In his opening address to Parliament, PM John Key ignored most of the Tax Working Group’s recommendations for tax reform. The TWG report recognised New Zealand’s tax system was dysfunctional, but could only suggest clumsy patches and shuffling revenue streams. It is more notable for omissions and inaccuracies than anything else.
GST is praised as a broad-based, low rate tax “without exemptions”. Clearly, since the financial services industry is GST exempt, this statement is a fiction. The report attacks property speculation, but ignores the economic damage done by money marketeers, as made abundantly clear by the recession of 2008. There is no attempt to reduce the bloated bureaucracies of Inland Revenue and Work & Income, and the crippling cost of debt servicing.
Democrats for Social Credit (DSC) recognises that money, originally invented to facilitate trade, is now almost entirely employed in speculation, which too often escapes the tax net. DSC also calls for the sovereign ownership and management of the money supply as a public utility, rather than borrowing inefficient and expensive funds from privately owned banks. This reform first and foremost would reduce the need for revenue to finance Government activity and services, by removing debt servicing costs.
It’s also time to rethink the tax system. Not patch it, not tweak it - change it. DSC has the way to start, with a transactions tax. This sort of tax has been labelled variously the Financial Transactions Tax (FTT); the Tobin Tax, after Nobel Laureate James Tobin; the Currency Transactions Levy (CTL); or most galvanising, the “Robin Hood Tax” which will take from the rich and give to the poor.
Whatever you call it, this tax is long overdue. It is simple to set up in these days of centralised banking and sophisticated accounting software, similar to that for Resident Withholding Tax. It takes a small percentage from every dollar that goes out of any account. No account escapes, not even a bank’s activities. All transactions in a currency are subject to the tax, with no compliance costs, no exemptions, no bureaucracy or fraud investigations, no havens or loopholes. FTT is truly broad based and low rate, and so efficient that nearly every dollar of revenue is available for Government needs.
To start with, FTT could replace GST. No more arguments about exempting food and clothing, a worthy idea with bureaucratic migraines. FTT at say 5c for every $10 (really, that’s all) and everything would be cheaper. No more accountants to calculate your refunds, no way to duck the taxman by buying your boat through the company or hiding your income in a trust, no more under-the-table trade jobs. Just business the way it should be.
How much effect on the financial industry is desirable? The Tobin Tax was not designed to collect revenue but to suppress speculation. At a rate of 1%, speculative activity will become unaffordable. Capital will seek long term investment such as manufacturing and other avenues in the productive economy.
A very low FTT rate, as promoted by the ‘Robin Hood Tax’, will allow financial activity to continue, and will gather far more in revenue than is possible with GST. FTT doesn’t rely on labour or capital (both a little volatile right now), just on transactions. The only way to temporarily avoid paying FTT is to save your money, so FTT promotes saving too.
In New Zealand, we could have a bet each way. FTT could operate at the low, ‘Robin Hood’ rate for domestic transactions, and at a higher, speculation-suppressing rate as a Foreign Transaction Surcharge (FTS). Exporters engaged in real trade of goods and services would not find FTS onerous, and their other tax and compliance costs could be reduced. In fact, all other forms of tax can be reduced, and some even eliminated under this genuinely broad-based system.
What is the Government waiting for? They know the systems they’ve inherited are expensive and inefficient. Now’s their chance to do something just about everyone will like. Let’s have a system appropriate for the 21st Century. Lower prices, lower compliance costs, less bureaucracy, the possibility of reducing or eliminating every other tax - what’s not to like?
John Pemberton
Finance Spokesman
Democrats for Social Credit