Govt questioned over GST compensation package

The Government says it will be able to compensate people for a proposed hike in GST, as it emerged that households are already facing higher food and power prices.

Opposition parties today questioned how Finance Minister Bill English was going to design the scheme to ensure that people - especially those working on low incomes with no children - received compensation.

They also questioned whether compensation would be made when the GST hikes came in or if those on benefits and superannuation would have to wait for the annual adjustments due to inflation.

Mr English told journalists it could be done, but the exact design of the package was yet to be finalised.

"If they are on benefits or national superannuation the Government would be directly compensating if there's an increase in GST and for those who aren't on benefits what we are aiming for is for income tax cuts that match an increase in GST," Mr English said.

Despite the reassurance, Labour MPs were certain that there would have to be losers at the lower end of the income sale.

They also pointed to the pressures households were facing with the news food prices had risen by 2.1 percent in January, the first price rise in five months.

Contact Energy also announced it was increasing power prices by 5 percent in Marlborough and Northland.

Mr English said the price increases would flow through to the annual adjustment for benefits.

Prime Minister John Key has that increasing GST to 15 percent was being "carefully considered" and would bring in about $2 billion to fund income tax cuts and other reforms.

The Government intends making across the board income tax cuts and saving money by cutting tax deductions for investment properties.

Mr Key said the package had the potential to bring in $3-4 billion, which gave the Government room to move.

Nothing is set in stone and the tax changes will be announced in the May 20 budget, with measures to balance the GST increase and protection for low income families and pensioners.

Labour is assuming high income earners will benefit the most through what it says will be a huge cut in the top 38 cents tax rate.

Labour and the Greens will keep this up until the budget because the figures will not come out until then and the Government won't be able to prove its case until they do.

The Government's aim, explained by Mr Key, is to boost economic growth and living standards through a series of changes that include a big increase in money for research and development.

It also wants to encourage saving rather than spending, and hopes investment will increase as people have more money through income tax cuts.

"The Government would not embark on a policy of increasing GST unless it would benefit the New Zealand economy in the long term, and unless it saw the vast bulk of New Zealanders better off," he said.