Keep it simple

Treasury secretary Gabriel Makhlouf delivered a speech to the International Fiscal Association which makes very interesting reading.

Among the points he made were:

. . . There are undoubtedly many causes of the global financial crisis. Just as academics today still debate the causes of the Great Depression, I anticipate that the academic community will still be debating the so-called“Great Recession” for many years to come.  But, as with any sharp, sudden, and protracted economic crisis, we always learn one thing: the conventional wisdom was in many respects, wrong. At the very least, we have learned that risk and return can be badly mispriced.

Whether it was finance company debentures or mortgage backed securities, too many people took on too much risk without knowing they were doing so, because promised returns did not match the risk. . .

. . . But the cost of government is largely determined by government. And accordingly,  taxpayers who restructure their affairs are really playing part in a prisoners’ dilemma – trying to get other people to bear the burden, with the effect that taxes are higher on all of us. . .

. . . It has been said plenty of times before but it still bears repeating: New Zealand’s GST is the best VAT in the world and our strong consistent advice is that it should be protected from exemptions that undermine it.  GST is a simple tax that raises a large amount of revenue, with minimal distortions. Using the GST system to promote particular policies comes at great cost. 

The compliance cost, uncertainty, and complexity of bringing in exemptions and multiple rates are overwhelming as compared with asserted benefits.  There are far more effective ways to promote social outcomes than by fiddling with the consumption tax on a good or service, and far more effective ways to achieve redistribution than taking GST off whole swathes of goods and services.  GST remains our best designed and most efficient tax. . .

Good tax might be an oxymoron, but simpler taxes are definitely better ones.

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