New Zealand's Tax Working Group, set up by the Labour-led coalition government to make recommendations on an overhaul of the entire tax system, has shied away from calling for GST to be levied on financial services or for the taxing of financial transactions.The interim report of the group, released yesterday, describes the treatment of financial services as a "problematic aspect of GST".It indicates it attempted, but failed, to come up with a workable way to impose the tax on financial services. "Financial services are not subject to GST for reasons of administrative complexity. The Group has considered a number of options for taxing the consumption of financial services but has not been able to identify a means of doing so that is both feasible and efficient," the report said.The group also considered financial transaction taxes, but also ruled these as well, saying the revenue potential for New Zealand would be limited because the big Australian-owned banks could easily avoid paying by relocating activity across the Tasman.Michael Cullen, the chair of the working group, told the press conference that apart from the complexity of deciding how and what to tax, the banks would most likely simply pass on the costs of taxation to customers."I have never considered banks to be a charity," he said.He said it "could well end up being a regressive tax" that resulted in smaller and poorer bank customers paying more for banking and other financial services, while the financial institutions discount costs for their larger customers.The likely reaction of banks was also behind the discarding of the simple option of just adding GST to bank fees. The group said the main problem was "the ease with which financial service providers could switch from applying explicit fees to implicit fees" (for example, by cutting or dropping bank fees and instead changing the interest rates they charged or offered).It noted that banks often discount fees for customers with large enough account balances, so people with low bank balances would be more likely to end up paying GST.The other options considered, and discarded, are discussed in detail on page 90 of the report. There have been similar discussions across The Ditch in regard to broadening Australia's GST base to include all financial services, an idea floated via the Financial System Inquiry and elsewhere. "The idea has merit, although the complexity of the issue makes assessing the consequences and merits difficult," is how Kevin Davis, research director at the Australian Centre for Financial Studies, summarised the problem for The Conversation in 2015. "Currently, some financial services (such as insurance) for which explicit fees are levied are subject to GST. But a major part of banking - taking deposits and making loans - is not.""...The problem lies in splitting the value between business and retail customers and providers of deposits and loans."And that is where the debate has stalled, advances in record-keeping notwithstanding.