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
Part of the solution, of course, is for the workers to become capitalists as well. Each and everyone of them should be going on contract and engaging the use of good accountants. They will then be able to claim that broadband connection as a business expense, as well as the expenses of going to and from the work place, and a chunk of the house expenses. They would also get to claim the GST they paid back. The unions should be helping to do this as they should be working to make the workers lives better but they seem to be working to make the bosses better off by keeping the workers as wage slaves.
This change would also bring about a massive social change for the better. As it stands the wealthy business owners say that they are the wealth producers and everyone else seems to agree with them. This would be a hard illusion to maintain though when everyone is a business owner.
GST itself is a rort though as people in the finance industry don’t have to charge it. This means that they have an advantage over every other industry. So GST either needs to be changed so that the finance industry has to add GST to their services or it needs to be scrapped. I prefer the latter.
dracotb says: “Part of the solution, of course, is for the workers to become capitalists as well. Each and everyone of them should be going on contract and engaging the use of good accountants. They will then be able to claim that broadband connection as a business expense, as well as the expenses of going to and from the work place, and a chunk of the house expenses. They would also get to claim the GST they paid back.”
This isn’t actually correct. Going on contract as dracotb suggests does not make a worker into a capitalist. Being a capitalist involves investing money “as capital” which means putting up the money in the expectation that it will be returned at a profit, due to the exploitation, directly or indirectly, of labour. If every worker who became self employed was a capitalist, anyone with money in an interest bearing bank account would also be a capitalist. Actually, playing “Spot the Capitalist” is not a very useful activity anyway as it is capitalism as a social system and capitalists “as a class” that exploit workers “as a class”.
In terms of specifics, dracotb is also wrong about the benefits of workers becoming contractors and benefiting from GST registration. If a worker isn’t using the internet from home for work, s/he can’t claim any of it so if the worker is going to work and doing all their work “at work”, no GST can be claimed. The same applies for “household expenses”. Even getting to work isn’t covered; only traveling between workplaces. None of these are claimable as dracobt suggests.
What would happen is the worker would have to *pay* GST on all income other than the bit that was claimable – in the case of a typical worker, almost nothing. Unless it was possible to convince the boss to hand over a 1/9 pay increase to cover the GST, workers would be *worse off* because they’d be paying GST on income and paying it again every time they go to the supermarket etc. They’d also have to keep all their receipts, record all their income and expenditure and file regular GST returns.
The only way to benefit would be to falsify GST returns by claiming things that weren’t really claimable. While this might leave the individual better off, it’s hardly a recipe for social transformation.
Cheers,
John
And yet people in business do claim the GST for their internet connection, and don’t pay GST on the vehicle that they use for both work and personal use. They do claim tax rebates on the fuel and depreciation on the PC. Are they falsifying their returns? Not according to the IRD who isn’t prosecuting them. An acquaintance has just been informed by his accountant that he may actually have to pay the GST on his truck because he’s presently on wages rather than on contract. This acquaintance went from being paid $35/hour on contract to $29/hour on wages so, yes, the employer does cover the GST. He is significantly worse off now than he was before because he can’t claim the tax rebates that he could previously.
Yes, you are correct in that by becoming contractors they wouldn’t become capitalists in the traditional sense of the word. But the words meaning seems to be shifting from that traditional definition to one where business people are included. I used the word in the latter sense.
There is more than one way to have a revolution. It is my belief that all people should operate under the same rules. At the moment though, bankers, capitalists (traditional sense), business people and workers all operate under different rules. The rules that the capitalists (modern sense) work under are all very similar and give them benefits that the worker doesn’t have. This, of course, biases the market in favour of the capitalists.
Now, we could try and get the rules changed through protests and strikes so that every body has all the same advantages and disadvantages. This will take a long time and doesn’t guarantee success. But we have another option and that option is to move all the workers under the same rules as the capitalists.
The latter method, IMO, has a couple of advantages. First and foremost, the workers will become empowered. They will have the choices and the responsibility that the capitalists say are so important (and which I actually agree with). Secondly, the government will have to take note because of the large amount of income that they will be losing but they won’t be able to change the rules without those rules affecting everyone equally as they won’t be able to force the workers back into wage slavery.
Reminds me of the saying: Be careful what you wish for as you just may get it. Well, the capitalists have asked for a free labour market – let’s give it to them.
Draco says:
“And yet people in business do claim the GST for their internet connection, and don’t pay GST on the vehicle that they use for both work and personal use. They do claim tax rebates on the fuel and depreciation on the PC. Are they falsifying their returns? Not according to the IRD who isn’t prosecuting them.”
Me:
I don’t want to get into an extended discussion about how and when to apply GST . This is not the right forum for that discussion. What are relevant are the political implications of workers registering for GST “as a political act”. The main reason the IRD doesn’t chase them is probably more to do with under-resourcing of IRD than anything else, and I’m not advocating changing that 🙂
Draco:
“An acquaintance has just been informed by his accountant that he may actually have to pay the GST on his truck because he’s presently on wages rather than on contract. This acquaintance went from being paid $35/hour on contract to $29/hour on wages so, yes, the employer does cover the GST. He is significantly worse off now than he was before because he can’t claim the tax rebates that he could previously.”
Me:
The employer wouldn’t change the person over if it was more expensive to do so. The additional money from being “self employed” is not simply to cover GST. The contractor is responsible for all sorts of other things; insurance (including public liability for example), ACC, down time when not required etc. Employers will weigh these things up and make the decision most beneficial to them.
Draco:
“Yes, you are correct in that by becoming contractors they wouldn’t become capitalists in the traditional sense of the word. But the words meaning seems to be shifting from that traditional definition to one where business people are included. I used the word in the latter sense.”
Me:
I think it’s really important that we use terms like “capitalist” in a precise way. It has a very specific meaning. In a discussion on a socialist blog, I think it is even more important that the term is used in its precise.
Draco:
“There is more than one way to have a revolution. It is my belief that all people should operate under the same rules. At the moment though, bankers, capitalists (traditional sense), business people and workers all operate under different rules. The rules that the capitalists (modern sense) work under are all very similar and give them benefits that the worker doesn’t have. This, of course, biases the market in favour of the capitalists.”
Me:
Having equality under the law (including tax law) is a basic democratic principle to be defended. It doesn’t make turning workers into independent contractors into a radical proposal that will further real revolutionary change.
Draco:
“Now, we could try and get the rules changed through protests and strikes so that every body has all the same advantages and disadvantages. This will take a long time and doesn’t guarantee success. But we have another option and that option is to move all the workers under the same rules as the capitalists.”
Me:
Yes it does take a long time and doesn’t guarantee results. Nothing is guaranteed, but it has the advantage of bringing workers together in struggle rather than dividing them. Making people into individual contractors tends to atomise people. There is nothing about encouraging people to work as contractors that suggests any sense of solidarity between them, which to me suggests it is a dead end in terms of revolutionary struggle. The very fact that you chose to refer to such workers as capitalists (within your revised context) illustrates this.
Draco:
“The latter method, IMO, has a couple of advantages. First and foremost, the workers will become empowered. They will have the choices and the responsibility that the capitalists say are so important (and which I actually agree with). Secondly, the government will have to take note because of the large amount of income that they will be losing but they won’t be able to change the rules without those rules affecting everyone equally as they won’t be able to force the workers back into wage slavery.”
Me:
Never underestimate the ability of the capitalist state to “force people back into wage slavery”. The capitalists have hundreds of year experience devising new imaginative ways to force workers into wage slavery. It’s what they do. In fact the contract workers would actually still be wage slaves. Capitalism wouldn’t have been transformed, only the tax system modified and the working class “as a class” weakened. Far better to empower workers as a collective than to do so as individuals. Contractors tend to be competing with each other also for work. If you’ve got a bunch of contractors the material conditions of their employment will compel them to compete for the work rather than to cooperate. I cannot see how this would be progressive.
Cheers,
John