Friday, March 16, 2018

The flip side of new taxes

The government's Tax Working Group is currently considering a range of new taxes, including taxing capital gains, land, pollution or wealth. The mouthpieces of the rich are outraged of course, and trying to present it as an attack on ordinary kiwis savings (instead of their hoarded wealth), but there's a flip side as well: taxing these new things opens up space to other taxes such as GST:

GST could fall if the Tax Working Group recommends new environmental taxes, its chairman Sir Michael Cullen has suggested.

The working group is considering changes to the tax system that could apply after the 2020 election.

Although the group will consider a variety of possible new taxes, Cullen has maintained its focus will be on changing the balance of taxation rather than increasing it.

There could be a case for reducing GST if the working group recommended new resources taxes to improve people's environmental behaviour, he said.

Good - because GST is effectively a regressive tax, which falls far more heavily on the poor (who have to spend their money) than the rich (who don't). At the same time, you'd need a significant tax to be able to reduce GST noticeably. Treasury's Revenue Effect of Changes to Key Tax Rates, Bases and Thresholds for 2017/18 estimates that a 1% change in GST costs about $1.5 billion. So in order to reduce GST by 1%, you'd need something like a fully functioning carbon tax capturing all emissions sources at a rate of at least $25 a ton. Or an annual land tax of ~0.2%. The first would really just swap one consumption tax for another (though I guess as ~50% of emissions are exported as milk powder, kiwis would be better off). The second would be a double-whammy against inequality. And of course, there's always the option of doing both...

The first thing John Key did in government was rejig the tax system to benefit rich people like himself. Its long past time we rolled that back.