NZ’s Tax Monster

Last week was so busy, I didn’t have time to blog about the latest CIS analysis on how to tame NZ’s tax monster.

Some key points:

* The tax take has increased $20 billion since 2000, a 37% increase in real terms
* Tax revenue for 2007 is $7 billion higher than projected just five years ago
* A person on the average wage is paying $2,400 more (up 34%) in income tax than in 2000 as the tax thresholds have not been indexed to inflation (unlike benefits)
* Our total tax burden is 36.5% of GDP compared to 31% in Australia (also the weighted OECD average)
* MMP encourages bidding wars between parties

They propose some remedies:

* There should be more focus on the outcomes of government spending, not the inputs or outputs
* The annual $2 billion (cumulative) slush fund for unallocated spending should be scrapped with extra spending each year having to be justified on merit
* Require $1.20 of benefits for every $1 in spending to recognise the cost of raising the money
* Have funding for projects self destruct after three years unless project goals have been met
* Have the budget process not only review the 5% of new spending proposals but the 95% of existing spending which is often not systematically reviewed at all
* Emulate the UK and Australia’s work in measuring the actual results of government spending
* End bracket creep for tax, with annual adjustments

The CIS also looks at the ACT/BRT proposal to constitutionally entrench a maximum level of taxation (adjusted only for inflation and population growth) but rejects it as an infringement on parliamentary sovereignty and an issue which should be decided by voters every three years not by legislation.

These suggestions by CIS should be looked at seriously by politicians from all sides of the political spectrum. Improving the outcomes from government spending and eliminating wasteful low quality expenditure, benefits everyone.