13 October 2009

Treasury still has some thinkers

Flat tax was put forward to Bill English as an option according to the NBR.

Pearls before swine some may think, as Bill English could never have the gumption to argue for a flat tax. He has none of the backbone needed to argue that just because people earn more, does not mean they should pay an ever higher proportion of their income to the state. You do not consume more of what the state spends its money on just because you earn more. Too many of the envy brigade on the left would say it is "giving money to the rich" when in fact it is letting people keep more of THEIR money.

Flat taxes are common in former communist countries like Albania, Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Romania, Russia and Slovakia. Indeed even former Yugoslav republics of Macedonia, Montenegro, Serbia and Bosnia Hercegovina have adopted it. Hong Kong has close to a flat tax system.

So moving towards a flat tax IS good policy, it isn't extreme, it isn't uncommon, it is a sensible way to show New Zealand as a low tax small government economy, and it would help attract people. It does mean getting rid of the two top income tax rates, and that means some proper culling of the state. Not the limp wristed "efficiency gains" that haven't delivered.

It means abolishing agencies and functions.

It means saying the government needs to do less.

You'd think a government with ACT in it, might start to do something about it. Wouldn't you?


Sally said...

I think ACT is powerless. Key is riding high in the polls and enjoys the power. So many of his decisions show how weak he is.

Act probably would have been better in opposition. But I thought having them where they are would force Key into doing something constructive. But the Maori Party has put a spanner in the works.

ZenTiger said...

I disagree with this post.

I agree with the benefits of flat tax, but I disagree with how it would be implemented in NZ.

No controls to change it back to "unflat" taxes, and a rider clause that we would have to accept higher GST, Land Tax and CGT taxes in exchange.

It becomes just another excuse for broadening the tax base, and the flat part will not lead to any significant reform in our approach to tax, and will likely be short lived.

"Show me the money" requires better legislative guarantees with that promise.

Libertyscott said...

Zen: I did not say how it would be implemented, I have never supported increasing other taxes in response.

A flat tax with a smaller state would be more difficult to change, but without a constitutionally protected definition of the role of the state, nothing can be guaranteed.

I advocate a starting position of abolishing all income tax rates above 21% and making the first $10k tax free - and no additional taxes elsewhere.

Jeremy Harris said...

You're starting position is too extreme, it would require cuts to government that would start riots...

I'd advocate:

Elimination of Working for Families and this money used to introduce a tax free threshold, 10%, 20% and 30% income rates, 20% company tax, GST 10%, savings through all the silly departments and those that are obviously not governments job, Ministry of Pacific Affairs, Womans Affairs, MED, etc...

ZenTiger said...

Sorry, I wasn't clear. I'm aware of your position, just wanted to point out that the glee some others are showing in adopting flat tax will end in disappointment, because it will not stay that way (and will not be legislated to stay that way) BUT we will inherit a whole pile of new taxes in "exchange" for a temporary carrot coated stick.

My thoughts here: Flat Tax Blindingly Obvious

ZenTiger said...

PS: I'd advocate abolishing of all income and business tax in exchange for a GST of 15% on everything (even house purchases) and a tobin tax on all dollars leaving the country of 3%.

I'd also put controls on government spending rules and its ability to raise and increase taxes beyond this.

That would simplify things dramatically.

Mo said...

perhaps a land tax in exchange for all taxes being abolished.

Libertyscott said...

Zen: NOOO, not GST on everything. It means everyone selling stuff privately has to be registered etc. It's a nightmare. It is the original ACT argument, either use GST at 10% or a flat rate of income tax. GST 10% I can cope with. Tobin tax? Noooo. There is no justification for penalising currency conversion, for it is the best discipline on politicians devaluing the dollar.

Mo: How about no tax in exchange for getting my money back? One argument is running a lottery generates enough money to pay for Police, defence and law and order. Sounds not unreasonable.

ZenTiger said...

Ah but Liberty, consider the landscape with NO income tax!

A more profound change to business and the individual when it comes to government costs and interference on financial matters I cannot think of. Some studies indicate savings on the cost of products, of 10 to 20% removing all of the government enforced adjustments to cope with taxing profit and wages.

Re selling stuff privately - registration wouldn't be necessary with reasonable thresholds. That aside