Flat tax ruled out

I'm pleased to see (Stuff) that John Key has ruled out the adoption of a flat income tax in New Zealand.

Flat taxes are a nirvana of the fringe right. They increase the income of high income earners and decrease that of low income earners compared with a progressive income tax system - in other words, they make life harder for people on struggle street and easier for people who already have it easy.

The supposed economic benefits may be there in theory, but in practice the progress of an economy is about much more than the structure of its income tax system. New Zealand's economy has been held back by being treated as a branch economy by foreign investors, by low wages that have come in part from weak unions and a de-regulated labour market, by a lack of public and private investment in science and innovation, by a lack of market penetration by our largest firms in foreign countries, and by a monetary policy regime that just doesn't deliver a reasonable real exchange rate position for export growth.

Anybody who thinks that a regressive change to the tax system will fix those problems needs their heads read. It's reassuring that the Prime Minister is not one of those people.

Jordan

Comments

[Libertyscott]

Yep the fringe right seems to run Hong Kong, Latvia, Lithuania, Estonia, the Czech Republic, Slovakia, Bosnia-Hercegovina, FYR Macedonia, Montenegro doesn't it?

It cannot possibly decrease the income of low income earners unless the flat tax is higher than the current base rate, and it depends entirely on a tax free threshold. In other words, you could have an income tax free threshold of $NZ10,000 and a flat tax of 21% above that and all income earners would be better off.

Lower tax retains and attracts skilled people in an economy which is distant from the rest of the world with incomes and a currency that are both relatively low.

"New Zealand's economy has been held back by being treated as a branch economy by foreign investors" how would you expect a remote country with 4 million people to be treated?

"by low wages that have come in part from weak unions and a de-regulated labour market" so the significant devaluation of the currency between the 1960s and the 1980s and the relative decline in per capita GDP whilst the unions were strong and there was compulsory unionism escaped you.

"by a lack of market penetration by our largest firms in foreign countries" indeed, protectionism in agricultural trade being one of the most serious limitations.

"monetary policy regime that just doesn't deliver a reasonable real exchange rate position for export growth" the "if only our currency was worth less we'd earn more" myth, which bites you on the backside when importing capital goods. NZ has one of the most lowly valued currencies among developing countries.

A flat tax wont fix the economy, but it would make it easier to stop people fleeing, attract more talent and allow people to spend more of their own money investing and consuming. It does mean the dead hand of the state spending less, but given Treasury indicated the optimum income tax rate for REVENUE was around 19% a few years ago, it may mean less of that than you think. Cutting income tax increases GST revenue for obvious reasons.

More importantly. By what MORAL grounds should someone who earns NZ$80k pay so much more on the marginal dollar of extra income than one earning NZ$20k? Is that person consuming more of what the state produces? If not, isn't it just more honest to say it is socialism?

[Tom]

"Hong Kong, Latvia, Lithuania, Estonia, the Czech Republic, Slovakia, Bosnia-Hercegovina, FYR Macedonia, Montenegro"

What a gallery of rogues. When you can add the US, UK, Sweden, France, Germany, Japan and Australia to that list I'll start taking you seriously.

[Tom]

"It cannot possibly decrease the income of low income earners unless the flat tax is higher than the current base rate,"

Typically, you forget the social wage.

[toujoursdan]

The moral ground is that the rich receive all kinds of social and economic benefits poor people don't receive and have a responsibility to contribute to the general welfare accordingly. It's the labour of middle class and poor people that allows the rich to be rich. Thirdly, allowing the poor to become too poor starts to negatively affect the quality of life and standard of living for everyone.

Finally, those Eastern European countries are now economic basketcases relying on EU subsidies to bail them out and keep them afloat, so I would hardly use count them as flat tax success stories. Latvia's economic collapse has been nothing short of breathtaking and necessitated a 7 billion euro bailout by the World Bank, IMF and the EU. Keep in mind this is a county of only 2 million people.

And Hong Kong doesn't really have a flat tax. The tax is capped at 16% but beneath that ceiling is quite progressive.

[Clint Heine]

Utter complete nonsense. Give me proof that the Czech Rep and Slovakia are economic basket cases or rogues. They are growing at rates that NZ will never experience again. How handy that you paint these states as going badly when they are so far away and have not even visited them. Having experienced the Czech republic system firsthand I am surprised you have the stupidity to even bring it up. They enjoy free health and education AND have low taxes - the people I meet laugh at our system that not only isn't free, but take home pay is a joke. And try telling people from Hong Kong and EEurope that they would be better off paying more taxes and you'll be laughed out of the room.

What you fools are advocating is tax avoidance, an abundance of accountants and a system that doesn't encourage hard work. Put out a tax free threshold of $20,000 and then cap it at 12% for all. 12% of $1,000,000 is a fuck load more than 12% of $30,000.

You are advocating socialism - be honest. And Tom, tell me about this social wage of yours.

[Clint Heine]

I wonder how comfortable Labour MPs and supporters would be with this quote from Phil 5% Goff?

Socialist John Moore asked a question about Labours’ relationship with the market and Goff responded, “show me a command economy that ever worked”, “the market is the best mechanism to distribute goods” and “Labour saved capitalism”.

Love it.

[Dolan]

Hey Clint, you might be interested in the football blog I have started. www.in-the-back-of-the.net

Just in case you get bored with politics ;-)

[Clint Heine]

Dolan... nice one. I like it!