Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 


Honesty for Taxpayers

Honesty for Taxpayers


Jamie Whyte, ACT Party Leader


ACT has a new proposal to make our democracy more accountable. The proposal may seem small but it could be the most significant idea in this election.

Policies such as the one I am announcing today, which change the behaviour of politicians, have greater long term effects than any particular proposals for this or that government activity, such as giving school children laptops, subsidising solar panels and the rest of the little tax-funded bribes the other parties trade in.

A proposal to reform New Zealand’s government accounts was hardly noticed in the 1993 election campaign. Yet the Fiscal Responsibility Act of 1994 has had a profound effect on how New Zealand is governed. Government accounts are now transparent and neither Labour nor National wants to be responsible for a deficit. The Fiscal Responsibility Act is probably the real reason why the government books will be back in the black by next year.

ACT’s fresh idea could be as influential as the Fiscal Responsibility Act.

* * * * *

Sir Geoffrey Palmer famously opined that the New Zealand parliament is the fastest lawmaker in the West. He was referring to the absence of checks and balances: the lack of a written constitution or second chamber of review. Laws can be introduced and passed in minutes. And they have been. An unsurprising example was a 1987 law to increase MPs’ superannuation. It passed through all stages of the legislative process, from introduction to becoming law, in seven minutes flat.

Had Sir Geoffrey not been of a socialist bent he might have pointed out that this legislative ease also made New Zealand lawmakers the fastest spenders in the West. In no other Western democracy is it so easy to spend taxpayers’ money. New spending proposals go through with minimal scrutiny or public debate.

Helen Clark’s Labour government increased government spending by 35%. In 1999 government spending was $15,500 per person. By 2008 Clark’s labour government had increased this to $21,000. (Both figures expressed in 2014 dollars.)

Do you remember any great obstacles being put in their way? Did Clark and her cabinet struggle to get their spending proposals past constitutional barriers or a sceptical parliament, media and public?

When government spending is being increased by 35% over a 9 year period, you might hope that political alarm bells would be ringing, lights flashing and barriers coming down. But nothing of the sort happened.

Increasing government spending by 35% was politically easy.

It shouldn’t be. Because, beyond a certain low level, government spending is a bad thing.

The most obvious reason is that government spending must be funded from taxation. Taxation transfers money from private individuals to the government. That transfer in itself costs society nothing. The taxpayer loses a dollar; the government gains a dollar. Nevertheless, taxation imposes a massive costs on society because it makes many productive activities unprofitable (by adding costs to them) and makes many unproductive activities profitable, such as employing a tax lawyer to rearrange you company’s affairs to reduce your tax bill.

This deadweight cost of tax is difficult to estimate but, for a country with a tax code like New Zealand’s, it is probably in the range of 25% to 50%. For every dollar transferred from taxpayers to the government, economic output is reduced by 25 to 50 cents. A less taxed population would be a richer population, before tax as well as after tax.

The second problem with government spending is that it usually replaces private spending. When you spend your own money on yourself you are likely to buy only what you value and only when you think it worth the price. When a government buys goods and services for you, these outcomes are unlikely.

Indeed, taken to extremes, profligate government spending can wreck an economy. Greece is the most obvious recent example. But several other European countries are struggling to get out of the holes dug for them by over-spending governments. After decades of governmental largesse, the French and Italian economies have near-zero growth and high unemployment rates, especially among the young. Youth unemployment in France is 24%. In Italy it is 35%. In their low-tax, low-spending, light-regulation neighbour, Switzerland, youth unemployment is 3%.

Nor is the problem restricted to national governments. After decades of over-spending administrations, California is almost bust. The excessive taxes it must now charge are driving businesses to other states – often to low-spending, low-taxing Texas. Here in New Zealand, Len Brown is spending Auckland City into a fiscal crisis.

* * * * *

Why then is there so little public resistance to increased government spending?

One reason is misrepresentation of the costs.

Whether from duplicity or economic ignorance, politicians never discuss the deadweight cost of the taxes entailed by government spending. They never make the point I have just made – that, beyond a very low level, taxes do not merely shift money around but reduce total output.

Nor are the costs of government spending described in a way that most people can understand. The policy of not charging interest on student loans costs about $670 million a year.

In the grand scheme of things, is that a lot? Most people wouldn’t have a clue, even if they knew the $670 million figure.

The problem with such numbers is not only that they are incomprehensibly large but they seem distant, almost unreal. They are merely book-keeping entries in the accounts of the government.

But they are not really distant issues. Such spending is the cause of our taxes, which is real money that we no longer have to spend as we choose. For example, if not for interest-free student loans, the top rate of income tax could be reduced from 33% to 30%. Or the 17.5% rate could be 16%. Or the corporate tax rate could be reduced from 28% to 25%. That is a remarkably big difference made by just one apparently trivial spending policy.

Such revelations will mean something to people. If you know that interest-free student loans are adding 3 percentage points to the tax rate you pay, you get a sense of what it costs – a much better sense than telling you that it costs $670 million, if you ever get told even this.

ACT believes that taxpayers should know the price of any spending policy of the national government or a local council in a metric that is relevant to them.

* * * * *

To this end, ACT proposes an Honesty for Taxpayers policy.

On this policy, regulatory impact statements, cabinet submissions and ministers’ introductory speeches for Bills in parliament will need to state clearly that “but for this proposal, your income tax rate would be X percentage points lower”.

When taxpayers visit the website of any government agency or local council and any programme of that agency, they should have a clear idea of the price of that agency in their taxes or rates.

Government departments and agencies should be required to declare on their home webpage “but for this agency, your income tax rate would be X% lower”.

Similar rules should apply to local governments. They should be required to reveal how much lower rates would be if not for a particular new policy proposal or existing service of the Council.

If a minister, department, agency or local council believes that the programmes it administers do indeed offer value for money to taxpayers, they should be proud to say how they are putting taxes to work in the clearest way taxpayers can understand.

For example, the government should be keen to alert taxpayers that, without Working for Families:

· the 17.5% income tax rate would be 12.5% OR

· the 10.5% income tax rate would be 3.5%.

The Minister for Tertiary Education should be keen to remind everyone that, if not for interest-free student loans

· the 17.5% income tax rate be would 16% OR

· the 28% company tax would be 25% OR

· the 33% top income tax rate would be 30%.

The Minister for Business, Innovation and Employment (MBIE) should be keen to announce that, if not for its policy of dispensing corporate welfare

· the 28% company tax rate would be 21% OR

· the 33% top income tax rate would be 27% OR

· the 17.5% tax rate would be 14.5%.

If you do not know what something costs, you cannot know if it is worth the price. Good decision-making depends on good information. In a democracy, this means that voters must be reminded of how much they are paying for government activities.

Politicians from the big spending parties will oppose this policy. That shows what a good idea it is. The bureaucracy will also resist it, because voters will be surprised to realise that much new spending is generated by bureaucrats. MPs and councillors will be more reluctant to just wave through spending when the information is publicly available.

By using the tools of the information age ACT seeks to make our elected representatives more accountable and allow citizens to participate in a more meaningful way.

I am pleased to lead a party with fresh ideas and practical solutions to the real issues.

ENDS

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

Parliament Today: State Opening Of Parliament

The House sits at 10.30am today before MPs are summoned to hear the Speech from the Throne in the Legislative Council Chamber.

The speech delivered by the Governor-General on the Government’s behalf outlines its priorities for this Parliament.

After this MPs will return to the House for the presentation of petitions and papers and the introduction of any bills.

The Government has five notices of motion on the Order Paper which can be debated. These relate to relating to the appointment of the Deputy Speaker, Assistant Speakers, the reinstatement of business in a carryover motion and one on “Entities to be deemed public organisations”. More>>

 

Tertiary Education: Students Doing It Tough As Fees Rise Again

The Government is making it increasingly difficult for Kiwis to gain tertiary education as fees continue to rise and access to student support becomes even more restricted, Labour’s Tertiary Education spokesperson Chris Hipkins says. More>>

ALSO:

Housing, Iraq: PM Press Conference – 20 October 2014

Prime Minister John Key met with press today to discuss:
• Housing prices and redevelopment in Auckland
• Discussions with Tony Abbott on the governmental response to ISIS, and New Zealand’s election to the UN Security Council More>>

ALSO:

Labour: Review Team Named, Leadership Campaign Starts

Labour’s New Zealand Council has appointed Bryan Gould as Convenor of its post-General Election Review. He will be joined on the Review Team by Hon Margaret Wilson, Stacey Morrison and Brian Corban.

ALSO:


Roy Morgan Poll: National Slips, Labour Hits Lows

The first New Zealand Roy Morgan Poll since the NZ Election shows National 43.5% (down 3.54% since the September 20 Election). This isn’t unusual, National support has dropped after each of John Key’s Election victories... However, support for the main opposition Labour Party has crashed to 22.5% (down 2.63% and the lowest support for Labour since the 1914 NZ Election as United Labour). More>>

ALSO:

In On First Round: New Zealand Wins Security Council Seat

Prime Minister John Key has welcomed New Zealand securing a place on the United Nations Security Council for the 2015-16 term. More>>

ALSO:

TPP Leak: Intellectual Property Text Confirms Risk - Jane Kelsey

The US is continuing its assault on generic medicines through numerous proposed changes to patent laws. ‘These are bound to impact on Pharmac if they are accepted’, according to Professor Kelsey... Copyright is another area of ongoing sensitivity... More>>

ALSO:

RMA: Smith Plans Reform To Ease Urban Development

Newly appointed Environment Minister Nick Smith has announced Resource Management Act reform to foster urban development, where high land prices and expensive resource consents are blocking efforts to provide affordable housing. More>>>

ALSO:

Gordon Campbell: On New Zealand getting involved (again) in other people's wars

Apparently, the Key government is still pondering how New Zealand will contribute to the fight against Islamic State. Long may it ponder, given the lack of consensus among our allies as to how to fight IS, where to fight it (Syria, Iraq, or both?) and with whose ground troops, pray tell? More>>

ALSO:

Gordon Campbell: On child poverty, and David Shearer’s latest outburst

The politicisation of (a) the public service and (b) the operations of the Official Information Act have been highlighted by the policy advice package on child poverty that RNZ’s resolute political editor Brent Edwards has finally prised out of the Ministry of Social Development. More>>

ALSO:

Gordon Campbell: On the government’s review of security laws

So the Key government is about to launch a four week review of the ability of our existing legislation to deal with “suspected and returning foreign terrorist fighters, and other violent extremists.”

According to its terms of reference, the review will consider whether the SIS, GCSB and Police are sufficiently able right now to (a) investigate and monitor suspected and returning foreign terrorist fighters… More>>

ALSO:

Get More From Scoop

 

LATEST HEADLINES

 
 
 
 
 
 
 
 
Politics
Search Scoop  
 
 
Powered by Vodafone
NZ independent news