Dunne Speaks: The Current Tax System has had its Day

The practice of politics is often best left to politicians, just as running professions is best left to professional bodies. When one tries to meddle in the realm of the other, the result is often not what was intended. The Royal New Zealand College of General Practitioners is currently finding that out to its cost. In the lead-up to last year's election the College appeared to abandon its traditional role of staying outside of partisan politics in favour of subtle, but obvious, support for the Labour Party. Its reason was clear - it liked the idea Labour was promoting of reducing the costs to patients of visits to Doctors. It seemed to have assumed that Labour would do this by increasing the subsidy payable on a Doctor's visit, a win-win outcome as far as the profession was concerned. However, it, and District Health Boards, have been stunned subsequently to discover that while Labour's commitment still stands, it has made no provision for increased funding and is instead relying on DHBs to achieve reduced patient costs within their existing budgets, none of which have yet been approved by the Minister. A classic case of being more careful about you what might wish for!

How this might yet play out is still to unfold and is a separate debate, but it raises again the issue of how a government manages the competing demands on public expenditure. And that, in turn, leads to the much bigger question of the adequacy of current revenue streams. Our present system is based on taxing individuals and businesses on profit and income from what they produce. Of course, everyone - individual or business - thinks they presently pay too much tax, or at a pinch, about the right amount, and certainly cannot afford to pay any more, but that there is scope for getting more out of everybody else. This, in turn, leads to its own form of envy politics and social dislocation, constantly pitting one group against another.

Yet, the ever increasing complexity of our broad base, low rate tax system is becoming obvious, despite the considerable and noble efforts of successive governments to modernise and streamline it. This government, like its two predecessors, has begun its term by initiating a tax review, allegedly to find the holy grail, but really to provide political cover for some potentially unpopular measures they want to take, in this case the capital gains tax which dogged Labour throughout the last election campaign.

The fundamental problem, though, is that the current system is utterly flawed. The impact of income and profit based taxes is lumpy and uneven, no matter the various forms of social engineering designed to achieve balance and equity. The current debate about the tax treatment of multinational corporations which in today's internet world can be everywhere but simultaneously nowhere when it comes to tax liability has graphically proven that. The reality is that the current system has had its day, and no amount of tinkering, however sophisticated, is going to resolve that. It is time to move on. The current system dates broadly from the early 20th century, as a then response to antiquated arrangements like the infamous hearth or window taxes now regarded as utterly cavalier, haphazard and discriminatory. (One has only to see the windowless 18th and 19th century houses in cities like Dublin and elsewhere to see the folly and absurdity of that approach.)

At a time when, more than at any other time in human history, society's focus is on mitigating the adverse impact human beings have had on the natural environment, and the steps we need to be taking now to assure its sustainability for future generations, the opportunity is surely nigh to reform our tax system along the same lines. We need to redesign our approach to focus on the consumption and consequent depletion of non-renewable resources by both individuals and corporations. Not only would such an approach be more equitable across the board, more difficult to evade, and therefore more sustainable, it would also have the advantage of disincentivising exploitative behaviour in the interests of the planet's future.

The hand-out approach of so much current spending would become rapidly checked if linked to our consumption of society's resources. It is often said, loftily and without much meaning, that taxes are the dues we pay to belong to civil society. A reordering of the tax system along these lines would give new reality to that statement. If ever there was a cause looking for a progressive, genuinely environmentally friendly, but equally fiscally responsible, political party to embrace, this is surely it. Sadly, there seems to be no such party on our political horizon at the moment.

ends

© Scoop Media