Friday, May 09, 2008

A new top tax rate?

Over at Inside the Beltway, Vernon Small reads the entrails of Michael Cullen's pronouncements on his tax programme, and speculates that tax cuts might be partially offset by a new top tax rate. It's an interesting piece of speculation. The advocates of tax cuts are constantly clamouring for greater alignment with Australia. But somehow, I don't think Australian-style progressivity (Australia has five tax bands, and sharply higher rates on the rich) was what they had in mind.

To flesh out some of Vernon's numbers, a new top tax band starting at $150,000 would affect a mere 45,000 people - 1% of the taxpaying population. Unfortunately, I can't model the income, as Treasury doesn't include ultrahigh incomes in its detailed model data. But its on the order of a couple of hundred million dollars - nothing to sneeze at. And if its the price of the vast bulk of New Zealanders - the two thirds of us who don't even pay the middle tax rate - getting theirs, then I don't think too many people will object. These are incomes most of us can never even aspire to, and we know it, so it would have no effect whatsoever on ordinary people. And while few would go so far as to quote Marx - "from each according to his abilities, to each according to his needs" - there's a strongly ingrained sense of fairness in New Zealand and a recognition that the rich should pay more.

Naturally, Vernon's comments are already full of dire threats of economic collapse and threats to move to Australia (I'm waiting for them to start on tiresome metaphors about restaurants). But as he points out, the imposition of the 39% rate did not result in the sky falling in. Neither does it seem to have resulted in widespread tax evasion. Most New Zealanders on high incomes accept taxation as the price they pay for living in a civilised society (one which, for example, protects their property rights against those who have less, cares for their relatives when they are sick or old, and protects the equality of opportunity which allows a man who grew up in a state house in Bishopdale to end up in a mansion in Parnell). Which is more than you can say for ACT on campus.