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?
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.