Tax matters?

May 25, 2008

This is the first post in a two part series about the tax changes announced in the budget last week. Part two is Working for families?

New Zealanders expect far too much from the tax system. It now seems unfashionable to regard the tax system as simply being the Government’s primary means of collecting revenue to run the country. People expect it to also resolve poverty, reduce income inequalities, compensate for surging food and petrol prices and incentivise savings.
— John Shewan, Chairman of PricewaterhouseCoopers, commenting on this weeks budget.

Who would want to be a Minister of Finance?

Can you wait until the election campaign, and the “my tax cut is bigger than yours!” smack down contest, starts? Or will it be the “my propensity to cut spending is bigger than yours!” content now?

Now the team in the red corner has announced their package, how many more blocks of cheese can you afford? That seems the be the question.

And, how many blocks are you expecting the blue corner to offer?

Have you factored in the cost of petrol?

A litre of 91 unleaded now costs NZ$2.00, which is about US$1.56 at current exchange rates. Let’s hope that the dollar doesn’t drop back to 62c anytime soon (like it did at the peak of the last economic cycle), as even assuming the price of oil stays the same as it is now (which seems unlikely) that would mean we’d be paying closer to $3.00 a litre. Suddenly cars are a luxury item!

There is no point, surely, in having the cash for an extra block of cheese when you can’t afford to drive to the supermarket to pick it up.

Do we pay too much tax? Compared to what?

Does the amount of tax we pay make us all less productive?

I don’t know, but I suspect there is an argument to say that lower tax rates just mean that those who are motivated to be successful either way get to keep more of the money they earn.

Although it does create the right incentives for government to keep their spending under control (just like an over-funded start up business, they don’t seem to struggle to find ways to spend the money they have). More about this tomorrow.

Like John Shewan explains above, I think we’re all expecting too much from “the system”.

Is it up to the government to make us feel rich?

Or is it more about the number on the top line of our pay slips (i.e. the bit we influence)?

Here is a interesting comment about the changes to the business tax system which were introduced earlier this year:

Businesses need to ask themselves two basic questions. Will a bit of tax relief for export marketing and R&D be worth the bureaucratic trouble to get it? And is your failure to export or do R&D simply a matter of being short of a few dollars? Or is it a fundamental failure of ambition, management skills and strategy?”

— Rod Oram, in Dominion Post (sorry, the link I have no longer works:

I think the same questions could be asked of individual tax payers too.

What do you think?

What will you do with your tax cuts?

Will they make you work harder? Or bugger off to Australia?

Does a few dollars a week change your vote in either direction?

Or, are there other things that are more important?