Simple taxes better taxes

Former Finance Minister Sir Michael Cullen will chair the working group which is taxed with finding a fairier tax system:

Finance Minister Grant Robertson and Revenue Minister Stuart Nash announced the terms of reference for the group, which will come up with a series of recommendations by February 2019 which the government will then use to inform its policy direction at the next general election. Robertson said he isn’t making a grab for cash. Reforms could be fiscally neutral and he had an open mind on whether a capital gains tax would be necessary.

“The main goal here is to create a better, balanced and fairer tax system for New Zealand,” Robertson said. “Our belief at the moment is that we do not have that.”

The group has been told to consider the economic environment over the next five-to-10 years and how that’s affecting changing business models, demographics and business practices; whether some form of housing, land or capital gains tax would improve the system; whether a progressive company tax with lower rates for small businesses would improve the system and business environment; and what role tax can play in delivering environment benefits. . . 

The group has been told not to look at increasing income tax rates or the rate of GST, inheritance tax, a tax on the family home, or the adequacy of the personal tax system and its interaction with the transfer system. It has been directed to look at technical matters already under review such as international tax reform targeting multinational profit shifting, and the tax department’s business transformation programme.

While the issue of applying GST to goods and services bought online from overseas could be dealt with separately and was not part of the working group’s brief, Robertson said the group could examine exemptions from GST for particular categories of goods. Labour’s coalition partner in government, NZ First, has campaigned for years to remove GST from fruit and vegetables.

Robertson said the group will be able to look at the tax treatment on savings and investment, which has cropped up in previous reviews as an area in need of reform.

The best taxes are simple taxes.

Taking GST off fruit and vegetables sounds simple but it isn’t. If it’s all fruit and vegetables it will include processed ones which might have lots of sugar and salt added. But if it’s only fresh fruit and vegetables luxury imports like pomegranate will be exempt while frozen vegetables won’t.

Our GST is lauded around the world for its simplicity. Once you introduce exemptions it gets complicated, inconsistent and more expensive to administer.

National’s Finance spokesman Steven Joyce says the working group is underwhelming:

“Its Terms of Reference is written so that it will propose one significant thing at the end of it, a Capital Gains Tax,” Mr Joyce says.

“Yet Mr Robertson’s assertion on the current taxation of capital gains in the property market remains incorrect. People who buy and sell houses for a profit have those profits treated as income for tax purposes under the law today.

“So people can only assume once again that his unspoken desire is to introduce a Capital Gains Tax on farms and small businesses.” . . .

“Nothing will come out of this group that Grant Robertson doesn’t want. And all he wants is a recommendation for a Capital Gains Tax.

“Mr Robertson would be better to dispense with the expense to taxpayers and write out his tax policy for the next election when the time comes in the normal manner.”

I’m not opposed to a CGT per se, if it was fiscally neutral through reductions elsewhere. But as with GST, a simple CGT would be a better one.

Once there are exemptions there are loopholes which will be very good for lawyers and accountants but much less so for the aim of balance and fairness.

 

One Response to Simple taxes better taxes

  1. adamsmith1922 says:

    Reblogged this on The Inquiring Mind.

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