Taxing debate

Written By: - Date published: 3:50 pm, August 3rd, 2009 - 78 comments
Categories: tax - Tags:

Treasury’s man on the tax reform working group, Professor Norman Gemmell, has laid out some changes that Treasury would like to see: GST up to 15%, the top tax rate down to 30%, and a capital gains tax.

In my first draft, at this point I droned on about right and left-wing economics taxation theory for a while but the practical question regarding any changes is how they will change the burden of tax on different income groups. Who loses and who wins from adopting Gemmell’s proposals?

Top tax-rates down to 30%: all the benefit to the wealthy, most of it to a very wealthy few.

Capital gains tax: mostly cost to the wealthy but international experience show it’s a relatively small revenue source.

GST up to 15%: cost borne by all but disproportionately by the poor.

Gemmell says the GST would fund the income tax cuts, net outcome: massive wealth transfer from the poor to the wealthy. We shouldn’t be moving in that direction.

A tax system shouldn’t attempt to tax all equally; it should balance the unfairness and inequity inherent in capitalism. Wealth tends to become evermore concentrated in capitalism. If we are to have a fair society using a capitalist economic model, the system of income redistribution through tax and the social wage has to pull in the opposite direction by progressively taxing people more the higher their income.

So, what should a good tax system do?

  • redistribute income from the wealthy to the poor to balance the unfairness inherent in capitalism
  • discourage or prevent the accumulation of large amounts of wealth in few hands, especially wealth obtained purely by capital returns (eg capital gains tax, estate tax, preventing use of trusts for tax avoidance)
  • tax the use of limited resources because it deprives others of their use (land taxes, resources taxes)
  • because tax inevitably changes incentives, that should be used to encourage positive outcomes (eg. taxing pollution, resource use)
  • tax work as lightly as possible, especially at the bottom end to help encourage people to work and help those in the direst circumstances obtain a decent income any income tax cuts should be targeted at low incomes and in greatest need (eg Working for Families, Cullen’s tax cuts).
  • avoid regressive taxes, like GST, that burden the poor more than the rich.
  • encourage investment in capital (savings) over consumerism

In practical terms that makes Gemmell’s capital gains tax proposal a goer but not the upper-bracket income tax cuts or the increase in GST. We should also look at putting more tax on use of resources and pollution. Income tax cuts offsetting the capital gains revenue and any other resource/land taxes should be directed at low incomes.

78 comments on “Taxing debate ”

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  1. ghostwhowalks 1
    3 August 2009 at 4:09 pm

    Big Businesses get around GST , by structuring property transactions via shares .

  2. Tim Ellis 2
    3 August 2009 at 4:14 pm

    Interesting debate, Marty.

    I think a few more features should be part of the tax system: encouraging enterprise, innovation and risk, rewarding hard work, encouraging investment in productive industry, encouraging savings, and discouraging consumption.

    • Zaphod Beeblebrox 2.1
      3 August 2009 at 4:19 pm

      That’s pretty well waht we must do. I’d also add discouraging anything that depletes our environmental or social outcomes.

    • Marty G 2.2
      3 August 2009 at 7:16 pm

      yeah. that’s meant to be in there. too many chops and changes in the drafting 🙂 I’ll add it now

  3. Zaphod Beeblebrox 3
    3 August 2009 at 4:17 pm

    You could ameliorate the effect of a GST increase, by making dairy, vegetables, meat all GST free. Then you could surcharge anything with suagr and milk in it. Use this extra tax to improve the health system.

    • Bright Red 3.1
      3 August 2009 at 4:19 pm

      I agree there’s a case for that kind of stuff – target ‘bad consumption’ not ‘necessary consumption’. gets very complicated though

      • Zaphod Beeblebrox 3.1.1
        3 August 2009 at 4:23 pm

        If the Australians can do it, can’t see why NZ could not.

        • Tim Ellis 3.1.1.1
          3 August 2009 at 4:34 pm

          I don’t think the Australian model is ideal. The beauty of the NZ GST is that it is so simple to administer.

          If there are problems with people on low incomes adjusting to an effective cost increase by having to pay higher GST, then I think the answer is to increase their subsidies to them.

          • Zaphod Beeblebrox 3.1.1.1.1
            3 August 2009 at 6:00 pm

            If you wanted simplicity you wouldn’t bother having a GST, you’d just tax income and have no deductions and no company tax.

            Of course this is neither practical or fair. I dispute that GST adversely affects the poor as wealthy people spen more (ie pay more GST) and it takes away the ability of people to hide income or shift assets offshore.

            These days with computerised inventories and modern acounting systems I can’t see why we can’t exempt essentials to reduce the burden on the poor. This would allow a greater dependence upon GST and reduce personal and company tax.

            • Tim Ellis 3.1.1.1.1.1
              3 August 2009 at 6:41 pm

              Actually Zaphod, universal GST is very simple and very easy to administer. multi-level PAYE is far more complex.

              How do you reduce the burden on the poor? What things do the poor buy in greater quantities than the wealthy? Do poor people buy more electricity, or more basic food items, or more water?

              Proportionately, they might, but if the problem is that raising GST proportionately raises the cost of living for low income people, then I think the solution is to increase their incomes to cover it.

            • SPC 3.1.1.1.1.2
              4 August 2009 at 1:49 am

              GST is unavoidable thats its value.

              The cash economy cannot avoid GST, except by dealing in stolen goods.

          • SPC 3.1.1.1.2
            4 August 2009 at 1:47 am

            An increase in benefits to fairly compensate them . Novel idea.

            Tax cut after tax cut to increase after tax incomes and nothing to beneficiaries (they get excluded from any income tax cut even when this involves the lower income tax rate).

            They get the bare CPI rate increase in benefit even though the cost of the essentials power and food have gone up at faster rate (they cannot afford the cheaper imported cars and electronics which reduces the CPI average).

            I would go so far to say that the real decline in their spending power has decreased as much in the past 9 years as occured back in 1991.

            Expecting these people to then get a fair income adjustment to cope with a GST increase is asking a lot of this government (would even Labour do it, did they when they increased GST from 10 to 12.5%?).

            Cutting GST on food to zero is about the only policy which signals any serious concern for their wellbeing.

    • Ari 3.2
      3 August 2009 at 4:39 pm

      Do you count natural sugars? How about fatty meats? What which foods are “in” and which are “out”? Do they get taxed at each transaction, (so say you pay double tax for eating out) or at one specific point, and if so, which point?

      A flat, low GST rate is the best bet. I’d actually like to see GST relief as part of shifting tax onto waste and pollution.

      • Lanthanide 3.2.1
        3 August 2009 at 5:15 pm

        “Do they get taxed at each transaction, (so say you pay double tax for eating out) or at one specific point, and if so, which point?”

        GST applies to all goods and services, including those bought by restaurants. That is how the law currently works. If a restaurant buys milk, they pay 12.5% GST tax on it. They use the milk in a recipe and sell the resultant meal to a customer and stick 12.5% tax on it. At the end of the GST period, they claim back the GST they paid on the milk from the government, and pay the GST they received from the customer back to the government.

        This means that the restaurant got the milk ex GST and only the customer paid the resultant GST which covered the milk, and everything else, that went into that meal.

        This is how the system currently works. Charging 0% GST on some products, and higher GST on other products, makes no difference – for any ingredient that has 0% GST, the restaurant cannot claim the GST back from the government, but it is still the ultimate consumer that pays the entirety of the GST tax, and not the restaurant.

        In general I am very favourable to higher GST on most things (reduce consumption), but excluding GST on necessities (and petrol is *not* a necessity). Food is particularly tricky however, as you can end up with silly tax rules like in the US where many states treat dine-eat at a restaurant differently to take-away for tax purposes, which can alter the price of the meal by up to a few dollars depending on the particular law in that state.

        • Draco T Bastard 3.2.1.1
          3 August 2009 at 7:04 pm

          GST applies to all goods and services,

          Wrong, financial services and a few other transactions are exempt. If they wanted to increase GST all they’d really have to do is get rid of some of the exemptions.

        • Ari 3.2.1.2
          3 August 2009 at 9:46 pm

          Lanthanide- some people who want food exempt mean they want GST to be waived for stores up to the wholesaler and supermarket/dairy/shop level, but not the restaurant level. There are lots of questions that pop up as soon as you start exempting goods based on murky distinctions, and “food” is such a wide category that it does get murky, as you’ve raised with US taxes on fast food. That was my main point.

        • SPC 3.2.1.3
          4 August 2009 at 1:35 am

          If its no GST on food, its no GST on all food no exemptions.

      • Edosan 3.2.2
        3 August 2009 at 5:20 pm

        I agree that it’s complicated but I don’t think such decisions couldn’t be made. And if we were to shift tax onto waste and pollution wouldn’t that mean that (aside from a few essentials – I guess) some forms of food production would be taxed at a higher rate anyway?

        Personally, I’m all for heavily taxing advertising – we could do with a bit less of that.

      • lprent 3.2.3
        3 August 2009 at 9:59 pm

        GST should be added to financial transactions, ie to the ‘profit’ component. A lot of the reasons that it wasn’t done in 1986 do not apply now with modern computer systems.

        Similarly rather than a capital gains tax, shove GST onto ‘used’ house sales as the difference between purchase price and sale price if the property is held for less than 10 years. Then allow 10 years of the previous GST losses to get removed from it.

        I like GST – lets extend its reach rather than increase its percentage. Can’t see any point in dropping the upper level of tax. Just add in an anti-fiscal drag by increasing the transition points, start at the bottom rates first, ie slowly eliminate the middle tax brackets

        • SPC 3.2.3.1
          4 August 2009 at 1:34 am

          An option is to place GST on mortgages – not the amount of the loan but the amount of the mortgage rate. Thus if its a 5% mortgage and GST was 20% then a 5% mortgage + 1% GST. Otherwise simply a surcharge on mortgages (say 1%) as Bollard suggested a few years back. This allows a fall in the OCR and dollar while maintaining some discouragement to load up on debt while buying property with money borrowed from offshore.

    • Lew 3.3
      3 August 2009 at 9:39 pm

      ZB, so milk gets no GST but has a surcharge added?

      L

  4. ghostwhowalks 4
    3 August 2009 at 4:32 pm

    What about a financial transactions tax of 1.5%.
    If only we could get a proportion of the huge churn in the stock market, foreign exchange our deficit would dissipate like pixie dust

    • Tim Ellis 4.1
      3 August 2009 at 4:39 pm

      If the government did that then the stock market would stop trading, and companies would go and list in Australia where the FTT wouldn’t apply.

      The deficit wouldn’t dissipate. The money has to come from somewhere. It wouldn’t raise anything like the money you believe it would, because people would change their behaviour so they don’t have to pay the tax. I once listened to a guy who claimed it would raise $100 billion a year, to have a FTT of 1%. I asked him what additional production would come from the tax. His answer was nothing. So in other words it would transfer $100 billion from the productive sector to the government.

      It’s a bit naive to think that such a transfer would take place without people completely changing their behaviour (not using banks, using overseas trading markets, paying cash, bartering, etc).

    • Sam Vilain 4.2
      3 August 2009 at 4:52 pm

      Are you thinking of a tax on “hot money” ie money transferred between currencies for very short periods of time … it’s true taxing this would help stop currency speculation attacks, problem is it would need to be implemented worldwide otherwise the first country to do it will likely get wiped out. And it only needs to be ~0.1% or something like that. Chussodovsky puts forward that idea in one of his books.

      Doesn’t quite fit in my definition of a good tax below, as it would be instituted for different reasons, and Chussodovsky IIRC advocates that the money go towards foreign aid. I don’t think earmarking the funds is particularly helpful myself.

    • Marty G 4.3
      3 August 2009 at 7:17 pm

      Tobin Tax. Good idea in principle but you need all the major economies on board

  5. Sam Vilain 5
    3 August 2009 at 4:39 pm

    So, what should a good tax system do? * redistribute income from the wealthy to the poor to balance the unfairness inherent in capitalism

    Interesting assertion. Perhaps you can back that up with references to what the latter term means precisely, along with more references to show that taxation is the most effective way to correct such imbalances.

    I think a good tax system takes a fair amount of money from those able to pay to provide for services which that group of people have decided are essential to a free and functional society. Redistributing income? That’s positively Marxian.

    • Ari 5.1
      3 August 2009 at 4:46 pm

      Sam- from a purely utilitarian point of view, progressive taxes result in a healthier economy with more exchange, as the wealthy save more of their income while the less wealthy spend a lot more of their income. Limited redistribution actually stimulates the economy and in turn increases everyone’s wealth. (at least, so long as we’re not talking about growthflation)

      Redistributing income? That’s positively Marxian.

      It amounts to exactly the same thing as making people better able to afford taxes pay more of them, except you’re being honest about the effect it has. If you prefer to see it as increasing costs for the rich rather than subsidising the poor, fine. But objecting to people seeing it the opposite way seems weird.

      • Sam Vilain 5.1.1
        3 August 2009 at 5:04 pm

        Good points and perhaps this is just a difference in perception – but let’s be clear about this. The function of tax is not to “redistribute income”. It’s not to “prevent the accumulation of large amounts of wealth”, though taxes aimed towards preventing entrenchment of disadvantage achieve a goal which is very similar. There is nothing long with being wealthy in and of itself, such an objective leads to very harsh regimes such as communism. We give out benefits as a act of compassion towards those in need; with the hope of helping them out of their predicaments.

        If you go and make statements which skip the above details you just end up sounding like a lunatic, however well reasoned your position actually is.

        • Draco T Bastard 5.1.1.1
          3 August 2009 at 7:08 pm

          Actually, there is something wrong with being wealthier than the rest of society.

        • Ari 5.1.1.2
          3 August 2009 at 9:59 pm

          Actually, I disagree. Redistribution of income is a function of a social-democratic tax system, on the principle of “from those who have surplus, to those in need.” You cannot have a social safety net (yet alone a wage subsidy like WFF) without redistributing income.

          There is nothing wrong with being wealthy, IF you understand that being wealthy isn’t something that you manage on your own. It takes a lot of social support for someone to succeed, and I think society has the right to ask you to front up enough to ensure that the next generation has at least as good a chance to succeed as you did.

          There is nothing wrong with being wealthy, IF by being wealthy you make society overall better than an even distribution of wealth would have made society.

          There IS something wrong with feeling entitled to being wealthy without accepting any responsibilities along with it. There IS something wrong with attempting to accrue wealth for the sake of it rather than considering it a reward for hard work that gives you some say in how society uses its resources. There IS something wrong with trying to increase income inequality rather than becoming wealthy by enriching everyone in society.

          (Of course, there is something wrong with coming about wealth by tainted but legal means, such as extortion, rorts, colonialism, slave labour, mistreating employees, depressing wages, intimidation, pollution, excessive consumption of resources or waste, etc, but let’s agree that these things ought not to be considered an overall social-level cost and instead wrongs that need to be righted on an individual level.)

    • BLiP 5.2
      3 August 2009 at 11:10 pm

      Spoken like a true batshit crazy conservative.

      Oh, and by the way, bath time is over. Off to bed now, little fella.

  6. Ari 6
    3 August 2009 at 4:41 pm

    On another topic… the capital gains tax is really needed. Should encourage investment in business, infrastructure and research instead of making millions of houses.

    • Draco T Bastard 6.1
      3 August 2009 at 7:10 pm

      Yep, definitely need to discourage investment in rental houses and encourage investment in actually creating wealth.

  7. Daveski 7
    3 August 2009 at 5:05 pm

    First, I like the way you construct your posts to encourage some debate – even though your views are well established, it is still possible to enter into some debate and that’s what’s appealling about this site.

    One of the things you overlook in your must haves is that there must be consistency, coherency and logic to explain the way in which taxes are levied. For all your championing of Cullen, the envy taxed failed on any sensible basis because it lead to legal rorting of the tax system.

    Those who could were able to divert companies to trusts or companies thereby reducing taxes paid but introducing inequality. Therein lies the problem for progressive taxes penalising high earners.

    BTW WFF is not a “tax cut”.

    You also confuse arguments about marginal tax rates with tax paid. Even with a flat flat, a millionaire will pay vast amounts more tax than someone on say $50K.

    • Draco T Bastard 7.1
      3 August 2009 at 7:12 pm

      Just because what happens ATM is a rort by the rich doesn’t mean that we shouldn’t find a way of doing it that the rich can’t get out of. Simply making trusts illegal would get rid of that tactic.

    • Marty G 7.2
      3 August 2009 at 7:21 pm

      Yeah, I could have made it clearer that by taxed equally I did mean the same proportion of income, I was trying to be brief

      captcha: economic

  8. Tom Mathews 8
    3 August 2009 at 5:20 pm

    That’s an interesting list Marty.

    I would just point out that if you don’t want to tax work, you don’t have many options other than GST and ‘demerit good’ taxes (like fat taxes, sugar taxes), which all hit the poor harder than the rich. Yes you can just make the income tax system hugely progressive (say, 0% up to the average wage), but in the long run rich people will just leave, the tax base will decrease, and you will have to tax the middle class. Being nice to the rich so they don’t run away might not seem like an appealing justification for policy to most on the site (and it doesn’t to me either), but it is unfortunately a pretty realistic consideration.

    I think the question that often isn’t asked (or answered) is how progressive should a tax system be? National seems to think it should be less progressive, Labour more progressive. But it’s not clear that Labour at least have an end goal in sight. The tax system here is already fairly progressive by international standards.

    • Draco T Bastard 8.1
      3 August 2009 at 7:14 pm

      The rich can leave – we don’t actually need them. Money is of no real value.

      • Lew 8.1.1
        3 August 2009 at 9:36 pm

        How’s the weather in that alternate reality, Draco?

        L

        • Draco T Bastard 8.1.1.1
          3 August 2009 at 11:50 pm

          Going to hell in a hand basket due to anthropogenic forced climate change.

      • Ari 8.1.2
        3 August 2009 at 10:04 pm

        Imaginary value is real value, so long as we keep acting like it’s real value. This is the principle of paper- and electronic money in general.

        The wealthy elite do improve society, so long as it’s not too easy for them to abuse their wealth, shirk their social responsibilities, and take disproportionate control of the political system. I think most of the problems we have on that front in NZ are fine-tuning ones.

    • Marty G 8.2
      3 August 2009 at 7:28 pm

      Well, we used to have a more progressive tax system before the 1990s and people didn’t leave because of it. The tax system got more progressive after October 1 last year when the bottom rates were lowered and it didn’t make people leave.

      I’ve yet to see evidence that tax rates (much less the progressivity of a tax system) make people leave. Income is only one factor in well people emigrate and tax differentials are a small part of income differences, wage levels matter far more.

      As I understand it we’ve actually got quite flat system – there are many countries with more brackets both higher and lower than we have. The aussies have a zero tax bracket and a top one in the 40s.

  9. jarbury 9
    3 August 2009 at 6:26 pm

    Someone brought up the idea of “guaranteed income” a while back, and I think that would be a useful addition to this debate.

    Seems like it works by basically the government giving everyone $15,000ish (tax free) a year, and imposing a flat tax on all income earned. You get rid of all benefits, except for top ups like accommodation supplements and extra for superannuation.

    It suits left-wingers in that everyone has a guaranteed income meaning far less poverty. It suits right-wingers in that every dollar is taxed at the same rate – a nice flat tax.

    You’d have to work on refining the numbers to ensure that you could “balance the books”, but maybe it’s something worth looking at?

    • schrodigerscat 9.1
      3 August 2009 at 6:50 pm

      I believe it was Keith Rankin

    • Lew 9.2
      3 August 2009 at 8:10 pm

      Douglas and various libertarian factions have advocated something like this. Make the first $x (x varies – I forget Douglas’ number, but the Libertarianz called it 50,000) and then apply a flat tax to all income above that. The rate also varies. I am highly skeptical, since this must go hand-in-hand with cutting a hell of a lot of services due to the reduced revenue, and usually gets sold along with ‘and due to higher productivity and incomes, there will be more revenue and such handwavey shenanigans.

      L

      • jarbury 9.2.1
        3 August 2009 at 8:24 pm

        It was RedLogix or Marty G in a comment on The Standard a couple of weeks ago I think. Plus I’d make the tax rate around 35%.

    • Ari 9.3
      3 August 2009 at 10:06 pm

      The Greens call it “UBI” or Universal Basic Income. I believe it’s been on the policy list the last couple elections.

      And I suspect right-wingers would spring out the dancing cossacks again.

  11. Lew 11
    3 August 2009 at 8:05 pm

    While I have no strong objection in principle to raising GST (I have concerns about it being regressive, but I’ve seengood arguments both ways), it would be hugely deleterious to do either of two things proposed:

    1. Set GST at a percentage which doesn’t divide out evenly to a fraction. The beauty of GST being set at 12.5% is that it’s an eighth. A mechanic I know, who’s a top bloke and a shrewd businessman but is functionally illiterate and innumerate due to severe dyslexia and schools which didn’t care, can calculate an eighth, add an eighth on or figure eight-ninths in his head. Percentages would do him in. He is far from alone. This is precisely the sort of ‘red tape’ which drives many small business owners to the wall, or results in non-compliance with GST. 15% is not evenly divisible. A seventh doesn’t work. The next one up is a sixth (16.67%), which has an annoying fraction. The next one up is 20%; nice and round, but bloody high.

    2. Make any non-trivially-definable set of goods or services GST-exempt. This, I think, is pretty well hinted at by Ari. It’s a bloody nightmare in Australia, nobody recommends it and there’s some argument it actually drives up the cost of goods due to the extra compliance.

    L

  12. RedLogix 12
    3 August 2009 at 9:04 pm

    Keith Rankin has certainly been the most prolific and determined NZ campaigner around the Universal Income concept. It really shows just how hidebound and trapped into conventional thinking most people are, that it gets almost no public traction, yet the advantages are numerous.

    I can claim (with no sustantiating evidence whatsoever) that I quite independently stumbled upon the idea myself some years ago when contemplating the circumstances of a close friend who was trapped into the classic DPB benefit trap. She was, like most people in her situation, utterly determined to get off the benefit as soon as possible, and eventually did so, graduating with a B.Ed.. But with three children to support the process was damn difficult.

    The immediate problem of course was the miserly amount she could earn part-time before it was rebated at around 70-90% off her benefit. It made any attempt at working her way out of the conundrum quite pointless, especially when you took into account the inevitable costs associated with work, like travel, clothing and child-care. Over the years I’ve seen the same effect over and over, and it is I believe the most debilitating driver of what is often called ‘intergenerational benefit dependency’.

    One of the most attractive features of the UB system is that it eliminates this deeply corrosive problem. Totally.

  13. burt 13
    3 August 2009 at 10:07 pm

    UB as a concept has been around for a while. It has a lot of merit but is not a progressive system that punishes the rich so I doubt it will get much traction from the policies of envy brigade.

    The interesting thing about the UB concept is that it acknowledges one simple reality – we all have a basic holding cost and that holding cost is not really related to what we earn when you get right down to it.

    There should be more discussion about the UB concept. Putting more money in peoples hands therefore allowing the govt to focus more on governance and less on funding and running monopoly service providers.

    UB is a big kids concept – I don’t think little ol tribal politics NZ is ready for a concept that will allow voters to choose who governs them rather than choose who will give them more lollies come budget time.

    • Ari 13.1
      3 August 2009 at 10:12 pm

      I like UB quite a lot, especially as it values unpaid work. It also effectively builds in a tax-free bracket and the meat of a benefit system into default entitlements.

      The trouble is that UB is not a “sexy” policy and to get implemented you’d need to get it taken seriously by National, rather than used to score points. Which I don’t see happening, frankly. 🙁

      • burt 13.1.1
        3 August 2009 at 10:18 pm

        I tend to agree with that. However the problem for the left with UB will always be that you pay everyone the same amount for basic holding costs. Forget for a moment that a rich prick pays tax when a stay at home mum doesn’t, but can you image the loss of soap box from Labour if they were giving the stay at home mum the same basic entitlements as they were to a rich prick.

        • RedLogix 13.1.1.1
          3 August 2009 at 10:30 pm

          The UB (or Universal Income as it is also known) has two basic parameters, the level of the UI and the rate of the flat tax.

          Right wing parties would tend to reduce the UI and tax rate, while left wing parties the opposite. In order to give stability and credibility the system could have several rules legislated for:

          1. That the UI was to be totally self-funding, ie PAYE tax collected should equal UI paid out.

          2. That the level of the UI should equal the tax paid at the median income, ie if the median income was $30k, and the UI was paid out at $10k, then this would set the tax rate at 30%.

          • jarbury 13.1.1.1.1
            3 August 2009 at 10:36 pm

            The PAYE tax collected would need to pay a LOT more than the UI though – remember healthcare,education etc. etc.

            I like the second idea, although would that mean that half the country would be net beneficiaries?

            • RedLogix 13.1.1.1.1.1
              3 August 2009 at 10:46 pm

              That is what GST, Company Tax, Land Tax (or a CGT) could be directed towards.

              At present about 50% of govt income is derived from PAYE, while a similar amount is redistributed one way or another, so the numbers can be made to work.

              As for your second thought about 50% of the working population being beneficiaries, that’s actually pretty much the case already… only we do it with a very complex, costly and self-defeating system.

          • burt 13.1.1.1.2
            3 August 2009 at 10:52 pm

            RedLogix

            Option 2 sounds like a start. That benefit level (the mean) would need to be indexed to something real, like the actual mean income, rather than pretend it is the mean as the top 5% policy always did. The immediate application of 30% will be staunchly resisted and I would want to see some modeling on the effect such a ‘generous’ amount of money has on the median wage and therefore it’s own threshold.

  14. jarbury 14
    3 August 2009 at 10:26 pm

    Anyone know what the effective tax rates would be with say a $20,000 UB and a 36% flat tax rate? Would work out as reasonably progressive I would think.

    • RedLogix 14.1
      3 August 2009 at 10:44 pm

      Take this example:

      UI = $10k

      PAYE Flat Tax Rate = 30%

      Income = $10k , PAYE = -$3k, UI = $10k, Net Income = $17k , Total Benefit = $7k, Tax Rate = -70%

      Income = $30k, PAYE = -$10k, UI = $10k, Net Income = $30k, Total Benefit/Tax = $0, Tax Rate = 0%

      Income = $60k, PAYE = -$20k, UI = $10k, Net Income = $50k, Total Tax = $10k, Tax Rate = 16%

      Income = $120k, PAYE = -$40k, UI = $10k, Net Income = $90k, Total Tax = $30k, Tax Rate = 25%

      Income = $240k, PAYE = -$80k, UI = $10k, Net Icome = $170k, Total Tax = $70k, Tax Rate = 29%

      As the income gets larger the effective net tax rate asymtompically approaches, the flat PAYE rate of 30%

      • jarbury 14.1.1
        3 August 2009 at 11:11 pm

        So in the end it’s quite an effective progressive tax system.

        I guess the next issue is those who can’t work – elderly, unemployed, DPBs etc. They can’t exactly live off $10k a year can they?

        • uroskin 14.1.1.1
          4 August 2009 at 1:27 pm

          The UBI level would be what all people who can’t or won’t work get (i.e. unemployed, students, pensioners, sick, invalids).
          It would do away with the need for an expensive benefits bureaucracies (super, WINZ, WFF, student loans, accommodation allowance, sickness benefits, MP expense accounts etc).
          The problem is the level at which this is set – plus what level it will go to, considering this would be a major electoral football.
          If it is a liveable wage then you can actually choose to live on it (and take the time out to upskill, for instance).
          A percentage could be paid to children (i.e. 5% per age year) as family support or individual savings account. For example, UBI is $250 a week, your 2 year old gets $25 a week, your 10 year old $125.
          Abolish family trust tax havens, put in CGT and FTT, expand GST to financial transactions
          Unsure about company tax because dividends get paid to individuals eventually so can be taxed at the end.

    • BLiP 14.2
      3 August 2009 at 11:34 pm

      What about the first 20K being tax free?

      • RedLogix 14.2.1
        3 August 2009 at 11:38 pm

        Its a decent, but lesser alternative, but guess I just like UI because it reaches deeper into the heart of the problem, and is rather elegant.

        If nothing else it would be a reasonable stepping stone into a full UI system, that would in itself probably have to implemented in gradual steps anyhow.

      • RedLogix 14.2.2
        3 August 2009 at 11:44 pm

        It’s a decent stepping stone. I guess I like UI because it reaches deeper into the heart of the problem, and it’s rather elegant in it’s basic idea.

        But a tax-free bracket is still useful, especially as a step towards UI, that in itself would probably have to implemented in gradual phases.

  15. SPC 15
    4 August 2009 at 1:21 am

    GST at 20% and funding

    1 tax at 10% up towards the minimum wage (as much as can be afforded)
    2 an increase in WFF to protect family standard of living
    3 a commensurate increase in benefiits to maintain real spending power
    4 a reduction in GST on food to zero.
    5 no other income tax rate change WHILE we are in budget deficit.

    Thus consumption is discouraged.

    Kiwi Saver is compulsory at 2% for all full-time workers – the billion dollar subsidy of Kiiwi Svaer cost is then no longer necessary. This billion dollars used to finance R and D tax credits and government contribution to Fast Forward type programmes (and CRI/university funding/apprenticeship training programmes).

    Thus we have some capital invested in innovation and productivity improvements.

    As for the problem of the lack of saving and the high dollar.

    We apply a surcharge on mortgages of 1%. This will raise enough to halve the witholding tax on interest income (simply deduct the CPI off the interest rate befiore tax is assessed which reduces the taxable income by around 50%).

    This should increase saving.

    Instead of a OCR at 2.5%, it could be 1.5%. Because of that the net effect on mortgages would be no change (but loans for business borrowers should be cheaper).

    With the OCR at 1.5% the dollar should fall back a bit and increase exporter returns and thus grow government tax revenues and stimulate the economy.

    This idea has been around since Labours first term and Bollard suggested it a few years back only to have English say it would not be popular (his fear of offending those with mortgages) – he apparently failed to get the concept of introducing it with a compensating fall in the OCR.

  16. jarbury 16
    4 August 2009 at 9:27 am

    How about something where the government contributes $5 a an hour to lower wage levels? It would mean that everyone working would get at leat $17.50 an hour, providing a great incentive to work.

    Would that be cheaper than a tax free threshold?

  17. Deciduous 17
    4 August 2009 at 9:42 am

    SPC – how about we cut taxes and just avoid the extra tax redistribution costs?

  18. Zaphod Beeblebrox 18
    4 August 2009 at 9:57 am

    Do we really need WFF? Its complex, unfair to those who can’t work and gives money to those who don’t need it. It also creates high marginal tax rates once you approach the thresholds.
    Basically it was a bribe to th middle classes who decide elections.
    Use the money to lower tax rates for the middle classes, then we could look at ways of penalising non productive consumption.

    • SPC 18.1
      4 August 2009 at 9:14 pm

      WFF ended poverty amongst families with working parents – ending it would reintroduce it.

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