government spending, along with tax cuts to stimulate the economy. reshuffling the deck chairs is so 'been there done that' hasn't he got an original thought left?

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Well he hasnt won many friends over at the stuff website , the comments are worth a read ..

The Full Speach -  or should that be the Phil speach :) is here

http://www.labour.org.nz/sites/labour.org.nz/files/Speech.pdf

  I made it till the second sentance of the second page and couldnt take any more

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Considering its usually the right wing wackos who comment on stuff, tha's not a huge worry.

regards

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1) When you look at the tax rate in various countries, I'm not aware when you compare apples with apples that NZ has a rate out of line with just about anyone else.

2) Sweden has a high social / welfare system and the resulting high tax rate and seems to cope with it and quite well.  AS a counter example, take the US which has effectivley virtually no corporate tax, they are a basket case. 

3) Take the Bush tax cuts for the rich, there is little evidence that these cuts did anything effective for the nation....

Re-alignments of tax make some sense, where you as a Govn want to steer investment...housing isnt productive in terms of making more jobs and making the nation richer....its just a ponzi scheme for some....

Savings are make believe........sure you could look at the health service and say tahts 8% of GDP, lets drastically cut that to 4%....let the private sector take over, but in the US that means double the costs, so the effect on GDP would be 10% not 8%....that means we just lost 2% on administration....for a worse outcome....and tahts 2% not in ppls pockets to spend it makes no sense......

So to be frank Im sick of right wing retards making such un-substantiated claims....its only a saving if that money isnt spent.....

More borrowing, you have a point, thats my fear...its simple tax needs to increase....in the boom times taxes were cut when in fact they should have been raised as an alternative to the OCR and that money put away for a rainy day fighting fund....the asian countries did this and now are not borrowing....

If you look at Ireland it did the savings...its in a sorry state....slashing public salaries kills the economy....are they to high, yes probably, by all meana freeze them, and that includes MPs.

What we are suffering from today is the result of a politically driven, wonky, neo-classical economics model thats broken....its been a 30 year experiment that has taken us to the edge of financial collapse...state spending hasnt done that, so called free markets and greed has.

regards

 

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Oh, dear....

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Goff says here he's going to institute (yet again, and this is getting trite and boring now, if his sort of big clobbering State fascism can be called trite and boring):

... [a] crack down on tax avoiders and the loopholes

The only thing he proves yet again is political hypocrisy:

Here: http://tvnz.co.nz/politics-news/details-mps-expenses-released-2880287

Figures released for the first time reveal the taxpayer has forked out almost $8million in the first six months of 2009, covering the travel and accommodation expenses of MPs and Ministers. The first disclosure of expenses shows that Labour leader Phil Goff ran up the most expenses as an MP ...

And don't forget here: http://tvnz.co.nz/politics-news/goff-denies-misusing-housing-perks-3977…

Labour leader Phil Goff is rejecting claims he is misusing MPs' perks by owning one house in Wellington and using a taxpayer subsidy to pay his rent on another property.

Yeah, I know Phil, some pigs are more equal than others.

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The problem with Labour's tax policy, people agree until they find working for a living 'makes you rich' in their eyes.  We all pay too much tax and we need to see a cut in govt. spending.  Give choice back to the tax payers.

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Well said , davidb ........... Neither of the two main parties has the guts to address the pressing issue of overspending by the government . And the Nats have added to Labour's largesse .

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Mr Goof should know that middle income earners are the ones that struggling the most, not the lower nor high income earners.  

TAB and pokkies at local pubs will do well out of the $5000 tax free.  Govt should reduce spending...

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A bit short on detail. What would be the tax rate from the $5000 mark upwards?

At present we have the curent tax brackets

0-14000              10.5%

14000-48000       17.5%

48000-70000        30%

over 70000           33%

seems to be too many tax rates

John Key says that with WFF a household on $50000 with two kids effectively pays no tax.

Why not a tax free income of $20000, then a 30% tax above that and no WFF. Also make trust and company tax at 30%. 

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I like the idea of everyone getting $200 in the hand every week from the government, then say 33% tax on every cent you earn (or whatever it works out to be). No dole, no sickness benefit (except maybe extreme cases), no pension, no state housing, no student allowance, no DPB, no admin costs for all of those. A lot of incentive to work because you don't lose your benefit money if you work an extra couple of hours a week.

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It would certainly cut jobs in the public sector. What anoys me is it doesn't matter what tax system and welfare system we have, the pollies make it so complicated it takes a huge army of beauracrats to administer. Why do we have 4 tax brackets? Why do we have secondary tax?

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To encourage REAL businesses (not property hoarding which produce nothing) why would you want to tax at 30%? Make it 10% and really encourage business growth. Just stipulate that the 10% rate only applies to business that produce ACTUAL products. (Building houses is fine, that's productive) Hoarding existing houses to rent out is NOT productive.

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good idea Dinky

I like the idea of tax free income up to a certain threshold.

As you state that can be partly financed by scrapping WFF - efficiencies gained all round. But can't see them getting rid of their old "baby"

A capital gains tax on investment property would help plug the revenue gap. But oh no, Mr Goff won't go there will he? After all, his muppets presided over the whole inflation of the housing bubble without hardly lifting a finger

So at the end of the day neither of the parties have the nous and/or balls to implement the required policy - hardly rocket science

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Why not $5,200, a nice even $100 per week??

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That $100 at present is only taxed at 10.5% plus ACC (2% give or take) so on extra $12.50 per week. Hardly generous, don't spend it all at once!!

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I meant in the sense, isn't better to say i get $100 tax free per week, rather than $96.15 a week tax free?

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I get sick of the whole 'reduce govt spending' bitching.  Just what should they reduce?  Even if they cut 10000 state jobs at 80k it would only save $200 per NZer per year, or $4 a week - and it would probably create a massive unemployment problem, not to mention the fact that those 10000 people probably actually do something (not much granted) which will end up not being done (then everyone will complain when they are getting bad service from government departments).

The reality is that most of your tax money goes into health, superannuation, welfare and education. Without cutting these there really isn't a lot of money for the government to save. Most would say that welfare should be cut, but even some pretty harsh measures such as not paying unemployment after a year on the dole would not really enable any big tax cuts.

The fact is that we have a pretty well balanced social system in NZ, and we don't really pay that much tax compared to a lot of other countries, so I am not sure why everyone keeps complaining about the government.  I think jeolousy is the main reason (e.g. 'why should politicians get paid so much when I don't', 'why should that guy be getting money when he can't be bothered working').  Get over it. 

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 200 dollars assuming that we have 4 million taxpayers. It is also worth noting that those 10,000 people cost far more than just their salary. There is rent for the buildings they occupy, electricity, water and lots of other benefits. In the corporate world an employee's salary is roughly 50% of the actual cost. The burden on taxpayers is probably closer to 500-600 dollars each assuming the rest of your figures are correct.

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JJ, i dont think its that simple. We are borrowing 270 mill a week not the 120 Goof thinks we are. We need to pay that back plus interest. I think we are going to see cost cutting across all sectors. 

 We have off balance sheet commitments that are in the billions we have daft accounting like NZ rail on the books at 10 billion. We have leaky home problems, student debt problems, welfare growing out of control and on and on. One way or they other we are going to get cost cutting, its just whether its voluntary  or not.  Id start at the top, do we need 120 mps? get rid of regional councils, all those guys working in wellington, nail it and do it quickly. The other option would be  graduated salary cuts across the state sector, at least that way people still have a job and some income until they find employment elsewhere.

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of the $250m-$300m per week, how much is to:

(1) roll over existing debt?

(2) fund capital assets (eg motorways etc)?

(3) pay operating expenditure?

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The mistake is/was we are starting from the wrong place....wonky politics, wonky economics....in the boom, when the tax take was high we cut takes as we didnt need it, the result is in the bust there is not enough tax take to pay for what we need, so we borrow and pay interest....

The right of centre ie National made this mess....National are paying for it....

The obvious alternative and one that any sensible household does is save for the tough times during the good....

What we have set ourselves up for is a tax rate that only works during booms...so during the next boom (ignoring peak oil ie there wont be any) it will be retarded by the Govn paying down the debt....all we / they have done is put the pain off during one bust....its short term wonky economics/politics...so instead of earning interest on our savings we will be paying interest onothers savings.....assuming they will or can lend to us.

The entire system is fundimentally unsound and has been abused by the Pollies and us the voter....we after all vote them in based on the biggest tax bribe.

regards

 

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The obvious alternative and one that any sensible household does is save for the tough times during the good....

No, get out of here that would never work.

PS. From what I have read even Keynes advocated saving in the surplus times.

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He has stolen this idea from the Greens.

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Always good policy to steal ideas....then shed credit where due if the idea turns to pucky.....Gwash Mickey..!

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the greens should bust out the Big Kahuna.....save heaps of time they could spend getting decent haircuts

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Goofy Goff has the imagination of Walt Disney. 

Don't believe a word he says 

For a whole decade, Labour absolutely refused to reduce the tax burden on salaried people when they had the ability to do so , instead they spent it on Working For Families and other largesses  for their constituents.

John Key should get rid of WFF and instead introduce a simple child rebate for salaried people .

Its simpler, easier to manage , and you can elect to have it adjusted against either you or your spouses income . 

The present system is unfair to young people without kids and its little wonder they are going over the ditch to work 

 

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.......... I took the 5 year old to Disneyland ( HK ) two days ago ........ Goofy is there alright , in Fantasyland .............. Luckily  the Wicked Witch has buggered off to a better gig in NY City , and Uncle Scrooge is at home , playing with his stamp collection , since his train-set was taken .

Labour has 28 % party support , in an election year !

....... .....Hey Goofy / Klinger / Cunny : Another 3 years you wastrals , 3 more years !

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Oh you are awful Gummy....picking on toddlers like that....

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How much is this going to cost?

Order of magnitude calculation: If we have 2 million taxpayers and each is going to receive $500 ($5000 currently taxed at 10%) then this is $1 billion.

So Goff has to raise ~ $1B from new taxes in order to pay for this. Will be interesting to see whaere - my bet is that labour don't get too specific about how they will fund this.

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FYI updated with comment from Bill English.

cheers

Bernard

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I have come to the conclusion that what this country needs is a Margret Thatcher who will say to the left and its hand wringing flunkies enough of your bullshit! Here is the line in the sand and you will not be allowed to destroy anymore of this nation’s wealth nor kill any more of its opportunities. The days of socialists’ creating our endless economic mediocrity are over.

Smiling Johnny boy, I don’t think he’s got it.  

Addendum: To save any possible confusion, I'm not davidb!

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David B, the problem with the Margaret Thatcher approach is that it would scare away the centre voters which National need to stay in power...National need to steer policy down the middle, if not then say hello to a Labour Green coalition - no thanks....also National would love to scrap WFF, interest free student loans etc etc, but it's just not politically feasible at this stage...it's how the game is set up my friend...one prediction, you will see more right wing policy from National in the second term

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The MT and RR wonky economics of the last 30 years have got us into a mess as big as 1929 probably worse...

At least then with MT there was some justification in breaking the what was communist unions hell bent on destrying democracy like the Miners.... Today the left is only the left if you care to sit where you are way off to the right...bad news for you most NZers sit about the centre way to your left....unions have little power, sure they sound as loony and noisy as they ever were, the difference is most moderate NZers now ignore them and they have only a small amount of clout. In fact what I can see is a reasonable amount of clout given they do represent some % of NZ.

The nation's wealth/opportunities is mostly not re-newable, all that happens is you exploit it once and then are broke next time around...the so called developed countries now have exhausted their minerals, they have to import them from elsewhere at an ever increasing cost....NZ still has some, if we were to husband those for our future they should only be exploited at a small rate, and not all at once in the so calle dopportunity of a life time, that means our children and grandchildren are left broke....What you have done or want to do is turn real wealth ie our assets into worthless paper for one generation to spend, papauring future generations...thats greed....and its immoral IMHO.

regards

 

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Ivan is correct. Goofy and Co are going after the envy vote. Plenty there to be harvested. 10 months of promises to go. Labour don't give a shite about the decay in the economy...all the better for them if more have to live in misery. The banks trap the fools into mortgage serfdom for life with baited adverts which even run here on this site on the front 'page'...the Socialists trap the fools into benefit scams paid for with higher taxes and more govt debt. Both are scummy.

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Bernard -

Do you have any statistics on the % of personal income tax that those over $120k (or even $100k) now pay, and the number of taxpayers in that bracket?

Would be interesting to do a sensitivity analysis to say that if Goff's increases the top tax rate, how many taxpayers you would need to loss to Australia to make his proposed tax change negative.

My high level view is that you would only need to lose a relatively small % of your skilled taxpayers to have a large negative impact on the tax base (especially when you factor in the GST/ACC these taxpayers pay)

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According to the NZ Treasury @ http://www.treasury.govt.nz/budget/2010/taxpayers/02.htm#_tocwhopays
Annual individual
taxable income Number of people Tax paid
($) 000) % ($m) %
Zero 236 7 0 0
1 - 10,000 446 13 237 1
10,000 - 20,000 834 25 1,576 7
20,000 - 30,000 416 12 1,507 6
30,000 - 40,000 349 10 1,965 8
40,000 - 50,000 304 9 2,306 10
50,000 - 60,000 244 7 2,506 10
60,000 - 70,000 168 5 2,267 9
70,000 - 80,000 113 3 1,885 8
80,000 - 90,000 67 2 1,367 6
90,000 - 100,000 56 2 1,332 6
100,000 - 150,000 89 3 2,961 12
150,000+ 52 2 3,963 17
All 3,374 100 23,872 100

This table includes tax on NZ Superannuation and major Social Welfare benefits, but excludes ACC levies, Working for Families and independent earner tax credits and anyone under 15. Analysis is based on Household Economic Survey data sourced from Statistics New Zealand. Data are projected for the year ended March 2011 and include the 1 October 2010 tax changes.

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In the combined income bracket of $ 0 to $ 40 000 , 67 % of the tax-payers exist , and they pay just 22 % of the total tax take .

The 5 % of tax-payers who earn above $ 100 000 p.a. , pay 22 % of the total tax collected ....

............ So the need to help the under $ 40 000 p.a. folk is what , Goofy ? ........ And the " rich pricks " earning over $ 100 000 aren't already paying their fair share , you reckon  ?

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Just the threat of cutting out tax breaks on rental property will help accelerate the drop in house prices.  

Lower cost house prices will drop due even lower ROI on rentals, and high end house prices will drop due higher tax at the top end and more qualified people bailing to Oz.

So I'm very happy to keep renting for another few years and wait for more affordable house prices .... thanks Phil :)

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Not going to happen...Labour lot deeply into the rental game...neither party wants to see the bubble deflate. Both will pork property activity to keep the bubbles.

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Your right, Both are in on it big time. Don't forget Labour let the bubble become a bubble for years Sunny! This is yet another vote bribe like WFF was and interest free student loans

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If Goff really wants to help then "poor" then cut out GST on basic food items for starters. This would be an effective 15% pay increase for the workers.

Complicated- yes but it's done in many other countries where GST is charged so it is possible - and it would be highly popular with the masses.

A higher rate of say 20% could be charged on luxury items such as expensive jewellery, cars
and cosmetics as the rich don't give a damn what they pay.

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Oh yes, great idea. Easy as anything to do that...by the way;  would a toffee coated apple be a basic food item? What if the the toffee had proven nutritional value? Would it make a diffence if the stick was from sustainable growing? What if the apple was organically grown? (And so on).

Waste the country's brightest minds on working out the technical differences between a slice of bread and one with icing on. (As in Australia).

Get real!! Our GST system is the best in the world, let's keep it that way.

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You are right of course but populist policies don't give a rats for that.

Goff is not going to actually gain any extra tax with his suggestions, but he is wanting to position Labour as distinct from National, get political capital in what is now an election year, and attract the true 'reds' in the Green Party to be more kindly disposed to Labour

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I agree it would work and is a better and fairer tax on less well off

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Actually if you read the above posts they disagree with the suggestion

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Let the overseas funded lolly scramble begin !! Just tick it up boys

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Goofy and the other socialist drivel would do better if they promised to increase the size of the low income benefit dependent masses and to destroy the plans of others to generate personal wealth for investment in enterprise that will only serve to further grow their personal wealth.....oh wait...that's what he is promising to do....silly me.

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+1000

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why don't we just all go on the benefit, have babies, get a housing allowance, and hopefully a state house and never have to work again? it seems thats what the labour government is advocating!! at least fruit and veg will be a few cents cheaper, but with floods and things who knows..

oh, and tax the high income earners, force them overseas, that way we wont have any money left here

i am very much middle income earner, but i realise we need doctors, dentists etc - those high income earners that are vital people in any society!

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How come Goofy Klingon and Cunny haven't thought up a benefit for the 'weight challenged'...now that would reap some votes...gst deductions on gym fees....on doctors fees....on clothing...car springs...lump sum payments for gastric bypass ops!...

They could follow that up with gst deductions on dental bills for those who suffer from rotting teeth thanks to their poor diet forced on them by the rich pricks....lump sum payments too for extractions and fake white caps and falsies...

Plenty of scope there for the socialists to buy the votes.... 

 

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@ Martyn C. Thanks - very useful

@ GBH at 12.09am - agree totally. What is also interesting is that the upper income brackets use few social services such as education and health as they pay this privately, so are paying way, way more than their fair share. 

 

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