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What’s Fair?

Book Review | BWB Texts
Tax and Fairness
by Deborah Russell and Terry Baucher (BWB Texts, paper $14.99; e-book $4.99)
Reviewed by Peter Malcolm

bwb7890_tax_and_fairness_highres_awThis is an excellent and timely book, since apart from general statements about increasing or mostly reducing tax, there has been very little comment or debate as to whether we should pay tax at all and how much tax each of us should pay.

The authors have subtitled the book “we need to talk about why we pay taxes”, an important statement, although I believe they should have added “and how much should each of us pay”. The last couple of pages make an excellent case for “the why”, and the last two sentences encourage us to see our tax system in a more positive light:

“Proudly paying our taxes is a sign that we believe in our own capacity to create a flourishing society that gives all New Zealanders fair opportunities. We should smile when we pay our taxes.”

But what about the “Fairness”? The authors give little space to this critical question apart from the unfairness of an almost non-existence Capital Gains Tax. The question of tax scales, progressive or regressive tax systems, hardly rates a mention. Many commentators aruge that in comparison with most other developed countries our tax rates on the poor are heavy and the tax rates on the high income/wealthy are light. Is this fair?

We used to have a much more progressive regime with 66% as the top marginal tax rate in the early 80s. This was swapped for lower taxes, eventually a top marginal rate of 33%, and a non progressive GST of 15%. This was lovely for the wealthy, and when it was pointed out, that we were paying significantly more for tertiary education and health, and the loss of the family benefit, this was even better for the wealthy and not good for the poor

But there are some very good aspects to this book. The early chapters compare our tax system with some well known principles of a good tax regime such as equity, certainty, convenience and efficiency, visibility, coherence, neutrality and meeting government expenditure. In the authors’ opinion we do pretty well, but there are, they point out, some important exceptions.

One major concern is the lack of a capital gains/wealth tax particularly with regard to property: “it is time to get serious about one of the biggest remaining inequities in our tax system”. The authors also mention the tax on savings and investment etc., currently “an incoherent mix of taxation based on accruals, realisations and imputed returns, combined with a large class of exempt assets”. They go on to argue that the system of taxing multinationals is in serious need of tightening, and make the case for an independent Board of Taxation that would broaden the controls and debate on our regime. And given the pressure on many of the lowly paid to have more than one job, the system of secondary taxation clearly needs to be sorted out.

The authors are also concerned about the lack of knowledge of many about our tax regime, and they make the case for going back to tax returns for us all.

In general, this is an excellent book — well done again BWB — which should help advance the debate about a capital gains tax, taxes for multinationals, and should stimulate discussion about taxing savings, investments and superannuation, and whether there should more control on the powers of the Inland Revenue Department.

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Peter Malcolm is National Secretary of Income Equality Aotearoa New Zealand Inc. — Closing the Gap.