Why socialists oppose GST

We publish below a talk given by Philip Ferguson at a recent Christchurch Workers Party forum.  It is an expanded and updated version of an article originally published in the Spark in 2005 available here.

Most of the parliamentary parties favour tax cuts both for individuals and companies. Indeed, under Labour there has been a small cut in company tax and also tax credits for companies investing in R&D – and, in the latest budget, some personal tax cuts. Although the personal tax cuts are presented in a populist way, as if they would benefit workers, these parties vigorously oppose measures such as substantial increases to the minimum wage, serious across-the-board wage rises and increases in welfare payments to keep up with inflation, let alone living real wages and incomes for people on benefits. And all the parliamentary parties oppose the abolition of GST.

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.


  1. Jamesey says:


    I agree that GST is the most dispicable tax that exists, because not only is it regressive, but it also effectively criminalises non “market” transactions as it subjects them to taxation and therefore must be paid with hard currency even though they’re not conducted with cash, in effect making the transaction uneconomic or forced underground. Not to mention for businesses, its a deductible expense, whilst workers have to pay it.

    I’m a mutualist-ararchist, but I’m wiling to sacrifice ideological purity in order to assist with political initiatives that will provide for increased welfare for people like me, the working class.

    What is needed is for you to reach out to other groups with similar aims, such as other Left parties, like the Alliance, Socialist Worker, Socialist Aotearoa, and even the Greens, to form a united front in a campaign for the abolishment of GST.

    Why don’t you spend copies of the speech to all potentially interested parties? I’m very appalled at the complete ignorance of economics amongst the Left. I guess thats what happens when the discourse is dominated by academics primarily with the social “sciences”, whilst the capitalists are free to frame the debate about economics in terms that are in their interests.

  2. comradealastair says:

    “I’m a mutualist-ararchist, but I’m wiling to sacrifice ideological purity in order to assist with political initiatives that will provide for increased welfare for people like me, the working class.”

    Now that’s an attitude we need to see more of on the left. :P

    “What is needed is for you to reach out to other groups with similar aims, such as other Left parties, like the Alliance, Socialist Worker, Socialist Aotearoa, and even the Greens, to form a united front in a campaign for the abolishment of GST.”

    We’d be happy to work alongside other left groups on a campaign against GST, and we’ve made some suggestions along those lines to various people. However, Socialist Worker/RAM and the Greens do not really classify as Left parties anymore – they’re centreist, liberal groups through and through. SW/RAM are too busy calling for GST to be removed only from food to bother with a silly idea like the complete abolishment of GST in it’s entirety, and the same goes for the Greens.

    That said, if they did approach us and stated their willingness to get involved in a campaign for the complete abolishment of GST, we certainly wouldn’t just brush them off.

  3. Jamesey says:

    Hi comradealastair,

    “Now that’s an attitude we need to see more of on the left.”

    It really is a shame. Until the last few years I had no idea how ideologically split the Left and even communism and anarchism are.

    “However, Socialist Worker/RAM and the Greens do not really classify as Left parties anymore – they’re centreist, liberal groups through and through. SW/RAM are too busy calling for GST to be removed only from food to bother with a silly idea like the complete abolishment of GST in it’s entirety, and the same goes for the Greens.”

    Thats a damn shame. Note I didn’t bother mentioning the Labour Party, because they’ve since been captured by the bosses and identity politics activists. They should have changed their name in the 1970s like Norman Kirk had wanted (it was in his biography). For the Right to label the Labour Party as socialist just how ignorant or how intolerant they are of other social, economic, and political views other than their own. I’ve just been reading Rhetoric of the Red Dawn by Jason A. Lee, one of the Labour Party’s most radical MP’s who was kicked out of the party by Peter Fraser in the 1940s. He noted that happening way back then.

    Prior to the First Labour government, they sang “The Red Flag”.

    “The people’s flag is deepst red.
    It’s shrouded oft their martyred dead.
    And ere their limbs grew stiff and cold.
    Their heart’s blood dyed its every fold.”

    After the Labour Party mellowed its aims to gain wider appeal, some of the more radical M.Ps would sing a song in parody.

    “The people’s flag is the palest pink.
    Its not so red as you might think
    We’ve been to see and now we know
    They’ve been and changed its colour so.

    In his book written in 1965, he wrote that if they were to sing the song on that date they would have sung.

    “The peole’s flag is deepest red
    But we’ve got to keep up with the Joneses.
    All people that on earth do dwell
    Sing to the Lord with a cheerful voice.
    ‘God Save our Gracious Queen.’
    So we can keep up with the Joneses.

    Appropriate no? With Helen Clarks stated aim of regaining “our” former rank in the OECD.

    I’ve joined the Green Party, to hopefully agitate from within. I know that Russell Norman is a former socialist, though he appears to recognise the irony of his position, something you are no doubt aware of.

    “It’s a funny position we find ourselves in. Just as the social democrats (Europe), labourists (UK, Oz, NZ) and new dealers (US) of the 1930s and 1940s had to save capitalism from its own destructive tendencies by introducing a range of modifications and interventions on the market system, so now the Green Parties of the world find ourselves in possibly a similar position. The best of the old social democrats like Michael Cullen are too locked in the old paradigm to understand it, and the sectional interests like the business roundtable and employers federation are too narrow to see it, but we have to intervene on the market system to place a price on resource use and pollution so that we can save the planet. And in the process we will quite possibly save the market system from its natural tendency to destroy or consume all resources leading to its own demise.”

    Its just that they are so naive about economics. They feel that if they impose “environmental taxation” on businesses that it’ll be force to change their behaviour so as not to be subject to the extra costs, in so failing to realise that those companies will no doubt pass the costs onto their customers who are inevitably workers, who can’t afford to change their behaviour because they’re struggling already. I’m trying to educate them about something that even the Right understand and appear almost concerned about, but its hard to get through to them.

  4. Jamesey says:


    Are you guys Marxist-Leninist, and if so does that mean you support the earlier New Economic Policy of the early years of the Soviet Union or “the dictatorship of industry” which was advocated by the fascist Trotsky and eventually applied by Stalin after he exiled him?

  5. In response to the last comment, the Workers Party doesn´t have a party line on the “correct” interpretation of the history of the communist movement such as the Stalin vs Trotsky debate – we are generally pro-Marx and pro-Lenin, but recognise that no one historical model can offer a blueprint for socialists today, especially in NZ which unlike (for example) Russia, China and Cuba is an advanced capitalist nation with a long tradition of bourgeois democracy.

    That’s why our 5 Point Platform is limited to issues that are important for the working class in NZ in the 21st century.

    We do sometimes have interesting discussions and debates about the historical stuff, and take an active interest in the struggles going on today in other countries such as Nepal and the Philippines, but we don’t think we need to have a program for how to carry out those revolutions. We’ve quite enough on our plate trying to make one in Aotearoa!

  6. Jamesey says:

    “That’s why our 5 Point Platform is limited to issues that are important for the working class in NZ in the 21st century.”

    Can you elaborate? I looked on your site and couldn’t find any information that relates to a Five Point Platform.

    Personally mine would be:

    1. to abolish GST

    2. to either impose a graduated tax on the value of unimproved land or the nationalisation thereof, which prevailed until Massey allowed freehold ownership when his government came to power. Karl Marx appeared to recognise the central place that private ownership of land had in perpetuating the capitalist economic system, which he expressed in the Critique of the Gotha Programme. Councils already have the power to do this under the Local Government Act 2002 (not nationalisation). The funds could be used to fund a universal basic income, which would allow us to dismantle the invasive and coercive Beveridge/Croly Welfare State and the minimum wage which effectively makes workers (bluecollar and whitecollar) subsidise the ameriolation of market failures.

    3 to abolish the Employment Relations Act and replacement with one that doesn’t infringe on the rights of labour to strike politically. This and its predecessor, the Employment Contracts Act, handily constricted and marginalised the oppositon of the workers to the criminal looting of the public wealth by traitorous domestic and foreign capitalists in the 1980s and 1990s.

    4. Further reform the Local Government Act, in order to devolve powers currently retained by central government, which will ideally provide for more direct participation in governmance and decisionmaking by those that are directly affected them.
    I’m rather partial to the administration of the Emilia Romagna region in Italy who have had a communist government for virtually 50 years.

    “The beneficiaries of “real services” are people working in small and medium enterprises. In the United States, we usually think of small businesses not only as firms that pay low wages but as especially hostile to any government intervention. Neither is true in Emilia-Romagna. With only 3.9 million people, the region has an amazing 68,000 manufacturing enterprises. (New York State, by contrast, has 18 million people and about 26,000 manufacturing enterprises.) No invisible hand provides Emilian firms with financing, daycare, urban planning, technical assistance, research institutes and specialized laboratories. Small companies can’t be expected to devote much capital to research and development. They can’t even afford to hire marketing consultants. The regional government arranges for these services — chiefly by contracting with nonprofit economic research agencies like the internationally respected NOMISMA. “

    5. Abolish the Ministry of Trade and Enterprise. Why should workers provide wealthfare for companies in the end appropriate the surplus value of their workers?

    6. Either abolish the corporate charter of corporations which provides them with “personhood” and limited liability or alternatively provide the same rights for worker cooperatives, perhaps in a form resembling the UK Limited Liability Partnerships.

    7. Nationalise the Reserve Bank and direct it to fund programmes that are of importance to the New Zealand people, like the First Labour government did in the 1930s.
    “Where will the money come from?�?; the Government’s answers were never explicit, but in fact a good deal of the money came from State credit created by the Reserve Bank. This institution, by an Act of 1936, had become a fully governmental body; where these expensive programmes could not be financed out of current revenue or overseas funds, the Government simply borrowed from its own bank. Neither the housing programme nor the guaranteed price could have been financed without such credit.�?

    http://www.teara.govt.nz/1966/H/HistorySettlementAndDevelopment/193549 theLabourRegime/en

    What do you think?

    “We do sometimes have interesting discussions and debates about the historical stuff, and take an active interest in the struggles going on today in other countries such as Nepal and the Philippines, but we don’t think we need to have a program for how to carry out those revolutions.”

    I think debating and discussing the history of the revolutionary struggle is highly relevant, because it holds valuable lessons from which we can draw so we don’t repeat the same mistakes from the past. For example what transpired during the Spanish Revolution between Marxists and Anarchists. As George Santanya wrote, Those who cannot remember the past, are condemned to repeat it.”

    “We’ve quite enough on our plate trying to make one in Aotearoa!”
    You’ve got that right when limpwristed reformists like the Greens and the Labour Party are reviled and marginalised for being “communists” and “radicals”, because of the “liberal” social agendas.

    Last question. Whats your party’s view as to the end goal of Marxism, that being the eventual withering away of the State? I think that mutualist anarchists by nature being “reformist” would the most likely candidates within the anarchist movement to work with you as long as we share than commen end goal. From what I’ve read, many socialists prior to the fall of the Soviet Union, didn’t appear inclined to support such a thing, because of the apparent (and questionable) success of the Soviet Union in providing an alternative political and economic structure to capitalism, whilst not appearing to realise that it was merely capitalism without the constraints of liberal democracy (more rightly labeled fascism). Do Marxists now feel as though this goal is no longer realistic, if so they should more accurately label themselves Lassalleans.

  7. Our 5 point platform is found on the “About” page, but as it´s fairly concise I’ll post it again here:

    1. Opposition to all New Zealand and Western imperialist intervention in the Third World and all Western imperialist alliances.

    2. Secure jobs for all with a living wage and a shorter working week.

    3. For the unrestricted right of workers to organise and take industrial action and no limits on workers’ freedom of speech and activity.

    4. For working class unity and solidarity – equality for women, Maori and other ethnic minorities and people of all sexual orientations and identities; open borders and full rights for migrant workers.

    5. For a working peoples’ republic.

    As you can see it’s not a fully-fledged program or blueprint for the future socialist society. A lot of revolutionary groups have long-winded programs calling for the nationalisation of x industry or for more money on y social program – usually the longer the program, the smaller the group and the more sharply they counterpose themselves to every other tendency on the far left.

    Our 5 point platform, as one of our comrades put it during a talk at our recent Marxism 2008 conference, focuses instead on “the things that the NZ working class needs to get right” in order to develop revolutionary anti-capitalist consciousness. The reasoning being that workers can quite happily sign up to demands like the abilition of GST on food or free public transport which are perfectly legitimate demands in-and-of-themselves, but they still won´t be any closer to understanding the need to overthrow capitalism.

    During various campaigns (such as running in the upcoming parliamentary elections) we do of course raise concrete demands such as the abolition of GST, but we don´t make that our sole raison d’etre as other groups like RAM/Socialist Worker do.

    By contrast our 5 point platform are if you like the principles which we use to inform and guide our everyday campaign work and determine our political priorities. For instance last year one of our biggest campaigns was in defence of the Iranian asylum seekers imprisoned at Mt Eden – something from which from much of the left abstained as they didn´t see it as a top priority compared to some of the more “popular” issues such as free buses. But because we knew that the struggle for open borders is an absolutely indispensible part of winning workers to revolutionary ideas, we made it our number 1 priority (even though the potential audience was very very small).

    It would be different perhaps if our goal was to get elected to parliament and “reform” capitalism, but on the campaign trail we are always honest with workers about the fact that at the end of the day capitalism cannot be reformed and in any case that that is not what we are about (hopefully this clarifies that we are definitely not Lassalleans!).

    As far as learning from history goes, we do have an enormous variety of views in our party about issues such as the class nature of the USSR (some say bureacratic collectivist, some say state capitalist, some say degenerated workers state etc etc).

    However the main lesson we draw from the failure of the so-called “socialist” regimes is the need for real and transparent internal party democracy, with comrades having the right to discuss and debate differences of opinion openly (including publicly in the party press). This was the case in the Russian Bolshevik Party right up until the 1917 Revolution, however subsequently it was replaced with a brand of bureaucratic monolithism – falsely labelled “democratic centralism” – which held that the party could only speak with one voice and that all internal party dissent must be muzzled.

    This model of “democratic centralism” was coined by Zinoviev and later spread to Stalinist and Trotskyist parties worldwide – the outcome was worse in the case of the Stalinist parties probably because many of them held state power, but the internal regimes of many Trotskyist parties were also pretty shocking.

    For this reason in our constitution we allow our members to disagree with the party on any issue as long as they don´t contravene the basic 5 point platform or do anything that “brings the party into disrepute in the eyes of the working class” (eg scab on a strike or take bribes while serving as an elected official).

    Hopefully this answers some of your questions – but feel free to email us if you have any more!

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