The Workers Party for many years has said GST has to go. Below is an article originally published in The Spark in July 2005, in which Philip Ferguson explains why the rich favour this tax and why we oppose it:
In recent months the National Party has been pushing for income tax cuts. Although they present this in a populist way, as if it would benefit workers, they vigorously oppose measures such as raising the minimum wage, serious across-the-board wage rises like those sought by Auckland bus drivers and the abolition of GST.
During the upcoming election campaign, one of the minimum platform points of the Anti-Capitalist Alliance [now called the Workers Party] will be demanding the abolition of GST, something that would be done by any government with even a token desire to make life a little easier for workers, especially the poorest workers.
GST was first introduced in NZ by the fourth Labour government, back in 1986. At the time it was set at 10 percent. Whereas a similar tax in Tory-ruled Britain, VAT, excluded basic family items, the only things Labour here excluded from GST were financial services, real estate transactions and the operations of very small firms.
The imposition of GST significantly raised the level of indirect taxation. The proportion of government income derived from indirect tax rose from 22.5 percent before GST to 33.2 within just the first two years of the new tax. In 1989, GST was increased to 12.5 percent and imposed on all goods and services.
Victoria University economist Bob Stephens has pointed out the overall effect in the 1980s of the partial replacement of income tax by indirect tax. Between 1982 and 1988, “effective average tax rates including GST for couples on average earnings with two dependents increased from 18.7 percent to 24.1 percent. Average tax rates for similar couples on three times the average income declined from 40.3 percent to 34.9 percent.” So we can see that indirect tax means less tax on the wealthy and more tax on workers, especially the poorest.
This becomes even more clear if we compare how someone on the dole and a top company CEO. If an unemployed person is getting $200 a week on the dole and they buy something which costs $100 plus GST, then they are paying $12.50 in indirect tax and this is 6.25 percent of their total weekly income. If Telecom CEO Theresa Gattung buys the same item for $100 and pays the same GST, her indirect tax payment only makes up about 0.0002 percent of her weekly income.
When GST is accompanied by reductions in direct tax - income tax, in particular - then it’s not hard to see why the rich favour indirect tax such as GST.
However, there is another vital aspect to a series of changes in the tax system, whether GST or direct tax is involved.
Workers’ labour-power under capitalism becomes a commodity and, like all other commodities, its value is determined by the socially necessary labour that goes into creating it. Basically, this means that the value of workers’ labour-power is the value that is required to house, cloth, feed and otherwise maintain the worker in a sufficient state to turn up to work each day to produce profits for the employers. If that value translates into $500 a week, this is what the worker needs to be paid. The worker, however, can create a value much greater than this - say a thousand dollars worth of goods or services. The extra $500 is surplus-value, and in the hands of the boss. In good times, and with strong organisation, the tax on workers’ wages has to come out of surplus-value and therefore lessens the amount of surplus-value that the boss can convert into profit.
During boom periods, the bosses are OK about this because they have so much surplus-value and they are prepared to buy peace with the working class. However, when capitalism goes into slump, the capitalists want to cut down on anything which reduces the amount of surplus-value they can convert into profit.
They do this in a number of ways - eg, by cutting government expenditure on health and education, since this is financed out of surplus-value and by shifting tax from being a deduction from surplus-value into being a deduction from the value of labour-power. Indirect tax is a useful weapon for doing this.
Now, instead of the worker getting the $500 value of their labour-power per week and, say $150 tax coming out of the $500 surplus-value, there may be only $100 direct tax coming out of surplus-value and $50 indirect tax coming out of the worker’s $500 wage.
What has happened is that the worker’s share of the $1,000 has fallen from $500 to $450, while the bosses’ share has risen from $350 to $400, and the government continues to get $150. (I’m leaving out of the equation company taxes, purely to make the example simpler; however, periods of recession tend to see reductions in company taxes as well so, again, the bosses benefit.)
Moreover, GST allows the bosses to immediately pass on costs. In this sense, it doesn’t really cost the bosses anything. If they pay GST on some item they need for their factory or office, that cost is factored into the cost of their finished product. Workers, on the other hand, cannot simply ‘factor in’ GST to their incomes, because they don’t set the price of their labour-power although through struggle they can resist employers’ attempts to push wages below their value. For instance, when a boss faces extra costs he or she can just incorporate it by putting up the price of the good or service, but when a worker faces extra costs he or she can’t just walk into work the next day and tell the boss they’re charging a bit more for their labour-power.
Further reductions in tax, even if the reductions are on the wages of the low-paid, mean less money is coming out of the surplus-value that is in the hands of the capitalist class. This is also why capitalists prefer reductions in the tax rate over wage rises. Tax deductions leave more profit in the hands of the bosses, whereas wage rises can cut into profits.
The fact that tax deductions also leave less money for the state to spend on public services is fine by the bosses. After all, they want more and more public services to be privatised and turned into businesses to make profits anyway.
While we call for the abolition of GST, as a small way of increasing workers’ real income, we are not suggesting that tampering with the tax system can deliver significant improvements for the working class. That is an illusion promoted by social democrats such as the Alliance party. Income inequality simply cannot be solved by taxation because it is the expression of a more basic problem - private ownership of goods and services which are produced by the collective labour of workers as a class. The solution to inequality is therefore social ownership of the means of production, distribution and exchange. And that will require a revolution.
The facts from the 1980s which appear in this article are taken from an original article by Marina Cameron which appeared in Green Left Weekly, February 12, 1997