Kerre Woodham: Is there such a thing as a completely fair tax system?

Is there any such thing as a completely fair tax system?  

Surely the most you can hope for is a least unfair tax system. I ask this because a UN report is calling for countries to check taxes are being applied proportionally to the wealthiest individuals, and questioning the fairness of GST. The UN Committee for Economic, Social and Cultural Rights said a tax policy that maintains a low personal and corporate income taxes without adequately addressing high income inequalities is an example of a regressive and ineffective policy, and consumption taxes —of which GST is one— can have adverse impacts on disadvantaged groups, such as low-income families and single parent households, because they typically spend a higher percentage of their income on everyday goods and services. They don't have the option of withholding spending; they have to buy the basics.  

In New Zealand, personal income tax rates went to a high of 69 cents in the dollar in the late 70s/early 80s until the Fourth Labour government came crashing in with a hiss and a roar and made changes that are reverberating to this very day. One of them being the major changes to our tax system. They standardised indirect tax and introduced an across-the-board tax on goods and services that is GST. It started at 10% and went up to 12% and is now 15%.  

Tax incentives were removed, personal income tax rates were simplified. At the time, there were just two personal income tax rates, 24 percent on income, up to $30,000, 33% above that. The introduction of GST was sold as a tax that would get those who didn't pay it. It would collect those in the black economy, those who took part in cashier's drug sales, that sort of thing. You know, they might not pay tax, they might not declare income, but they had to buy stuff. And once they bought food and once they bought cars, that sort of thing, then they had to pay GST on it.  

But even then, when it was introduced, it was slammed as a regressive tax, hitting those who had to buy the basics the hardest. It was interesting that David Lange, towards the end of his life, had a great deal of regret about how New Zealand had changed with the introduction of his government. It wasn't him leading the charge so much —he was the public face of the changes— it was Roger Douglas and Rogernomics that caused the greatest change. He said for those who wanted little personal involvement with government, those who did not want government in their lives, it was a fantastic thing. But for the uneducated, disabled, the disadvantaged, it was an absolute tragedy. And there was, I think, much regret towards the end of his life as to the changes that he had been a part of.  

New Zealand's tax system is widely regarded as a sensible one, in as much as you have to have taxes —that's how governments raise revenue and that's how they pay for the roads and the schools and the hospitals and the police and the like— it's straightforward, there's little room and little need for tax avoidance. The international tax competitive index rates 38 OECD countries on the best tax environment for investment, as well as for workers and for businesses and New Zealand ranks third in that because it is so straightforward.  

But again, it comes down to the least unfair tax system. I think there are always going to be people who feel that they are hard done by when it comes to the taxes they pay. They feel that they pay too much. They pay a disproportionate amount of their income towards tax, while others aren't pulling their weight. And then you also look at the way governments use your money. That was one thing that really ripped my nightie during the Labour Government’s last six years. We're getting up early, we're going to work, we're doing our bit, and they were squandering tax money, just burning it at a rate of knots with very little to show for it. You're always going to get people who say no, the government is spending money on projects I don't agree with it, I don't want my tax going to that. But I think the last government, the last Labour government, really took it to the nth degree and that's when you start resenting paying taxes. You don't want that in a society.  

Can you tax your way to a fairer society? I really don't think you can. You can certainly create an environment where those who cannot work, who need assistance get it. You can create an environment where it's easier for people to do business, to get work, for businesses to do well. I think the more you make it complicated and try and right inequities, the more room there is to evade tax to avoid paying it altogether. GST, most countries have it because it is a way of addressing the black economy – is that enough justification to maintain it?   

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