Wednesday, March 05, 2008

Abolishing income tax?

No Minister has posted about how the UK Libertarian Party has proposed abolishing income tax, by simply cutting government spending to where it was 5 years ago, given how high VAT is (17.5%).

He asked in relation to New Zealand "How much scope is there for a radical overhaul of our tax structure? Perhaps this is a task for Peter Cresswell and others to consider. How detailed are the NZ Libz with their policy prescriptions? Or is abolishing income tax 'pie in the sky' here too? Does ACT offer anything here?"

Well the Libertarianz (NZ) DOES have detailed policy on tax, on the party website here. It actually proposes the OPPOSITE tax reform, with all OTHER taxes being abolished other than income tax, which would be set at a flat rate of 15% with a $10,000 tax free threshold. This would be a transitional measure which itself would be phased down.

Why leave income tax and abolish others? Well it is a matter of two things.

Firstly, other taxes are largely invisible to the general public. GST, residents' withholding tax and various duties are paid, and the public treats these as part of the cost of goods or earning interest at the bank. It would be far preferable to notice that the cost of government is transparent and you pay that, rather than it hidden in multiple other taxes.

Secondly, abolishing all of the other taxes will lower compliance costs for businesses, end the "black economy" nonsense about paying under the counter for goods and services, and dramatically simplify tax arrangements overall.

How would this be paid for? Well by dramatically shrinking the state. Libertarianz has proposed alternative budgets for some years.

Now I remember Sir Roger Douglas proposed abolishing income tax in his book Unfinished Business, and it was originally ACT policy (he replaced income tax with compulsory health insurance, superannuation and education). ACT policy has been flat tax and more recently two step income tax. I'd be interested to see if ACT revives flat tax for 2008, but for now Libertarianz is the low flat tax party.

2 comments:

PC said...

A timely post -- I was just saying something similar elsewhere.

On ACT -- haven't you heard: Rodney has now declared in recent speeches "There's no need to cut government spending"; all that's "needed" he says is to "cap government spending" and then "inflation-proof that figure."

Doesn't get much more pathetic that that, does it? From abolition to "low flat tax" to "two-step income tax" to "there's no need to cut government spending," all in just eleven short years -- and with Act's fortunes declining right along as their principles have.

libertyscott said...

Yes, there may be hope if Roger Douglas has his way. It surely is time for ACT to at least be the flat tax party - it was getting 6-7% on that policy under Prebble.