Tax pros and cons

Brian Fallow has a nice summary of the pros and cons of various tax options. They are:

RAISING GST

Pro: GST is a robust and efficient tax, and shifting tax from incomes to spending might improve saving.

Con: It is very hard to prevent a rise in GST hitting those on lower incomes harder.

CAPITAL GAINS TAX

Pro: Potentially very lucrative, allowing more tax relief elsewhere.

Con: Lots of practical difficulties and the IRD, which would have to administer it, hates the idea.

LAND TAX

Pro: Broad base, low rate and could bring in billions.

Con: Liable to be undermined by exemptions as in the past. Hard on the retired, Maori trusts and farmers.

RISK FREE RATE OF RETURN FORMULA APPLIED TO RENTAL PROPERTIES

Pro: Targeted at a sector that seems undertaxed now.

Con: Because it is based on equity, it could perversely encourage more gearing in the rental property sector. Could flow through to tenants.

SCRAP BUILDING DEPRECIATION

Pro: Could be done quickly.

Con: It is not easy to distinguish buildings which do depreciate from those which don’t.

I hope the Government will act on at least a couple of these, using the revenue to reduce income taxes. What we tax does matter – not just how much we tax. The best system is broad based and low rate.

John Roughan looks at the current tax system:

Read a few lines further into the Tax Working Group’s report and the picture gets worse. Once you distribute family tax credits, welfare benefits and national superannuation those top 10 per cent of taxpayers have provided 76 per cent of what is left for general public services. Seventy six per cent.

Yep 10% of taxpayers provide 76%. And what happens if more and ore of that 10% go offshore?

The Working for Families refund alone results in 40 per cent of households effectively paying no income tax. It would be cheaper not to tax their wages at all.

It would be. The best system would be that no one pays any tax until they are earning what one regards as the minimum amount needed for a family of their size. Churning money from tax to welfare to inefficient.