Wednesday, 2 December 2020

Tax increase punitive, distortionary and stale

“Finally released detail of Labour’s proposed tax increases shows officials don’t think it will work, describing revenue estimates as ‘highly uncertain,’” says ACT Leader David Seymour.

“It’s also no surprise the Government has signalled it will increase the rate it taxes trusts to 39 per cent if it finds people are finding ways to avoid the new 39 per cent income tax rate.

“Unintended consequences of tax changes nearly always outnumber intended consequences. We know from history that over time this will result in fewer highly-skilled people wanting to come here, and more highly skilled people wanting to leave for more attractive jurisdictions.

“It’s also clear the way Labour is changing the law will deliver a huge blow to the integrity of the tax system.

“The percentage of income collected compared with the percentage of rates levied will get worse, which means more avoidance activity, a leakier tax system, and more time running round on expensive administration and compliance.

“But perhaps the greatest tragedy of raising income tax rates might well be the message it sends all New Zealanders who strive to get ahead.

“Punishing success is the very opposite of what we try so hard to instil in our young people as they develop through school, go on to further study and enter the workforce.

“We hope this positive environment spurs all our young people to do their best.

“But if they do that under a supposedly kind and caring Labour Government their reward will be a special tax rate of 39c in the dollar if they earn over $180,000, to punish them for doing too well.

“This is a Government that says it wants to develop a higher wage economy, but then disincentivises earning.

“What’s worse, this is the reintroduction of the same unimaginative, punitive and divisive tax policy Labour ushered in under then Finance Minister Michael Cullen 21 years ago.

“This tall poppy syndrome in the tax code is the antithesis of the culture we should be fostering in New Zealand.”