Vernon Small’s pieces on tax in the Independent and Dom this week have been interesting. He provides a good overview of the issues around a land tax, capital gains tax, and raising GST. He points out that most economists argue we should tax things that can’t be taken away or avoided and things we want to discourage – so tax land, capital gain, and consumption while taxing work and income less. There is also the argument that as the workforce shrinks as a share of population in coming years, we can’t expect to get enough revenue from taxing wages.
Small thinks that these are all too politically sensitive and won’t go anywhere but I wouldn’t be so sure. English seems to get the need for change. The Greens have been calling for a capital gains tax for years, Labour isn’t set against it. Both could probably live with a land tax and even an increase in GST but it would depend how income tax would be cut in turn. National wants to give the tax cuts to the already well-off:
[The Tax Working Group] working within National’s policy framework that aims, over time, to move to a top rate of 30 per cent for personal income, businesses and investment. Bridging the gap between the current 38 per cent personal rate and 30 per cent would cost about $800 million, with another $300 million-odd needed to lower the middle 33 cent to the same level. Finding that amount of money, either by rejigging the tax base or preferably broadening it, is a big ask…
And, unfortunately, Small himself accepts the narrative that income tax cuts have to come off the top.
A small tax on land alone could fund a big move in personal tax rates. A 0.1 per cent tax – $460 million on the $460 billion of privately-held land – would offset the lost revenue from cutting the 38 cent rate to 33 cents.
But it doesn’t have to be that way and it shouldn’t be that way. Income tax cuts made possible by new taxes or tax increases must be shared by all. Most importantly, the poor must not be left out as they were from National’s April 1 tax cuts and as they would have been from National’s now cancelled 2010 and 2011 cuts. Introducing a tax-free bracket would be the fairest and simpliest option – everyone earning more than the top of the bracket would get the same cut in dollar terms and the poor would get the biggest cut in percentage terms.
For example, if increased GST, a land tax and capital gains tax raise $3 billion in new revenue, that would allow a $8,000 tax free bracket – a $1,000 a year tax cut for everyone on more than $8,000, which would more than offset the increase in GST for those on low incomes. There ought to be no reason why the Left couldn’t support that. However, the Left certainly would oppose introducing those new taxes just to give the rich a tax cut they don’t need. It is the nature of the complete package that is important.
Journos need to be careful not to buy into the narrative that income taxes automatically come off the top rates and start asking who will benefit from any reform proposals.