Question 3 - GST Policy

Question

Question 3 - GST Policy

As part of their response to the COVID-19 pandemic in New Zealand, the Government has turned to tax policy experts for recommendations on how the tax system could be used to help ease any economic shock felt by businesses and consumers as a result of the lockdown period and ongoing travel restrictions. One proposal they are considering is a temporary reduction to the rate of GST on all goods and services supplied within New Zealand. This reduction would be from the current rate of 15% to 7.5% for a 12 month period beginning on 1 July 2020. The Government has approached you, as a GST expert, for advice on this proposal.

Required:

a) Analyse the challenges and benefits of the proposal for a temporary reduction in the rate of GST in New Zealand using the following criteria for good tax policy from the Tax Working Group (TWG):

i. Efficiency

ii. Equity & Fairness

iii. One other TWG criterion of your choosing

(Note: your analysis should consider this proposal from a wide range of perspectives, including the Government, business owners, and consumers).

b) Based on your analysis in Part A, make an overall recommendation to the Government about whether this proposal should be implemented and explain why/why not.

Answer 1

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