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GST on imports

My kids sometimes ask me what superpower I’d wish for. I usually tell them that I wish I could stop time. Why? So I could get more things done. One thing I wanted to do, but didn’t, was submit on the GST changes. I’d have done so in my personal capacity as an economist rather than as Head of Research here at the Initiative, as we don’t here submit on things where we haven’t issued a report, but I wish I’d had the time. And I didn’t.

Luckily, InternetNZ says almost everything I would have said. Their key principles are the same as mine: online GST should never be a barrier to trade; low volume suppliers should not face compliance obligations; domestic registration of overseas suppliers is silly; IP addresses are a poor basis for assessing location and tax status; and using a VPN is far more likely to be geounblocking than it is to be tax avoidance.

The only thing I would have added is that none of this would be needed if Parliament would consider Seamus Hogan’s one simple trick. What’s his trick? He applies Lerner Symmetry to note that a tax on imports is identical to a tax on exports. Since the former is much harder to apply, do the latter. Exempt all imports from GST, and impose 15% GST on all exports (currently zero-rated). The dollar would depreciate quickly so prices to consumers of our export products wouldn’t change much.

Here’s Seamus:

In a country with a floating exchange rate, the way that the Lerner equivalence theorem would play out if it were to adopt the change from levying the GST on imports to levying it on exports, would be through a depreciation of the currency by the amount of the GST. So sure exporters would have to put up their prices to foreigners in NZ dollars by 15%, but the goods would not seem to be more expensive to foreigners because of the 15% depreciation. Similarly, the 15% GST coming off imports would be offset by the depreciation. In general, therefore, there would be no change, but with a few exceptions. On-line purchases would become 15% more expensive in NZ dollars due to the depreciation with no offsetting change in taxes. Trips overseas would similarly become 15% more expensive, but at the same time, New Zealand would become a far cheaper place for foreigners to visit, again.

Any Parliamentarians reading can consider this to be my personal, and late, and informal, submission.

About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

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