Thoughts About Tax

Working on the assumption that less tax is good and more tax is bad, and that the more you fiddle with something the more likely you are to cock it up or break it, I've developed the following ideas to overhaul New Zealand's tax system.

In my Manifesto for NZ I suggested dropping NZ's GST rate to 10%, scrapping Working for Families, doing away with user pays and making government smaller and leaner, by that last remark I'm talking about health care being made closer to the people, and government departments being dispersed, making government cheaper as salaries are lower in the regions (and it means less risk to NZ due to natural disaster). My ideas involve a mix of cutting costs and raising revenue, such as a huge infrastructure spend leading to employment (this includes state housing) and mining which is a solid foreign exchange earner.

If you don't like the sound of all that, how about the following as an alternative; scrap all PAYE.

That's right, just don't collect PAYE. By simplifying the tax system to being indirect only, the cost of collection goes down for employers and government. What would happen is the individual pay packet would only have superannuation deducted, possibly council rates, student loans and any fines and other levies such as court orders and that would be that. What you earn you keep, when you consume you pay.

My thinking is the GST rate would need to be about 22.5% to achieve this aim. I'm interested in anyone who has tumbled the numbers on this. Working for Families - gone. PAYE - gone. User pays - gone. 

Critics will say this is regressive in nature. That's why I went for the 10% GST and less excise on cigarettes, to lower prices for the poor. But I'm putting this as an alternative, what it does is provide incentives to earn more and instead of taking money from the higher earners, it allows them to consume and invest and grow the economy (more employment).

What am I talking about? Higher earners pay most income tax. I think those earning more than $100,000 pay about 98% of all tax in New Zealand directly - correct me if I'm wrong. It's easy then to just say income tax is a waste of time, just take GST and leave it at that.

More controversial would be to look at exemptions from and zero rating of GST. It makes sense to exempt financial transactions but residential rental being zero rated? What about taking something from that, setting GST at say, 10% as opposed to everything else 22.5%.