It was Benjamin Franklin who said that "Nothing is certain but death and taxes". More than a few politicians since would grumble that the two go hand in hand. It was the chewing gum tax cut fiasco and the subsequent opening it gave National that started Labour's journey towards the political morgue.
So this government will know to be wary of tax reform; or at least, it should know. At first blush, Bill English has all the hallmarks of a steady-as-she-goes finance minister about him. Yet within months of a very conservative grey budget in which he cannily reneged on a promise to cut taxes without taking any serious political flak, the boy from Dipton is again dicing with death by a thousand tax cuts. Or rather, tax tinkerings.
At the National party conference at the start of the month he
ruled out tax cuts for the foreseeable future, "full stop". The
simple truth is that the government is short of cash, so cutting
income is no way to do business. But then he also ruled out tax
increases as well. So what might he do with tax?
"The only question," he told reporters, "is whether there is a
different mix of tax".
That's one heck of a question. And it's already under consideration
by two groups we'd all do well to watch very closely.
One is the Henry review team in Australia, which is looking at overhauling taxes across the Tasman. Given that this government likes to take its lead from Canberra and English has said that their decisions "would have an impact on us", it's fair to think that review will be influential in the Beehive. The other is the Buckle review which is asking the same question here in New Zealand.
It contains a bunch of tax-cutting, business-friendly types including Rob McLeod, Gareth Morgan, Mark Weldon and Norman Gemmell, so there's little doubt what direction they'll be heading in. Although the group has only recently begun its work, we already know that our rate of GST is on its radar.
At the moment our GST is 12.5%. In Australia it's 10%, in Britain 15% and in Canada and Japan only 5%. But, as I wrote about on Pundit recently, Gemmell has mused publicly about increasing our GST rate and cutting income tax.
And now Radio New Zealand has revealed that both Treasury and
the Ministry of Economic Development are agitating for a
similar approach.
From an accountant's point of view that would make our tax base
more sustainable - as baby boomers retire there are going to be
fewer people in the workforce, and therefore less tax will be
gathered. Better then to get tax from what people buy, instead of
what people earn.
Any politician, however, will see the potential danger at the ballot box and the risk of serious social damage. When a government taxes wages it can be confident that everyone is giving a proportionate portion of the money they have. But when you tax purchases, that proportionality goes out the window.
Sure, the rich might pay more because they can afford to buy more. But everyone has to buy bread and milk, a car and petrol. So, as any number of studies have shown, those with less end up paying a larger percentage of the total tax take. It's a great result for the kind of people who sit on tax panels, not so good for those living on or below the average wage.
The pertinent fact for a politician wanting to stay in the public's good graces is that there are many more people on the average wage than on tax panels. And they vote with their hip-pocket, especially in tough times. In other words, English tinkers at his own risk. The pertinent fact for voters is that just because the government has ruled out tax increases, it doesn't mean we won't end up paying more tax.
The Henry and Buckle reviews are still several months away from reporting back to their respective patrons. But the buzz seems to be growing around tax reform; this government is clearly having a good sniff around the subject. It's time the rest of us started paying attention.
