Wednesday 6 September 2023

Debating tax

I was a last-minute stand-in for Ruth Richardson at Monday evening's debate at Vic Uni, hosted by the Free Speech Union

The moot: "The tax system is unfair and the wealthy must pay more."

Moots are fun. You don't have to argue what you believe, but it's easier and more convincing if you find angles sufficiently adjacent to true-beliefs. 

Had I been assigned the affirmative, I'd have focused on the regressive effects of fiscal drag, which have put a proportionately higher tax burden on those on lower real income. It's unfair, and rebalancing it would mean a greater proportion of the overall tax burden would fall on those on higher incomes. I'd have worked to frame the moot as being about relative shares. 

I also would have followed the line taken by Danyl McLauchlan on the affirmative that wealth accrued through rent-seeking is illegitimate, that zoning restrictions have created a rich landed gentry, and that those rich pricks work like hell to maintain the restrictions forever. If that's their game, tax every dime of it until they don't want to play anymore. 

But I led for the negative, with Jordan Williams for the Taxpayers Union as second. Max Rashbrooke led for the affirmative. So we were basically typecast. That's fun too. 

I expected Rashbrooke to focus on the good things done by the state, so I had that in mind. And that I have no clue about the actual rules of formal debate - but that Sean Plunkett, as moderator, wouldn't be hewing to such rules anyway. 

My opener:

There’s a lot packed into today’s moot. But it’s important to stay on point.

A tax system is fair to the extent that it treats individuals in equivalent circumstances equally. 

That it is predictable rather than arbitrary in application. 

That one’s proportionate share of the burden of providing public goods reflects one’s proportionate share of the benefits enjoyed thereof. 

And for government spending that is not on public goods, that the beneficiaries of spending are, wherever possible, called on to fund that expenditure. 

Those principles are reasonably agreed. They apply equally well for drawing the revenue necessary to fund a minimalist government, or an expansive one. You can find the roots of them going back at least to Adam Smith, and now in modern public finance textbooks.

Today’s moot doesn’t ask us to judge how large the state should be.

It does not ask us to judge which parts of life’s unfairness, and there are many, should draw government programmes or income support. 

Unfortunately, neither does it ask us about the unfairness created by the state when government makes it impossible to build more homes, to enter markets that are protected for the benefit of incumbents, or when Ministers’ families seem surprisingly adept at drawing lucrative government contracts at our expense.

If the moot asks whether there is any unfairness in the tax system, no tax system could pass that test. 

Smokers and moderate drinkers pay far more in taxes than they ever cost the health system. Everyone else pays slightly less in tax because of it. 

Failure to inflation-index income tax thresholds means that increasing numbers of lower income earners pay higher rates of tax. That is unfair.

Nevertheless, work presented by Treasury in February showed that, as of 2019, the net fiscal impact of the tax and transfer system was no worse for the bottom two deciles than it was in 2010, when the tax thresholds were last set. 

On that analysis, only the top three income deciles pay net tax. 70% of households receive more in transfers and services than they pay in tax. The 39% rate imposed since then will mean even more of the burden falls on those on higher earnings.

And tax issues facing migrants arriving in NZ with an overseas pension are byzantine at best. 

But the moot cannot have asked only whether the tax system is unfair to any trivial degree as that would make for uninteresting debate. We could all agree and go home. 

The moot would have to propose more than some de minimus unfairness, and that that unfairness could usefully be rectified by calling on the wealthy to pay more. Effectively, Revenue Minister David Parker’s tax proposition. 

This side is happy to stand in the negative against that moot. 

My partner, Jordan, will argue that Minister Parker’s proposition – the real underlying moot – violates norms of fairness. That the Prime Minister was correct to pull the plug, last-minute, on comprehensive plans that had been developed to impose a wealth tax. And that had that plug not been pulled, another plug would have been pulled instead – with the economy flowing down the drain as capital fled. 

I will stand against it by arguing a better moot: the tax system is unfair and everyone should pay less.

I do this by advancing one further proposition. If the government cannot demonstrate real value from the taxes it collects from us, it cannot justify even current levels of taxation let alone propose higher taxes on anyone. 

Our moot is not about the size of government. If taxes were raised fairly and government delivered value for that money, and could demonstrate that it could deliver even more value if it had even more money, that would be one thing. It would have to further demonstrate that putting a greater proportion of that burden on the wealthier would be most effective to that end, and perhaps it could if it focused on a land value tax. In that case, maybe today’s moot could be defended. 

But that is not the state we are in. 

Core Crown expenditures, for 2023, were estimated at 32.5% of GDP. In 2019, Treasury forecast that the government’s programme would yield Core Crown expenditure of only 28.8% of GDP. The difference of almost 4 percentage points of GDP amounts to $14.5 billion dollars this year – a substantial increase in the long term tax burden. Almost $7,800 more spending per household. 

And what do we have for it? 

A Jobs for Nature programme designed as a make-work scheme when economic calamity was predicted but that government stuck with – at cost of over a billion dollars. 

Administrative restructuring of the health system and the Polytechs that cost billions of dollars and have worsened outcomes – and may yet sink the Polytechs. 

Hundreds of millions on industrial subsidies to companies for investments that they can perfectly well make on their own. 

Oh – and a new subsidy for companies that make videogames. And how much have we spent on studying a misguided Lake Onslow scheme and various implausible new Auckland harbour crossings? 

And while it’s utterly small potatoes as compared to the overall budget, the complete contempt that Wellington officials have for taxpayers, demonstrated in lavish welcoming ceremonies for incoming CEs and second-tier officials, including flying in the appointee’s family or live-streaming the event, does not bode well for any increase in government revenue. 

If we adhered to the benefit principle of taxation, we wouldn’t be looking at surtaxes on the wealthiest. We’d be looking at surtaxes on the consultants that produce feasibility studies on projects that will never eventuate and reports on restructurings. 

PJ O’Rourke used to say that giving money and power to government is like giving whiskey and car keys to teenage boys. Supporters of this debate’s moot might figure it’s fair to tax the wealthy to fund more of that kind of drunken spree. I think it’s reckless. 

Until the driver’s sobered up, we ought instead to be talking about taking away the keys. The tax system is unfair. Everyone, wealthy or not, should be paying less.  

All fun.

Danyl made probably the most interesting argument of the night. He noted that any government implementing a capital gains tax would bear all of the political costs of doing so, but revenue wouldn't really start accumulating for some time because gains are assessed against a current-year start point. And that makes confiscatory wealth taxes more tempting, because the current government gets to benefit from the predation. 

I never trust the voting in these kinds of debates. It was based on how many people reported having changed their minds, but nothing stops them from voting strategically for the other side at the start of the debate to misreport a flip. In any case, Jordan and I eeked out a narrow win.

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