The Tax Working Group is due to issue their report this week. Here are the things I’ll be looking for as I judge their proposals:
- Simple. Paying tax is an administrative burden, and compliance takes time and money. A great tax system will be very simple to understand, have no room for lawyers and accountants to attack loopholes and will make compliance a breeze. While we are a laudable 9th in the World Bank’s Doing Business paying taxes indicator table, the rest of the world is moving fast and we can do a lot better.
- Fair. We are a society that puts fairness high up on our values, and a good tax system will not give or take more from one particular class of individual or entity. What I mean by this, because people have different interpretations of “fair”, is that those that earn the most should pay the most, and that it should be in proportion to their income. It also means that it should not be possible to manipulate the system to pay less than your fair share.
- Caring. We are a society that has a rich social welfare tradition, and the system must care for those that do not or can not work. I simply do not want to live in a place where we tolerate people living in the streets. Let’s keep our minimum income and never abandon people.
- Sustainable. The incentives in the system should lean towards sustainable use of resources, be it land or other forms of wealth. That means it must recognise that often assets are owned for non-economic reasons, or that we will tolerate a lower economic return so that we can gaze out over a beautiful view or get home before 5pm.
- Investment neutral. The Government has the right to some of my income, but should not be dabbling in picking investment products. A good tax system will recognise that investment requires a balanced portfolio across a wide range of countries, assets and sectors and not skew investment to overweight in one area. Moreover any tax paid should only be on realised returns, and should be on an overall portfolio basis, with losses carried forward.
- Automatic. The more we can make the system just work without intervention, the easier it will be for everyone. The goal is that every individual and company automatically pays tax or gets refunds as they go.
- Elegant. As the ultimate test of good design is beauty, so I’ll be looking for a certain elegance with a new tax system. The elements above will contribute, but the whole will simply feel right.
What else is there?
I’m hoping that it’ll decimate the residential property investment situation and stop people from pumping money into houses.
Normally I’m a ‘taxes should only be used to fund government, not change behaviour’ kinda guy. But the reality is that property developers, investors and traders have been rorting the system for so long we need a hefty over correction.
I agree – and they have been pumping money into housing because the system is biased towards investing in housing. A fair investment playing field means you pay capital gains on any realised gain – no matter what the source.
It should also be something that is user friendly. Meaning that all of the areas which you’ve highlighted should be understood by a majority of the people. Although, I would agree that people should be taken care of, I do wonder if systems of governments whereby everyone is ‘taken care or’ have higher ratios of unemployment or opting out, when compared to those ie the US having limits on unemployment.
Around fairness, as we earn more we pay a lot more in tax’s and become less eligible to benefits. If the system was to be fair shouldn’t tax’s level out ? ( well it guess it does but that tax bracket is way too low for many families ) I would be much happier if we all had a community services card that is credited with say 1 -5 % of the taxes we pay and we can use that to “ upsize “ or subsidise government services.
We also need to plug the holes where people are finically better off on a benefit. WINZ focus should be on getting people into jobs and if that means subsidising child care or their work so beneficiaries don’t suffer a finical set back by taking on part time work, Isn’t that better than having them as a full time beneficiary ? /Rant
If only we had a pre prod environment to try taxing concepts…
I guess I’m slightly more extreme than you on this lance, I don’t want a level playing field, I want an unfair penalization of property investment. At least for some period of time (10 years?)
Whatever you think of Roger Douglas there was one part of his recent ‘alternative budget’ which really caught my mind. Tax capital which is inefficiently invested, provide incentives to people to invest in productive sectors. Seems like a good idea to me..
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