Tax, tax and more tax …

I’m not alone in thinking it is a very important, perhaps even pivotal, couple of months ahead of us in at least the modern history of New Zealand.  Please try...

I’m not alone in thinking it is a very important, perhaps even pivotal, couple of months ahead of us in at least the modern history of New Zealand.  Please try to read Chris Trotter’s latest commentary – and remember his political leaning is rather left of centre!  We clearly have major societal issues confronting us.  Some of these come with an economy in recession and are financial in terms of rampant inflation, increasing cost of living that inflation brings and the associated high interest rates.  This can only mean immense pressure on households, not only in putting food on the table, but affording the mortgage costs of the house in which we find the table!  Very worrying indeed.  We have issues across the health sector, the education sector, infrastructure, including not even maintaining what we have, trade and exports – just look at our massive current account deficit and weak currency – and do I mention crime?  All of this with a tax take that has nearly doubled since this Labour government was “elected” in 2017 and an associated increase in government spend of $1 billion per week over the same time frame. (More about this tax burden later).  I’d like to say that I can see some benefits from this additional spending but I can’t.  Not one.  Do we have enough of what we need, do we have more and is anything better?  And seemingly by stealth we have a fundamental change underway in the nature of our democracy, which must be put to the people by way of referendum or at least disclosed in campaign manifestoes lest it become ingrained.  As I said, a pivotal few months ahead.

Back to the tax burden.  The governments annual revenue has increased some $70 billion in the past six or seven years to $140 billion while its spending has increased even more (Government spend is 37% of GDP.)   with large deficits and massive borrowing being incurred.  Most of that increase is in taxation and most of that is from PAYE bracket creep.  With such a substantial increase in the tax take it is surprising to say the least that  one of the key planks of both the Te Party Maori and Green Party policy is to increase the tax burden even further by way of a wealth tax on all net assets above a threshold, a flat trust tax, a new 45% marginal income tax rate and a 33% corporate tax rate.   Surely the Government already takes enough?  Advocates of these sorts of high taxes have denounced the opposing tax‐​cut argument as outmoded Keynesianism and more colloquially “tax cuts for the rich.”

I however agree with the late US President Ronald Reagan when he said “The nine most terrifying words in the English language are “I’m from the Government and I’m here to help” and I strongly believe that there are material benefits in reducing the tax burden and leaving households with more of their own money.  Taxpayers and their households are best-placed to determine what to do with it, spend or save etc.  Wealth isn’t created by magic, it has to be produced and those who produce it have a right to keep it.  Of course, we the taxpayers, agree to give up a portion of the income and wealth we create in order to pay for such public goods as transport, police, healthcare and to those most in need. But we don’t give the government an unlimited claim on our money to use as it sees fit.

Private individuals and businesses use money more efficiently than governments do.  People with their own money at risk spend or invest it carefully.  It is relatively easy to be frivolous with OPM or “other peoples money” – think light rail to the Auckland airport, a cycleway across the Waitemata etc..

 

High taxes discourage work and investment, and high marginal tax rates also discourage people from working more or from making new investments.  It’s true that our current marginal income tax rates of 39% are not as punitive as the 66%  that taxpayers faced in the eighties but  most economists do agree that a reduction in marginal tax rates does increase output to some degree.

In any case, if we don’t cut taxes, the Government will just continue to spend (waste) more and more  money.  If one thing is certain, it is that government will spend every dollar it can get its hands on.  Every constituent group wants more – a road, a social program, more teachers, more policemen, more corporate welfare and more pay!

Lower taxes are the only real check on the expanding size and scope of the Government.  Advocates of a smaller, less intrusive government welcome and encourage reducing the amount of our hard-earned money that these politicians have to play with.

To sum all this up with a quote from then incoming US President G H W Bush: “To create economic growth and opportunity, we must put money back into the hands of the people who buy goods and create jobs.”