Marc My Words… 19 October 2007
Political comment
by
Marc Alexander
Can I claim a deduction on my biggest dependent – the government?

It is a triumph of modern political spin that many people believe that centre-left governments ‘care’ about the euphemistically termed ‘workers’ while the centre-right only concern themselves with more money for those already most privileged. Recent events however, have highlighted the implausibility of this world view. Indeed it looks increasingly likely that such a perspective is in line for an extreme make-over with about as much chance of a future as the Zeppelin.

The Hon. Peter Costello, Australia’s Treasurer, announced a bold new initiative to drive down taxes. Needless to say, he’s a conservative so you might expect some skepticism from our Labour Finance Minister Michael Cullen. He didn’t disappoint. In the mistaken belief that the public are either too gullible or stupid to think for themselves, he shot off his mouth ridiculing the Aussie plan by saying, “there was nothing in the Australian tax cut package for those earning under $30,000 a year and just $20 a week for those earning up to $74,000 a year, but $128 a week for those on $200,000 a year.”

Then, to add insult to injury he added, “Not the kind of program you would expect to see from a Labour-led government.”[1] Quite. But there’s a lot Cullen isn’t saying like the fact that while those on the lowest wages in Australia (up to $20,000 per annum) won’t pay a cent in tax, while Kiwis on the same income will be hit by a 18.2% tax.

Comparison at a $30,000 level shows that our Bondi brothers will be paying a 5% average tax rate while those remaining here will be swatted by a 19.1% rate. Maybe Cullen doesn’t think taking home an extra $80 a week will make much of a difference at that rate of pay, but I think thousands of kiwis will beg to differ.

Cullen seems to think that people will simply endure his economic prescription, and go on being productive no matter what is done to discourage it. What he seems to miss is that the function of work is primarily aimed at securing a lifestyle that one would want – the more that is taken in tax, the less is the inclination to put in the extra effort. The more that is demanded in order to achieve proportionately less, the more dispiriting work becomes, and alternatives increasingly sought.

What many forget, or at least choose to, is that the disincentives asserted by income taxes are never same on one and all because it is not levied on everybody equally. We have a progressive system which shifts the burden on those who are most economically successful – the very people who drive the economy and provide the jobs, services, and employment opportunities. But this is only a small part of the picture because their taxes are never sufficient to feed the greed of the government – they are supplemented by a raft of taxes that inevitably shape the actions and incentives of those from whom they’re taken. Some relocate, some minimize expansion plans, some modernize and replace their staff with machines thereby limiting potential employment (and the skills base that would ensue), while others limit the capacity for wage increases etc. In the end consumers will be prevented from access to cheaper and better products, higher wages, and employment with more opportunity. Without doubt the greatest burden will fall on those at the lower end of the income scale – the very people this centre-left Labour government supposedly ‘cares’ for.

As for the often used line that we should tax the financially more successful because they have more than enough, it simply isn’t our judgment to make nor should it be the governments. I have never understood why some people are happiest when they can champion their predilections and values on how to spend someone else’s money. Limiting capital assets diminishes choice but it is often the result of present spending in preference to later investing. Just as people who choose to smoke, drink to excess, over-indulge with artery-hugging food, and under-indulge in exercise have only themselves to blame for being fat and unhealthy; so those who choose to fritter away their prosperity on current indulgences have no-one else to point the finger at. Why should those who go without now, to save and secure a rewarding future, be doubly penalized by missing out on the immediate pleasures and being taxed prohibitively if their investment pans out?

In what way is it ‘fair’, ‘just’, or ‘equitable’, that those on higher pay packets should be forced to shell out an incrementally larger proportion of their income in taxes? Do they cost society more? Seems to me that if we taxed people more according to their contribution in terms of jobs, products and services all we would end up doing is providing a perverse incentive to diminish the very thing we want more of. I’m not sure how we’d do it but perhaps we should instead be taxing according to the level of subtraction from society. That way we would have a better chance of minimizing costly behaviors rather than supporting them under the all-embracing catch-all of ‘social need’ which the present policies encourage.[2]

The present argument over tax cuts is largely fought between those who embrace the idea that what a person does is his, with those who had nothing to do with its creation wishing to control how it’s dispersed. The folly of the second position is obvious unless you believe that people should progressively work for the government the more successful they are financially.

Look it’s actually quite simple: a certain level of taxes are necessary to carry out indispensable government functions. While there may be debate regarding what that level might be, it’s overwhelming justification must be aimed at supporting our economic interest rather than as a deterrent – often motivated by political ambitions of electoral survivability. Increasing the kitty to dole out as inducements to vote favorably has long been a Cullen tactic in election year. In a sense it’s not surprising that the government is taking an increasing interest in our private arrangement between employer and employee. It is after all, the nexus from which they derive their influence: more tax equals more power. The other side of the ledger is a fundamental undermining of a system that rewards effort fairly.

That Helen Clark’s government invests heavily in the language aimed at giving the impression of being business-friendly shouldn’t fool us. Buzz words like ‘economic transformation’ and so on are promoted amidst a blizzard ministerial publications and glossy vision documents to convince the gullible that they want to ‘encourage’ business. Given the current level of interference, compliance costs and tax disincentives, government ‘help’ bears a striking similarity to government hostility.

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