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Herald calculations show that expected income tax cuts
will more than compensate even in an extreme case of a
couple earning only just above the minimum wage and
paying GST on almost everything, including rent.
But beneficiary advocates fear the immediate gain will
be wiped out quickly if businesses take advantage of the
GST rise to pass on other cost increases too.
"I think a lot of businesses have been holding their
prices and I think prices will go up not just by 2.22
per cent [the direct effect of raising GST]," said
Beneficiary Advocacy Federation spokeswoman Kay
Brereton.
"That's going to be a real problem for our clients."
Munish Pathak, who earns $13.26 an hour as a security
guard at Auckland City Hospital, expects to be worse
off.
"Even without the increase in GST it's really hard to
accommodate everything," he said. "This is going to make
it much harder."
Mr Pathak, 26, met his Kiwi wife Sarah, now 20, in
Wanganui. She is in her final year of a nursing degree
and gets a student allowance of $150 a week, reduced
slightly from the maximum because of her parents'
income.
Mr Pathak works 60 hours a week to make ends meet,
bringing home $635 after tax. But he is still repaying a
bank loan which he took out while out of work which
costs him about $78.50 a week.
The couple pay $245 a week for a room in a Morningside
hostel, the Dossah, sharing a kitchen with other
residents.
Such "long-stay accommodation" is subject to a special
GST rate of 7.5 per cent because it comes with some
"hotel-type" services such as linen and crockery.
They spend the rest of their income on food, petrol,
telephone and other living costs, all subject to GST at
12.5 per cent. Raising GST to 15 per cent, as expected,
will raise their general living costs by $10.27 a week
and their rent by $3.42.
The long-stay accommodation rate is fixed at 60 per cent
of the standard GST rate, so it will go up from 7.5 per
cent to 9 per cent.
To compensate, Mr Pathak can expect a tax cut of $17.25
a week if the middle-income tax rate is cut from 21 per
cent to 19, and the bottom rate from 12.5 per cent to
10.
Mrs Pathak can expect her net student allowance to go up
by about 2.22 per cent, or $3.33 a week. The couple's
total income boost of $20.58 would more than cover their
immediate GST increase of $13.69, making them about $7 a
week better off.
However, their landlord, Abacus Unitel general manager
Mike Newman, said their rent would go up by more than
the GST increase because he held off the annual
adjustment in February so he would not have to raise
prices twice in one year.
Source:
New Zealand Herald, New Zealand, dated 18/05/2010
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