I Disagree With Lance Wiggs – GST On Everything Is A Silly Idea

Many economists love sales taxes. They think that they’re efficient because they’re applied equally and only distort consumption patterns as opposed to labour supply decisions. I don’t like sales taxes because they’re closer to a gang charging protection for doing business on its turf – they create a whole ecosystem around enforcing and interpreting the application of the sales tax. If you disagree with this assessment, I would point you to the Big 4 accounting firms and see how many people they have who purely work on GST and other tax compliance matters.

Yes, buying online leaves a digital trail which lends itself to easier enforcement of tax rules like charging GST on all of your online purchases. But a tax that needs everyone to act as an unpaid tax collector is only a smart tax if you’re a retard – there is an opportunity cost involved that no one is talking about. Every hour an SME owner spends on tax compliance is an hour they could have spent on business development. Every hour someone who shops online ends up spending figuring out this stupid new system is an hour they could have been at the pub. It’s derpitude of the highest order to push tax down the ladder like this.

Just because we are digital people, we can’t project the way we do business (Xero, smartphones, email) onto how a lot of people still do business and their record keeping. It’s still a paper world for a lot of people – accounting is sending a box of statements, receipts and invoices to the accountant in late February. Then, they’ll be slow to pay their accountant and even slower to make payments to the IRD.

What Lance isn’t thinking about is the lag time between GST liable activity occurring and when the money eventually lands in the Crown bank account. His 80/20 proposal also assumes that large foreign retailers will engage with IRD. Why would they want to reduce their profits out of the goodness of their hearts? What is in it for them? What do they owe the IRD?

I obviously disagree with Lance Wigg’s idea that we should introduce GST on everything bought by New Zealand tax residents. The way I see it, you’re punishing for people not satisfied with the choice on offer from local merchants who take the effort of rarking up their browser and finding some parallel imports.

The other day, when there was talk of the de minimis amount changing – I tweeted that instead of going down, it should be going up! It should be as easy as possible to buy something online without having to worry about some Customs and IRD people getting in your way to earning consumer surplus.

The largest loss to consumer welfare if this silly little rule came into play would be the utility we all gain from well dressed men and women. I have several female friends who are able to stretch their modest incomes into beautiful wardrobes because of ASOS, Zara, Net-A-Porter and other such sites. I personally have taken advantage of online shopping to buy nicer clothing when I was prepared to wait. Why should I be punished for having brand preferences that aren’t big enough for certain brands to justify having a store in Wellington or Auckland, but they’re happy to ship to New Zealand?

Now, why should we have to pay more money to the government when purchasing from overseas when obviously government policy is a non-trivial factor in why fixed costs are so high in this country? We don’t have the population – blame immigration policy. High foot traffic rents are very high so you can only sell really expensive or mass market gear – blame local councils for anti-development rules.  We don’t have high incomes that make it possible to obtain as much consumer surplus as you could living in a major global city.

A current topic that is getting much attention is how importing building materials from overseas can enable people who figure out the process to make some additional margin if they’re building a house or pass that on in the form of more bang for your buck. Why should the Commerce Commission get involved if scrapping GST for imports could deliver similar reductions in cost?

I look at GST and sales taxes from a quality of life perspective. If you care about income inequality, you can’t ignore the fact that more and more New Zealanders will have modest incomes in the future than they do today because fewer and fewer New Zealanders are developing valuable skills. This means that stretching their income as far as they can go necessitates for many the need to buy online.

GST is just a reduction of their purchasing power. Punishing people who leave higher wages on the table to stay in New Zealand for trying to get some additional consumer surplus from online services, online shopping and parallel importing shows how loopy and out of touch some policy wonks can get. That’s before even considering how higher levels of competition from online shopping imports have made shopping here better than it was a few years ago – stores have to give good service and stay up with global trends or they will lose custom very quickly.

Putting GST on everything is a horrible idea. In fact, I think we need to look at the unintended consequences of GST on national welfare in general. I doubt that increasing taxes elsewhere would do as much damage as some idealogues make out. You’d even be able to reallocate a lot of lawyers and accountants from tax work into something relatively less unproductive.