Govt defends GST plans

Under fire over plans to raise GST, the Government has sought to assure the public that no one would be worse off due to the price hike and most would be better off due to tax cuts.

Prime Minister John Key yesterday signalled an increase in GST, across-the-board tax cuts and getting more tax out of property investors.

In his opening statement to Parliament Mr Key ruled out land and capital gains taxes, but said he was "carefully considering" increasing GST up to 15 percent to fund personal income tax cuts.

The GST increase would raise about $2 billion to fund the cuts and tax structure reform.

Mr Key said debate had focused on the top personal tax rates, but the Government had always been looking at the entire personal tax structure.

It has been suggested that the Government could save more than a $1 billion by reducing the claims property investors can make on things such as depreciation.

Opposition parties attacked the GST hike proposal as a breach of National's promise not to raise taxes and said it would hit the poor hard, while only the well off would get enough from cuts to compensate.

Mr Key said any rise in GST would be fully compensated and the Government was planning to reduce taxes overall.

Both he and Finance Minister Bill English faced quizzing from journalists and MPs about the design of the tax cuts, but it was clear that many versions were still being contemplated by them.

Mr English said people would have to judge the tax reform when it was finally revealed on May 20.

"You have to look at the whole package, the components include extending the tax base so you would be getting more tax out of the property sector and in the whole package there is the opportunity to ensure that people aren't worse off and of course we would like to see a majority of people better off."

Mr Key also said GST hikes would be balanced out, but those in property would have to wear the changes.

He did say, however, that the introduction of a tax free threshold on the first $4000 of income had been ruled out.

"We've looked at that but our analysis is it's just too expensive."

Mr English said some people wanted to build the perfect theoretical tax system, but he had to deal with "messy reality", the system had to work, be fair and be politically acceptable.

"There is no point doing something big and bold which doesn't survive the next election." He confirmed that the Government was still considering tightening up the current partial capital gains tax on housing, but had yet to receive any advice on that.

Meanwhile, it was clear National still had work to do to get the votes in Parliament.

Maori Party MP Rahui Katene said the party did not support a rise in GST and was considering how to deal with the situation. Pulling out of the confidence and supply agreement with National had not been ruled out.

"We never take any options off the table, but we have a very good relationship with the National Party and we continue to talk to them," Ms Katene said.

Mr Key said either the design of the package would stand up to scrutiny or it would not.

He needs the votes of ACT or the Maori Party to pass the legislation, which could be considered a matter of confidence and supply if Mr Key chose to make it a major issue.