The government will collect hundreds of millions of additional GST under the current unemployment insurance proposal. Photo / Thinkstock
Contributions to the government’s proposed social unemployment insurance scheme will likely be subject to 15 percent GST, bringing the government hundreds of millions of dollars in revenue — something the National calls a tax on a tax.
Papers released under the Official Information Act show that officials refrain from allowing earners to claim a deduction from the GST they pay on their taxes. Officials recommended changing the law to prevent deductions from being claimed.
The application of GST to Unemployment Insurance levies is included in the current proposal for the scheme, which will collect 1.39 percent of workers’ pay packages, with an equivalent levy of 1.39 percent collected from employers – similar to ACC.
These royalties will be used to fund the ACC to operate the program, which is estimated to cost $3.5 billion per year. The system pays 80 percent of workers’ earnings after they become unemployed (capped at $130,911 wages) for up to seven months after they lose their jobs.
Employers can claim deductions for the GST they pay, but employees cannot.
A 15 percent GST on the employee’s share of the cost equates to approximately $250 million in incremental revenue for the core crown.
Treasury Secretary Grant Robertson said “final decisions on the program are still being worked out”.
National finance spokeswoman Nicola Willis said the “proposed GST burden is another Labor grab on Kiwi’s take-home wages, intended to boost government coffers at the expense of workers”.
“In the midst of a livelihood crisis, this is totally wrong for the government,” Willis said.
She said National opposes and would repeal Social Unemployment Insurance, dubbed the “Job Tax.”
Law leader David Seymour is also opposed to unemployment insurance, but said if it were introduced it would make sense for the GST to be applied to it in some way.
He said there needs to be “some sort of parity” with private providers of income protection insurance.
But he said the catch is that most people who pay personal income protection insurance are “contractors — people who can deduct from their income as an expense.” The government’s system would extend this to all income earners, most of whom would not be GST registered and would have to pay the full fee on their levy.
Willis asked Robertson in the House of Representatives last week if the “Jobs Tax” would be subject to GST and how much he expected it to be.
Robertson responded by saying there was “no such thing” as a workplace tax.
The consultation document, which outlines the system’s first public blush, says levies would be subject to the GST.
The Official Information Act requests published by the Treasury Department on its website show officials have been at odds over how the charges should be treated.
The papers proposed treating the levy like ACC levies and deducting it from workers’ salaries.
“An interpretation of the applicable law suggests that employees may be entitled to a deduction for employee contributions deducted from their income.
“Politically, it is preferable that workers are not allowed this deduction. This treatment would be consistent with the tax treatment of the ACC earners’ levy and the framework for taxing individuals in general if employees are not allowed deductions for expenses incurred in earning that income,” officials warned.
They added allowing deductions would also create a “significant” tax cost for the Crown.
Robertson has defended the unemployment insurance model, pointing to the wage subsidies used by both the National and Labor governments during major economic shocks such as the Christchurch earthquake and the Covid-19 pandemic.
These policies were financed through borrowing and taxes – Social Security would effectively pre-finance unemployment benefits to take these costs off the crown’s balance sheet.