The report of Michael Cullen’s Taxation Working Group is a major disappointment.
It is bereft of innovative ideas, signals increasing bureaucracy, and is a regurgitation of outdated tax concepts.
Rather than focussing its attention on speculators, money market manipulators, and those who make money from non-productive sources, it has recommended that small businesses, farmers, and ordinary Kiwi’s trying to get ahead should be hit with yet more tax.
Cullen’s recommendations are exactly what we would have expected from a National Party working group that was intent on protecting the privileged position of its biggest campaign donors.
There is no indication that our submission to the working group that GST should be scrapped and replaced with a Financial Transactions Tax was even considered.
Replacing GST with a transactions tax at less than a quarter of one percent (25 cents in every hundred dollars) on all withdrawals from bank accounts would give workers across the board a substantial increase in purchasing power.
It would generate roughly the same in tax revenue as GST, but with a substantial amount coming from the speculative sector of the economy.
That raft of financial transactions such as credit default swaps, debt securities, convertible and exchangeable bonds, currency trading, derivatives etc, currently avoid the GST net.
It would significantly benefit smaller businesses as people would have more money in their pockets.
Additionally businesses would be relieved of the burden of accounting for GST, filing returns, and audits
The recent introduction of GST to on-line purchases is complicated and messy and will produce minimal tax revenue, whereas transactions tax is simple and would immediately put Kiwi retailers on an even footing with all overseas sellers.
It will be very simple for the banking system to implement FTT, and very difficult for anyone to avoid payment.
Banks would deduct the tax automatically in the same way they already withdraw their own account fees and Resident Withholding Tax, and remit it straight to the IRD.
The removal of GST would also contribute to a reduction in child poverty by putting more money in the hands of lower paid New Zealanders who currently pay tax far out of proportion to their incomes.
I have a memory of talking at some length to an economist in the then Alliance about a transaction tax. He explained that there was an enormous volume of speculatory deals to target involving very large amounts of cash at a very rapid pace. So giving a source of revenue at a low tax rate. However my recollection is that on doing some of my own homework it seemed that most of those transactions worked on a tiny % return per transaction even in relation to 25c in $100. They were profitable to the trader because so many deals could be done in a very short space of time.
If the average targeted transaction returns far less than the tax being imposed they would just stop. This might well be a good thing in itself but it would not then access any revenue from these speculative deals, only from Joe Blogs bank customers.
Could S C please show the homework ? How much speculation as outlined takes place in a given period of time/ And what is the average % return on the transactions that would be targeted to produce the claimed revenue?
D J S
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