Cactus: Labour and the Greens just don’t get tax, eh, with their extra tax bands and their capital gains tax?
Mike: Indeed – what you do with tax policy is you cut taxes. Everyone knows that. Sure, ironing out perverse financial incentives is all very fine as a justification for cutting taxes, but not for raising taxes, because what you do with taxes is you cut them. It’s not the place of tax policy to reduce income inequality or provide revenue to pay for government services. Providing government revenue is the role of gambling policy, and reducing income inequality is the role of some other area of government policy. Maybe telecommunications policy – if those Internet Party people are as intelligent as they want us to think they are, surely they can find a way to solve poverty issues using telecommunications policy, because we know it’s not realistic to do it using economic policy.
Cactus: sure, but I don’t want big government taking over the role of cutting my taxes
Mike: cutting taxes is one of the core functions of government
Cactus: Commercial tax cuts can be provided more efficiently by the private sector. When you pay a political party to cut your taxes, they cut your competitors’ taxes as well, but when you pay an accounting firm to find ways for you to reduce your taxes, you get all the benefit of this for yourself. In Latin American countries, a large percentage of all tax cuts are provided by the private sector, and this is clearly more efficient. Additionally, the creative accounting sector employs thousands of hard-working New Zealanders. It is time that creative accounting was granted the same respect as other creative industries, instead of having the value of the tax loopholes they find taken away by government-provided one-size-fits-all tax cuts.
Mike: so if you don’t want tax cuts, what kind of tax policy do you want? What other kind of tax policy is there?
Cactus: The New Zealand First policy of taking GST off so-called ‘proper’ food will create more work for computer programmers in the GST-programming space. Currently this is dominated by Australian firms, and New Zealand firms haven’t had a look in. We need to encourage them to innovate in this space.
Mike: … and it won’t actually reduce the tax take by very much, because there’s all the GST on the fertiliser and transport fuel and packaging materials and combine harvesters and stuff. Those already have GST on them when the food producers buy them. I hope they’re not going to refund that GST, because if they don’t, then the price won’t go down very much at all, but everyone will think the government has done this big thing to make food more affordable and will shut up about it.
Cactus: The best thing to do would be to keep those costs as GST credits, so you’d have to sell those credits to a business that did pay GST so they could use them to offset their GST. This is the sort of boost the accounting industry needs.
Mike: If you like that, I assume you’ll like the Green Party’s policy of taxing inflation-adjusted capital gains as income, just like other income except assigned to various years in the past and future to take advantage of lower tax brackets? That would create good work for innovative tax accountants, wouldn’t it?
Cactus: Are you crazy? That would destroy the livelihoods of hundreds of hard-working accountants who find ways to convert income to capital gains to make it non-taxable. I far prefer Labour’s policy of taxing non-inflation-adjusted capital gains, at their own tax rate, thus protecting the basic human right to make money from converting income into capital gains.
Mike: Now what about the Greens’ carbon tax? It seems to me that climate change cannot be a serious problem. Adam Smith’s Treatise on the Wealth of Nations said that everyone benefits if everyone pursues their economic self-interest, so there can’t be externalities like climate change that could become a serious problem through each person pursuing their economic self-interest, because that would mean that Adam Smith was wrong.
Cactus: Didn’t Adam Smith also say that eating meat was immoral and that everyone should be vegetarian?
Mike: Okay, well, obviously he was wrong about that, but he wasn’t wrong about anything important, like anything involving money. Also, we know that future generations are going to be richer than people today. Fifty or a hundred years ago, people used to think they needed to go out of their way to leave a better world for future generations, but since then we have seen that each generation is richer than the last, so clearly you don’t have to do that. We can be confident that future generations will automatically be richer than us and will be able to buy their way out of any climate-change related problems.
Cactus: well yeah, absolutely, but that doesn’t give governments the right to abolish emissions trading schemes. Credits for notional carbon dioxide equivalents are a property right. Carbon trading is a legal business, and the government has no right to shut down a legal business just because it wants to.
Mike: Does that mean New Zealand First are criminals for threatening to close down the tax avoidance industry by closing unspecified tax loopholes?
Cactus: Not really. Closing tax loopholes is just part of how you drive innovation in the tax avoidance industry, and innovation is a good thing.
Mike: Now, what do you think of National’s tax policy. They say they’re going to cut taxes sometime, by whatever amount is affordable at the time
Cactus: Can’t fault that, except for the ‘affordable’ bit. If you only cut taxes by what’s affordable, you don’t end up with deficits that justify cutting other things.
Mike: Yeah, but apart from that, I think the emphasis on tax cuts, combined with a lack of detail, makes it pretty much the perfect tax policy. I’ll be voting for them.