December 7, 2009 11:00am by David Farrar

Dom Post on Tax

The tax working group established by the Government doesn’t expect to report its findings before Christmas, but it is clear already that ministers will get more than they bargained for.

The group, set up to explore ways of aligning the top personal tax rate with company and trust rates, has carried out a root and branch review of the tax system. Its findings make for sobering reading.

The system is inefficient, counter-productive and unfair. The tax burden is being disproportionately borne by wage and salary earners who cannot restructure their affairs to take advantage of vagaries in the system.

The high proportion of the total tax take gathered from company and income tax increases the incentive for individuals and businesses to shift overseas. And the differing rates at which earnings on different types of investment are taxed is distorting investment decisions.

Yep, the current tax system is sub-optimal at best.

The group’s goal is not just to broaden the tax base but to make the system fairer and more efficient and to reduce the incentives for people and businesses to shift overseas by taxing things that are fixed, such as land and buildings, rather than things that are mobile, such as capital and labour.

This is pretty important. The more you tax capital and labour, the less there is to tax.

A property or land tax would have the added benefit of encouraging investment in productive enterprise by making investment in property less attractive.

Well it is not so much that there will be less investment in property, but a land tax will encourage land owners to get higher economic returns from their land, which is one way to lift economic growth.

The best tax brains in the country have given the Government a chance to make the system fairer and the economy more efficient. Doing so is in the long-term interests of everyone. The Government should grasp the opportunity.

I agree. It would be easier to do, if the crown accounts were in surplus. But even without that luxury, some change must happen.