Economist, fund manager and motorcyclist Gareth Morgan has criticised the Tax Working Group (which he was on), describing its recommendations as a 'half-cocked, grab-bag of fine tunings from a cumbersome committee that diagnosed a broken system but proposed little real reform'. Writing in the NZ Herald, Morgan gave the group a mark of 4 out of 10.
While the TWG's list of Band Aids was a bit disappointing, it was a great public service to see it clarify what we all know, that our tax system is an incoherent patchwork of tax regimes that amount to facilitating far too much tax avoidance activity, ensnare too many folk in poverty traps through poor integration of the tax and benefit systems, and exert undue influences on economic decisions by making some wealth-augmenting activities taxable and others not (property speculation). The TWG didn't set out to design major reform and so under the constraint from that limitation on its brief, its recommendations were necessarily a series of patches with much of the fundamental weakness in our tax and benefit system not addressed at all.
Morgan said, however, he liked the ideas of removing all loadings on depreciation and equalising the various income taxes (corporate, personal and trust).
He described proposals for a land tax, the RFRM (Risk Free Return Method) tax on equity in property and an increased GST as weak and ad-hoc.
A selective tax on capital, applicable tax to land only, proposed on the weak theoretical grounds that because land can't dodge tax, we may as well slog it in order to broaden the tax base. A similarly facile rationale would be to levy tax on all labour that wasn't mobile. A selective tax on just the equity in rental properties would encourage a raft of tax dodging responses as investors used different entities to lend money to themselves, ensuring that their property-owning entity minimised equity in its properties.It's because the partial, ad hoc nature of their recommendations leave largely intact the colander of tax leakages from our current broken tax system that the TWG deserves four out of 10. It failed to provide a roadmap to a more sustainable, fairer and efficient tax system.
Morgan referred again to his 'Big Kahuna' proposal for a broad tax on capital and a restructuring of the benefit system to create a 'Guaranteed Minimum Income'. He lamented the working group's inability to address problems with Working For Families.
(There were) no recommendations whatsoever in terms of sorting out the abomination that Working for Families is with its steep rates of abatement or obscenely high marginal tax rates. The number of households on this benefit continues to rise year after year. While it deserves 10 out of 10 for highlighting the problems, it fell well short of offering sufficient sustainable and comprehensive solutions. The group would no doubt respond that its brief was just to serve up some choices for the politicians to decide on, but it would have made a far better contribution had it provided comprehensive tax and benefit reform that it could then dial back to meet any number of political constraints that might prevent such change. At least then the public would be aware of what is possible and be totally au fait with precisely why we can't go there - solely because of political preferences. Also, and most appropriately, the politicians under that approach would have been put on the spot to justify compromises that smack solely of horse trading and would not have a modicum of justification for their preference on equity, efficiency, neutrality or simplicity grounds. That would have been fun. Instead the TWG, as is so often the case with cumbersome committees, served up a grab-bag of half-cocked, fine-tunings of a system it acknowledged itself is simply broken. These king's horses and king's men certainly have left Humpty Dumpty still shattered in bits at the foot of the tax reform wall.