Wednesday, August 24, 2011


One of the right's favourite talking points is that higher taxes are pointless because they will simply result in more evasion. In New Zealand, this argument focused on Labour's introduction of a 39% top rate, and the difference between that and the trust and company tax rates.

The right were right in one sense: greedy sociopaths did try and avoid taxes by structuring their affairs in various cunning ways to minimise their income while still enjoying its benefits. But they were wrong where it mattered: in thinking that these structures would work. The Supreme Court has just ruled decisively that they don't. If you incorporate, set your salary at an artificially low level, transfer profits to a family trust, then loan them back to yourself interest free, then its tax avoidance and the IRD can ignore it and stick you for the tax you should be paying (oh, and penalties and interest on everything you dodged).

The problem with greedy sociopaths avoiding high taxation is not a failure of policy, but a failure of enforcement. And that is a failure easily fixed by any government which wants to fix it.