David Seymour says taxation "can provide an effective social safety net" but that wealth redistribution is just used "to counter policy failings". Fixing those should be the priority

David Seymour says taxation "can provide an effective social safety net" but that wealth redistribution is just used "to counter policy failings". Fixing those should be the priority

By David Seymour*

ACT’s view of tax starts with a basic premise: it’s your money. And it should only be collected when we’re confident that the government can spend it better than you could. We must constantly evaluate taxation on that basis – sometimes ruthlessly so.

If a government function is underfunded, it does not follow that we need to tax people more, or even that our current level of taxation should be tolerated.

If the Government wants to boost funding of a programme, it should also seek to cut wasteful spending. This way, we can close funding shortfalls without subjecting earners to an undue tax burden.

For example, the Government employs an army of 2500 policy analysts (salaries averaging $90,000) and over 5000 managers (salaries averaging $124,000) – that's almost $900m. Why not have fewer top-down planners and more frontline workers with skin in the game?

A union like the PSA would be met with a more positive response from parties of the right if it offered guidance on identifying areas of waste. In theory, they should have great insight. Yet the word ‘waste’ does not occur once in the PSA’s series on tax.

Increasing our productivity would also raise revenue for core services like healthcare and education, without punishing New Zealanders with higher rates of taxation which could in turn stifle incentives to work and produce, suppressing productivity and constraining the country’s ability to provide quality services – private or public.

The state currently spends over $17,000 for every person in New Zealand. That’s over $85,000 for a family of five. This figure continues to increase in real terms. The unions will always say that’s not enough, that we could solve any given social problem if only that figure was higher.

But the reality is that the public sector is not the only source of societal good. The private sector does far more to increase the welfare of New Zealanders, by producing wealth in the form of goods, services, and housing, all shaped to meet the diverse demands of individual New Zealanders. Every cent ‘invested’ in a public service is a cent that can’t be deployed in this private market.

Except it’s actually worse than that – Treasury estimates that every dollar taxed bring 20c of ‘deadweight’ costs – the effect of reduced incentives to work or grow a business. In other words, every dollar of tax taken must provide at least $1.20 worth of benefit in order to be justifiable.

Taxation and wealth redistribution can provide an effective social safety net, and establish an acceptable minimum standard of living for those unable to work. But if we are committed to increasing the welfare of all New Zealanders we must increase the size of the metaphorical pie produced by businesses and individuals across the country, rather than simply rearranging the slices.

Wealth redistribution is often introduced to counter policy failures. For example, bad land-supply regulations create a housing crisis which leads to calls for a higher accommodation supplement. Or ineffective regressive tobacco taxes cause poverty leading to calls for higher benefits. ACT’s conclusion is that it’s always better to fix the underlying policy.

The good news for supporters of a high-tax, redistribution-heavy welfare state, is that they have New Zealand’s governing party on their side. Steven Joyce openly boasts about the increasing proportion of the tax burden that falls on high earners, and calls government surpluses (taxpayer deficits) ‘dividends’ for New Zealand.

And National’s Budget, while showering families and low-earners with tax credits, failed to adjust for bracket creep in the top bracket, increasing the rate of wealth redistribution while increasing spending on social and corporate welfare. The headline of every other Government press release is focused on the input – the dollar figure of new spending. Outputs be damned.

So in a sense, the PSA needn’t have released their series on tax – they’ve already won the argument.

Meanwhile, ACT is left as New Zealand’s only party advocating opposing higher taxes and new spending. ACT would cut the tax rate for every income bracket and ensure no New Zealander pays more than 25% of their pay rise in tax. This is could be enacted without cutting a cent of spending – ACT would simply return growing surpluses to the taxpayers who produced them.

And we’d bring corporate tax rates (all but ignored in the PSA’s tax series) down from 28% to 25%, with a long-run goal of cutting them further, keeping competitive with other countries doing the same. These tax cuts would be funded by cutting $1.1 billion of wasteful corporate welfare (funding for sports events, Callaghan Innovation, overseas promotion of New Zealand businesses, etc).

And ACT would end bracket creep permanently by indexing income tax bracket thresholds to inflation. This means that if a future government wants to increase the proportion of tax taken from New Zealanders, they’ll have to announce a change in settings and be held accountable by voters, instead of letting inflation stealthily eat away at Kiwis’ take-home pay.

ACT says that if we let New Zealanders keep more of their earnings to invest in businesses, their communities, their families, and themselves, we’ll all be better off.


David Seymour is the leader of the ACT Party, and the MP for Epsom. This piece is his reaction to the PSA's "Ten perspectives on tax" series, all of which have been posted on this website.

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17 Comments

ACT did not figure in my thinking but this might change that. Why fiddle uselessly with tax redistribution when the problem is wrong policy setting. Good one David Seymour.
The government should be a strong referee, not a participant. No need to tax foreign land buyers, just creating more useless tax transactions. Just limit ownership to citizens.
No need for endless WFF payments and ballooning accommodation benefit transfers if we set an upper limit on population. Employers would have to pay realistic wages. A great policy setting would be to build a high income nation.

"The government should be a strong referee, not a participant. No need to tax foreign land buyers, just creating more useless tax transactions. Just limit ownership to citizens.
No need for endless WFF payments and ballooning accommodation benefit transfers if we set an upper limit on population. Employers would have to pay realistic wages. A great policy setting would be to build a high income nation."
None of that features in the ACT manifesto, in fact they stand for exactly the opposite.

I'm with PA.. Whatever you are talking about is the antithesis of what DS is talking about.

Pocketaces: are you saying ACT seek a LOW income nation. ???

No, PA isn't.
Be mindful; what you are implying definitely doesn't necessarily a high wage economy, either.

If you want a high wage economy, you need high skilled persons and high value exports. Simply cutting immigration doesn't achieve that in the slightest.

Didn't mention migration Nymad.

Nope but going their way (no minimum wage etc) they would set us well and truly on track to be an even more low wage country

the problem wit acts policies is they would do the opposite of what they claim
Wealth redistribution is often introduced to counter policy failures. For example, bad land-supply regulations create a housing crisis which leads to calls for a higher accommodation supplement. Or ineffective regressive tobacco taxes cause poverty leading to calls for higher benefits. ACT’s conclusion is that it’s always better to fix the underlying policy.

how would cheaper cigarettes help the poor? it would also increase the health budget, or is it that because with act you would need private health to bad you die.

as for free up all the land, who pays for the infrastructure? who pays for the services? who stop overseas owners from buying up big chunks of the land.

the flat tax hurts those at the bottom and would make it near impossible to climb out of the poverty trap.

the only policies I agree on is government spending should be capped at a % of GDP and tax rates should be inflation indexed

"Wealth redistribution is often introduced to counter policy failures. For example, bad land-supply regulations create a housing crisis which leads to calls for a higher accommodation supplement."
Really?
Sure it's wealth redistribution, but it isn't in the direction that you believe it to be. In that case, it is redistribution to the landed gentry.

"ACT’s conclusion is that it’s always better to fix the underlying policy."
Is that not always the logical solution, though?

"the flat tax hurts those at the bottom and would make it near impossible to climb out of the poverty trap."
What flat tax?
Act don't advocate a flat income tax - they advocate progressive taxation, albeit at lower rates. Wouldn't this make it easier to ascend out of the poverty trap?

"the only policies I agree on is government spending should be capped at a % of GDP and tax rates should be inflation indexed."
Really? Why so?
Makes for a scary situation when funding gaps occur - I mean what happens at time of a natural disaster? Do we just ignore the funding cap, or? Then, if we do,it seems like a pretty inefficient piece of regulation - case in point, the USA.
Indexing tax rates to inflation is not really a good idea, either. What's the scope? Do we get adjusted tax rates every quarter? At that rate, it seems like that dead weight loss that you are trying to eliminate would be wiped out pretty quickly by such a policy. Also, it puts some pretty weird incentives and budgeting issues on the board.

Annual indexing of tax thresholds to wage inflation of the bracket sounds like an excellent idea!

It's this sort of mindless gibberish that lost ACT their core voters. Neoliberalism has run its course and has failed. Even Alan Greenspan admitted that his career at the Fed was a mistake. ACT want no regulations, increased unfairness, and increased inequality. These things actually harm the economy and drives people to suicide.

If you don't believe me only a backwards party of the mentally impaired would take on Don Brash as a leader. The former Reserve Bank Governor that does not understand fractional reserve banking. Also having a central bank is the ultimate in central planning of an economy. It must have taken considerable cognitive dissonance to end up with him as a leader.

A number of ACT policies are like economic theories - they work ceteris paribus, under ideal conditions. But in less than ideal conditions they only serve to make life really damn bad for a bunch of people. E.g. getting rid of minimum wage looks good in an ideal economic scenario...but when you have a government throwing the system open to all and sundry from Third World slums, it'll simply shift exploitation from the Third World to New Zealand.

ACT in theory is the economically rational party. Maximum efficiency of the taxation system.

Yet I've never heard a word about how they might level the playing field to bring productive enterprises onto a par with property, eg by removing negative gearing or thru a CGT. So much for equity.

So it's not actually economic rationalism. It's protect the rich landowners.

Not interested.

I would put ACT's more idealistic policies in the same bucket as some communist ideas. Sound neato, but just don't work in real life.

What a weird thing to say.
Have you forgotten Victorian Britain or 19th Century America?
Free market policies worked pretty dam well at those times.

Heh, paying little to none has always worked for those at the top. However, businesses greatly benefited from the rise of a middle class. E.g. Henry Ford's $5 per day initiative that was copied by others.

Either way too far to the left or right and things don't seem to work particularly well at all. Funnily enough, probably why we've ended up with centrist governments being fairly typical.

"Heh, paying little to none has always worked for those at the top. However, businesses greatly benefited from the rise of a middle class."

"the rise of the middle class".
Well done for contradicting yourself in successive sentences and proving my point.