English defends GST proposal

Finance Minister Bill English is defending his change in heart on GST hikes, saying times have changed.

In a speech last year on the tax and policy options the Government faced as it grappled with the recession, Mr English said he did not believe in using tax policy to stimulate the economy.

"We generally believe that the manipulation of the tax system isn't the best way to ensure that an economy grows. It's one tool that can be used sometime, but we think the best use of the tax system is to collect revenue, not to achieve a whole lot of other objectives in fact," Mr English said in the speech last February.

"We want to maintain GST as it is - probably one of the best examples of indirect tax in the world. We want to keep that rate and no doubt there will be continuing debate about where the corporate tax level should go and the need for a capital gains tax."

Since then a tax working group has advised the tax system is flawed and the Government is now proposing to lift GST to 15 percent, reducing personal tax rates and removing property tax deductions to stimulate the economy.

Labour leader Phil Goff said there was no way Labour would support a hike in GST.

"This is further evidence of National's broken promise on GST," Mr Goff said "This is further evidence that John Key's defence to his broken promise yesterday doesn't stack up."

Mr English said the Government had been openly debating raising GST for some time as part of reforms of the tax system.

"Times have changed and we're dealing with the economy as we find it, and the process has been completely open. The opposition seems to have discovered in the last couple of days that the Government has been debating GST. The material has been out in the public environment since last year," Mr English said.

Yesterday, Prime Minister John Key was forced to defend his 2008 comment that he would not raise GST.

Mr Goff leapt on the 2008 election campaign statement that Mr Key would not raise GST to cover deficits, but Mr Key said the proposal to raise GST released yesterday was to allow for lowering taxes overall.

During the campaign Mr Key was asked to rule out raising GST to 15 percent to cover deficits.

"National is not going to be raising GST," he said.

"National wants to cut taxes, not raise taxes. We acknowledge the point that John Shewan (chairman of PricewaterhouseCoopers New Zealand) is making which is that there is a decade of deficits facing New Zealand unless we get it right."

Mr Key said he was asked a specific question and gave a specific answer.

"He also floated increasing the top personal rate to 45 percent, I said no and I remain of that view. No to cover deficits. At that point we hadn't considered GST as part of a tax switch."

National was also not breaking its campaign pledge to not raise taxes.