GST charged on rates should be given back - economist

A leading economist has thrown his support behind Phil Goff's call for taxes levied on top of Aucklanders' rates to be given to the council.

GST of 15 percent applies to rates collected by councils, but that money goes to central Government, rather than staying local. 

The Auckland Mayor says it's a "tax on a tax" and should be returned.

"Such a move would increase Auckland's revenue by $270 million a year, further broadening the revenue base to take pressure off ratepayers and more fairly share the cost of growth," he said on Wednesday, after Infrastructure New Zealand threw its support behind the idea.

"We need to invest to support our growing requirements for infrastructure, but we can't expect ratepayers to bear the full brunt of these costs. New funding mechanisms are badly needed."

Economist Shamubeel Eaqub told The AM Show on Thursday that's a better idea than just taking GST off rates.

"GST in New Zealand is a really fantastic tax - it's broad, doesn't have any exemptions... but we've got this issue of taxes on taxes. We do this with rates, we do this with petrol. There's a  whole bunch of areas where we collect GST, but then it goes into the general pool - it doesn't go back to the people and the purpose it was raised for."

Any money funnelled back to councils would take a bit of funding pressure off them, he said.

"At the moment we're seeing this increasing pressure on rates to increase because local governments around the country just don't have the funding, especially in areas that are growing fast - Auckland, Waikato, Hamilton and Tauranga - they're growing so fast that they simply can't keep up with the investment in infrastructure and those kinds of things."

Eaqub says while councils are lumbered with the costs of infrastructure, it's central Government that largely benefits financially through the taxes levied on improved economic growth. 

"There is not a good mechanism to bring that money back... That really has to be fixed, and Auckland is at the very forefront of that."

Shamubeel Eaqub.
Shamubeel Eaqub. Photo credit: The AM Show

Eaqub added that Auckland already pays more in tax than it gets back from central Government. 

The AA earlier last year criticised the 1.5c of GST added to petrol in Auckland, after the implementation of the regional fuel tax of 10c.

"It is wrong that you should pay a tax on a tax," spokesperson Mark Stockdale said in October.

Newshub has approached Revenue Minister Stuart Nash for comment. Last year he rejected suggestions to take GST off petrol, saying it would benefit wealthier people more. 

GST was initially introduced by Labour in 1986 at 10 percent, replacing a bevy of other taxes. It was increased to 12.5 percent in 1989, then to 15 percent by National in 2010.