GST a tax on the poor

(goods and services tax) from 12.5% to 15 percent, while lowering income tax for all and also reducing company taxes.  Key and his pals present this approach – lowering direct taxation and increasing the tax on consumption – in a populist way, as if it would benefit workers.  Key has added that the Working for Families package could be increased, along with some other measures, to help offset any losses for lower-waged workers and the minimum wage has been increased (minimally) by 25c an hour.  Once again, there is nothing for beneficiaries.

The first thing to note about GST is how it affects people on lower incomes the most.

GST was introduced into New Zealand 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 low-waged and beneficiaries were to be especially screwed over by it.

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, Labour increased GST to 12.5 percent and extended what it covered, leaving exempt some financial transactions, incomes from rental accommodation property and businesses with turnover less than $40,000.

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 the wealthy pay less of their income in tax while workers, especially the poorest, have more of their income taken in tax.

This becomes even more clear if we compare 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 a top CEO on a $3 million a year salary buys the same item for $100 and pays the same GST, her or his indirect tax payment only makes up about 0.0002 percent of their 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 the proposed 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 the value of the worker’s labour-power and will be roughly reflected in the wage.  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.  (To simplify matters, I’m disregarding the part of total value that comes from the use of machines, raw materials, rather than adding that on to the $1,000.)  In good times, and with strong workers’ organisation, the tax on workers’ wages (PAYE) 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 income tax coming out of the $500 surplus-value, there may be only $100 direct tax coming out of the $500 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.

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.  A product costing $100 plus $12.50 GST, making a total of $112.50, will now simply cost $115, because the GST has risen by $2.50.   Workers, on the other hand, cannot simply ‘factor in’ GST to their incomes, because they don’t set the price of their labour-power.  You can’t turn up at the job and tell the boss that you’re now charging him an extra 2.5% for your capacity to work.  Or, in the case of beneficiaries, turn up at WINZ and tell them they have to pay you an extra 2.5%. 

GST shouldn’t be increased – it should be abolished.  What should increase is the minimum wage – to at least $15 an hour immediately.  These are things that we need to fight for.

More importantly, however, we need to think not about stopgap measures to improve workers’ incomes and living standards, but how we can get away from a situation where we’re always struggling to catch up and make ends meet.

We need to start about thinking about taking the whole of the economy out of the hands of a handful of rich people and the chaos of capitalism.  Workers create all the goods and services that make the world go round.  We should think about taking possession of the economy and reorganising it so we can have production, distribution and exchange based on providing us with the best lives possible.

GST was first introduced in NZ by the fourth Labour government in 1986 at the rate of 10%. While a similar tax in Britain excluded basic family items, the only things Labour excluded from GST here were financial services, real estate transactions and the operations of very small firms.

GST significantly raised the level of indirect taxation. The proportion of government income derived from indirect tax rose from 22.5% to 33.2% within just the first two years of the new tax.

In 1988, the fourth Labour government slashed the top personal tax rate from 66% to 33% and, the following year, 1989, GST was increased to 12.5% and imposed on all goods and services.

Hitting the poorest hardest

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% to 24.1%. Average tax rates for similar couples on three times the average income declined from 40.3% to 34.9%.” So we can see that indirect tax means less tax on the wealthy and more tax on workers, especially the poorest.

What’s behind the shift in taxation?

Under capitalism, workers’ labour-power 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, clothe, 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. In other words, the worker takes home the value of their labour-power ($500) and the amount paid in PAYE is actually a deduction from the additional $500 – that is, from the surplus-value.

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. Indirect tax is a useful weapon for doing this.

That way, 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 tax coming out of the worker’s $500 wage. Or, with personal tax cuts and increases in indirect taxation, like GST, it may be that $100 direct tax is coming out of surplus-value and $50, in the form of indirect tax, is coming out of the worker’s $500 wage. In either of these cases, the employing capitalist gets hold of an extra $50 in surplus-value per worker.

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.

Passing on costs

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. There is no GST added to workers’ wages!

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. In other words, the capitalists get to hold onto more surplus-value. 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.

From a pro-worker and anti-capitalist perspective there are some key considerations:

1. As the creators of surplus-value, the basis for profits, workers are already the people who create the wealth of society, a chunk of which is expropriated from them by the capitalist class which exploits their labour-power. Workers therefore should pay no indirect and/or regressive tax – no GST, no petrol tax, no road tax, no rates, nada, nothing.

2. While we call for for the total abolition of GST and all forms of regressive and/or indirect tax, we are more in favour of workers’ struggles for wage and benefit rises and for a living income with no worker having to work more than a 40-hour week. In fact, in the 21st century we should really have much shorter work weeks than were achieved last century.

3. Both indirect and regressive forms of taxation fit into the overall capitalist economy and are not going to be changed by parties committed to managing capitalism.

Even if GST were to be abolished in the context of the existing economy and power relations between the social classes, capitalists would try to increase their prices to take advantage of this. So a product that is $112.50 – $12.50 being GST – might be reduced to $110, with the capitalists being the prime beneficiary.

The only way to escape the inherent problems of a capitalist economy is to abolish that economy – that is, through workers taking control of the means of production, distribution and exchange and organising a new kind of society, one based on planned production for human need rather than anarchic production for profit.

Or, as our Wellington Central candidate, Don Franks, has put it:
All things bright and beautiful

In every shopping mall,
All the goods and services,

The workers made them all.
We sell our labour power

For a bare subsistence wage,
While bosses loll in luxury-

It’s time to turn the page.
Workers of all countries,

In lands both great and small,
This earth and all we’ve made of it -

Let us reclaim it all

Celebrating the 20th anniversary of Labour’s Goods and Services tax, Listener columnist David W Young wrote:

” The reason GST is much-loved by right-of-centre policy wonks in New Zealand and marvelled at by their colleagues overseas, is that it’s “pure”. (Finally, a tax that right-wingers like!) GST wasn’t adulterated to make it palatable to the masses. Calls to exempt food, education and health were rejected by Douglas and Brash’s committee. The few exceptions are rents on residential rental properties, donations and financial services.”

Young noted:

“The biggest concern about GST was that it would disproportionately harm the poor. That argument, made strenuously by unions and mainstream politicians in the 1980s, has shifted over time to the fringes of debate. It’s based on the fact that GST is effectively a regressive tax, because poorer people spend a greater proportion of their income than the rich, who put more into savings.”

(“Happy Returns”, Listener Dec 1 2006)

Today, argument about GST is continuing inside the trade union movement, but with some union leaders opposed to the wishes of their rank and file.

A remit put up at the Manukau 2 forum, that went to the Engineering Priinting and Manufactiring union ( EPMU) conference read:

“As part of the 2008 Election Campaign the removal of GST from essential items is a condition of EPMU support for any political party”

Forum delegates voted for:47, against:1, abstentions:0

The Spark understands that EPMU constitution committee which makes the recommendations to the national conference wrote a whole page against this remit. They said at the end of it that “This remit wittingly or unwittingly contains underlying sentiments of right wing ideology (reduce the tax base; limit the ability of the state to be effective). Recommend reject the remit.” Both Don Pryde (National President) and Andrew Little (National Secretary) made related comments in their conference opening address, Andrew Little and Paul Tolich (Senior National Industrial Officer) spoke against it in the remit session too.
The EPMU leaders say they don’t want to “limit the ability of the state to be effective”.

“Effective” for who?

GST is widely and accurately recognised as a tax on the poor. Unless the capitalist state is to distribute that tax straight back to the poor, which it obviously will not, then the distribution will be to those who are not poor, the rich. Wealth redistribution to the rich was the whole point of imposing GST in the first place, as a part of Labour’s package to help restore profitability to a wobbling capitalist economy.
What is the reason for the EPMU leaders strange behaviour?

Why on earth are they taking the side of the rich in the GST debate?
EPMU leaders are not in the habit of criticising anti worker policy when it comes from Labour. The union’s officials have longstanding close ties with the Labour party leaders. It’s no secret that current EPMU secretary Andrew Little has personal political ambitions.

However, there’s an even more basic reason for EPMU leaders defense of GST. Like many other top union leaders today, EPMU officials see no alternative to the capitalist system. They are concerned with helping the capitalist system work. That attitude can only lead to compromising workers interests, because capitalism can only prosper at worker’s expense.

The Worker’s Party stands on the side of the unionists who promoted and supported the remit against GST. Those unionists were dead right, and one day, their position will, deservedly, prevail.

Independence from the bosses – A workers’ response required in the campaign against rising cost of living

The boss class is to blame for the recent barrage of rising costs that is hitting working people in New Zealand and internationally. The following leaflet puts forward the Workers Party’s basic position on the increase to road user chargers.

Major companies are required to pay within the market system Should the major companies pay for the costs of maintaining the roads? We think that under a market system the major companies should be forced to pay but this should not be at the expense of their employees’ wages and conditions which such companies have been driving down for decades. If they were not called to pay, then the public would be bearing costs incurred while the companies make profits. However, it should also be understood that, within a market system, the employers’ profits come from the work that their employees do for them. Therefore, even if the companies lose profits, the main issue is that workers are able to increase real incomes.

Trouble for owner-operators is caused by bosses associations

Increasingly, with the growth of sub-contracting networks, workers are becoming more vulnerable as they are not part of a fully-socialised or large workplace. This is especially true for drivers.

One of the vulnerabilities is the easiness with which the government can isolate sub-contracted workers – who currently have little class power through being self-employed. The bosses have imposed casualisation and self-employment with loss of benefits. This whole process of segmenting the workforce has been carried out by organisations of the capitalist class such as the Business Roundtable, Business New Zealand and the Employers’ and Manufacturers’ Association.

Getting Unionised

We support unionisation as a way forward for improving wages, conditions, and livelihoods of truck drivers. Historically, drivers have been a backbone of the union movement. This was eroded in the 1980s and 1990s because the wider union movement was unable to withstand attacks from both Labour and National governments. If unions are built on workers’ self-activity and workers control – rather than on relationships with the government – a union movement can be built that can withstand the attacks from the ruling class.

This is the type of union movement that the Workers Party wants to help build.

Campaign against GST for better incomes

Our position is that workers should not be concerned with the boss’s profit margins. Our position is that what is important in this situation is the maintenance and growth of workers incomes and livelihoods. As well as campaigning for better incomes through the union movement, we are also contributing to raising public awareness against GST. GST does not hurt the bosses and the wealthy like it hurts working people. Working people spend a greater portion of income on GST than the wealthy. Also, the employer’s can pass the costs of GST on to workers by putting up their prices to absorb their GST costs.

The Workers Party will be standing in this year’s general election. This will be the first time an anti-capitalist organisation has stood nationally in general elections in New Zealand.

Published by Workers Party (NZ). Email: wpnz@clear.net.nz.

Phone Jared Phillips (Auckland Branch Organiser) 0294949863.
Leaflet authorised by Rebecca Broad, 2/789 Mt. Eden Road, Auckland.

During the upcoming election campaign, one of the minimum platform points of 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 1988, the fourth Labour government slashed the top personal tax rate from 66% to 33% and, the following year, 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 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 the Telecom CEO – and I’m working off figures for Theresa Gattung when she occupied that position – 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.

Around a third of the tax people pay is indirect tax, and corporates pay only one fifth of the tax take. Here’s the figures for the past financial year:

PAYE: $24.8b
Corporate: $9.8b
GST: $11.2b
Other Indirect (alcohol, petrol etc): $4.8b

Before the introduction of GST the taxation system was progressive. In fact, for a long time NZ had very low personal tax rates – in fact many workers paid little or no tax – and relatively high company taxes. Over the last half-century the weight shifted, first with big increases in income tax on workers and then small cuts in company taxes and then, with the fourth Labour Government, large cuts in company taxes and the imposition of GST and increased weight for other forms of indirect tax. Overall, the weight has shifted in recent decades, with a big chunk of tax being regressive and squeezing workers.

What’s behind the shift in taxation? Why do the employers and parties which want to cut income and company tax so vigorously defend maintaining fairly high levels of indirect tax and, in particular, why do they totally defend and maintain GST, even on essentials like food, clothing and shelter?

To answer these questions it is necessary to understand how capitalism works and how different forms of taxation fit into the way in which all the value produced in society is divided between the different classes in capitalist society, especially the exploited class (the workers) and the exploiting class (the capitalists), but also the middle class.

The single most significant feature of capitalism is the way in which commodity production becomes dominant: that is, goods and services increasingly are produced with the purpose of being sold on the market for the realisation, and maximisation, of profit. Under capitalism, workers’ labour-power 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. In other words, the worker takes home the value of their labour-power ($500) and the amount paid in PAYE is actually a deduction from the additional $500 – that is, from the surplus-value.

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 – so now, a part of the tax paid by workers comes out of the $500 which is the value (and price) of their 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 tax coming out of the worker’s $500 wage. Or, with personal tax cuts and increases in indirect taxation, like GST, it may be that $100 direct tax is coming out of surplus-value and $50, in the form of indirect tax, is coming out of the worker’s $500 wage. In either of these cases, the employing capitalist gets hold of an extra $50 in surplus-value per worker.

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. For instance, if a capitalist buys a machine that cost a million dollars and they then have to pay 12.5 percent GST, that cost is simply part of their constant capital (the fund spent on machinery, raw materials, plant etc) and its value is passed into the goods the machine produces.

Workers, on the other hand, cannot simply ‘factor in’ GST to their incomes, because they don’t set the price of their labour-power. There is no GST added to workers’ wages! And imagine the furore from capitalists if workers had have said, “OK, you’re paying 12.5% more for your machines and energy and so on, and you’re getting that back from simply adding it on to your prices, but we have to pay 12.5% more for food, shelter, clothing and just about everything else, so we’re adding 12.5% to our pay bill for you.”

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. In other words, the capitalists get to hold onto more surplus-value. 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 the Workers Party calls for the abolition of GST, 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 and populists. Moreover, whereas Keynesians, including Keynesians who think they are Marxists, put forward progressive taxation as an alternative to indirect and regressive tax, and argue that redistributive policies at the level of taxation can improve equality, put more money into the economy and solve economic problems, we explain this is not how capitalism works. Higher company taxes and higher taxes on the rich actually deepen the economic problems of a capitalist economy when that economy is in a recession – this is because such higher taxation means even less surplus-value can be converted into profit. So what happens is that capitalists cut back even more on jobs and wages. This is what happened during the Muldoon era and paved the way for “Rogernomics”.

The people who will pay the price for that are workers. Under capitalism there is simply no way out for workers.

The only way to escape the inherent problems of a capitalist economy is to abolish that economy – that is, through workers taking control of the means of production, distribution and exchange and organising a new kind of society, one based on planned production for human need rather than anarchic production for profit.

Capitalist governments in New Zealand are simply not going to abolish GST because of the way it fits into the capitalist economy which all the parliamentary parties are committed to managing. Moreover, even if GST were to be abolished in the context of the existing economy and power relations between the social classes, capitalists would try to increase their prices to take advantage of this. So a product that is $112.50 – $12.50 being GST – might be reduced to $110, with the capitalists being the prime beneficiary.

From a pro-worker and anti-capitalist perspective there are three key considerations:
1. As the creators of surplus-value, the basis for profits, workers are already the people who create the wealth of society, a chunk of which is expropriated from them by the capitalist class which exploits their labour-power. Workers therefore should pay no indirect and/or regressive tax – no GST, no petrol tax, no road tax, no rates, nada, nothing.
2. Workers’ struggle. If workers’ struggle forced changes in GST then such mobilisations of workers could be used to try to stymie capitalist attempts to simply profiteer more from such changes. Moreover, while we call for the total abolition of GST and all forms of regressive and/or indirect tax, we are more in favour of workers’ struggles for wage and benefit rises and for a living income with no worker having to work more than a 40-hour week. In fact, in the 21st century we should really have much shorter work weeks than were achieved last century.
3. Thirdly, when we call for the abolition of GST, we explain how indirect and regressive forms of taxation fit into the overall capitalist economy and that it is not the tax system but the capitalist economy itself which is the problem. So, for us, calling for the abolition of GST is primarily a way to educate people about the nature of capitalism and to mobilise people around challenging the economic system.

So, again, we are back to the fact that income inequality simply cannot be solved by progressive taxation or other ‘redistributive’ methods because income inequality is the expression of this more basic problem of the overall economic system – 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.

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

The following speech was given by Workers Party candidate for Wellington Central Don Franks at a protest organised by the Newtown Residents’ Coalition against the rising cost of living on May 2:

Folks, we’re here tonight to commemorate Mayday, International Workers Day.

This day has been marked internationally since May 1st 1886, when there were strikes and protests in Chicago in pursuit of an 8 hour working day.

The US state attacked the strikers and broke up their demonstrations. Subsequently the authorities made many arrests and 4 anarchist union organisers were hanged.

Today, here we are in Wellington many years on, continuing to mark Mayday.

This Mayday finds increasing numbers of working people feeling the pinch. Transport food and fuel prices go up, while our jobs disappear. We don’t need to go on and on about how bad things are getting, we know all that already. We can feel how bad things are getting for low paid workers.

What we want to know is what we can do about it.

The traditional self-proclaimed supporters of the workers are not going to help us. Take GST. The Workers Party is against all GST as a tax on the poor. The Labour Party was recently faced with a reasonable but modest demand to remove GST from food. Labour refused immediately. The fact is, the Labour Party has cut adrift a large section of the low paid part of the population. They are not interested in us and there’s no point in appealing to them.

Another traditional self styled supported of the workers is the top union leadership. The fact is, too many of the top union leaders have their heads too far up the arse of the Labour Party to see anything else. They are only interested in their own future parliamentary careers. One highly placed CTU official replied to our invitation to join us here tonight by saying that a protest about living standards would play into the hands of the National Party. We can’t expect people like that to help us solve our problems.

The plain fact is, noone is going to come down and save us. What we must do is look to our own self activity to fight back against falling living standards. We should support the idea raised here tonight of an ongoing Campaign Against Rising Prices. We should organise more demonstrations and strikes and support the strikes and demonstrations of other workers.

One more thing. I just want to leave you with another thought this Mayday – while we need to fight back, it is not enough to just keep battling for the next couple of dollars increase. Not enough because that won’t get us off the treadmill of the capitalist system. We need to do more than temporarily improve our position on that treadmill. What we need is a vision of a future without the private property system, a socialist vision of a better world.

At the end of the day, there’s a particular reason we need to struggle for such a future – we owe it our kids. We need to struggle to change the system to make it a better world for our kids.

Thank you.