Hide Rodney: Debate on Budget Policy Statement 
Hide Rodney: Debate on Budget Policy Statement 
[Volume:637;Page:7773] 
RODNEY HIDE (Leader—ACT) 
: 
 It is always a great pleasure to follow my colleague Gordon Copeland. I think it is true: I think United Future has put pressure on the Government to have these tax cuts and not before time. But we should appreciate that there are tax cuts and there are tax cuts. What interests me in this is the size of the tax cuts. I know that Mr Gordon Copeland says it is $1000 million which to put a picture on that is $100 bills stacked a kilometre high which is a lot of money. But when one sees that in the context of Government spending and the tax that is paid it is rather small. So I would like to see the tax cuts much much bigger please I say to Mr Gordon Copeland. Maybe when the United Future party has more MPs and the ACT party has more MPs we will actually have some decent tax cuts. 
But it is also the nature of the tax cuts and it goes back to what one is trying to do with tax policy. I think it should be something that we understand as a principle of policy that each instrument is trying to achieve one objective. If one instrument is trying to achieve two objectives it actually falls flat on its face. The difficulty we have with tax policy is that we are trying to achieve multiple objectives. If we think about tax policy we see that the thing we are trying to do is raise money for the Government to spend on the things that people expect Governments to spend money on. 
If one thinks about that a bit further one says: “Well what you’re trying to do is raise the amount of money you need at less cost—at less cost to the economy and to society.” That is the principle that should drive tax policy at all times. Notice that I am not actually discussing in that how much money should be raised; I am actually talking about the principle of tax policy. But one is trying to raise the target amount that one needs at less cost. We know the cost is not just filling out the forms for the Inland Revenue Department implicit in that is the dead-weight cost of the tax. So I want to keep that in mind and jump ahead. 
So here we have Mr Gordon Copeland saying: “One of the things that we should address is bracket creep.” He says it is unfair because what is happening over time with inflation and economic growth is that more and more people are finding themselves in a higher tax bracket and therefore paying more tax. That is true; that is unfair. Mr Gordon Copeland was also saying that it is a bit unfair when one taxes individuals because when a couple marry they essentially become one unit and if there was income splitting that would be fairer. I think that is true compared with what we have. 
But what it does not do is address the fundamental problem here in that we do not have a tax system that is raising the target revenue at less cost. What we know is this. The dead-weight cost of tax rises geometrically with the rate of tax. So as one lifts the tax up and up one creates a bigger wedge between the price that people are paying and the price that they receive. And of course that wedge kills off trade kills off jobs kills off investment and kills off retail exchanges. So one wants to lower that wedge to lower one’s dead-weight cost of tax. 
The way to do that if one thinks about it logically is to have one flat tax. It could be 50c it could be 80c it could be 10c. But whatever amount of money one is raising there is no doubt in anyone’s mind that a flat tax is the least costly way of raising an amount of money. Because for any target rate it will be the lowest rate one could have. A flat tax is broad. 
Then interestingly if one did that there is no argument about income splitting because if everyone is paying the same amount of tax on the first dollar earned as the last dollar earned there is no advantage to income splitting. Indeed if one has a flat tax one does not have any bracket creep because one is paying 20c 10c or 50c in the dollar whatever it is. One can have growth one can have inflation or whatever and one is still paying the same amount because one is still in the same bracket because there is only one bracket. 
Hon Paul Swain 
: Kind of regressive though. 
RODNEY HIDE 
: Well it goes back to my point that Paul Swain wants to have an instrument that wants to achieve two objectives—he wants a tax policy that actually redistributes income as well as raises revenue. That is when one gets into a shemozzle and even if one looks at the work that this Government has done it is saying: “No we want to have a tax policy that raises the revenue and we’ll do the redistribution with the spending.” because then one is not actually having one instrument do two policies and one can have a good clean tax system and indeed one can have sensible targeted policy. 
I would be advocating if Mr Swain does not want to have a regressive fiscal policy a flat tax. He would be spending the money through income support or whatever he thinks would be a good way of doing it and one would actually achieve the result one wanted. If we did that we would have a tax system that is simple a tax system that is fair and a tax system that is efficient. It does not matter whether one is a socialist a capitalist a conservative or whatever one has to accept that a flat tax achieves all those objectives. 
What bothers me is that we are getting further and further away from that ideal. We are getting extra rates introduced—a 39c rate—and getting more and more arguments about allowing people deductions. If they do this or do that we will give them a deduction; they can combine things. All that is moving away from the ideal of having a tax system that is designed to raise a targeted amount of money and I think that is a mistake. So when I talk about tax cuts I say “Good I love tax cuts because I think people can spend their own money better than the Government can.” I would have the biggest tax cut that we could possibly get but I believe that that should be done in the context of having good tax policy. 
Again I make the point. We are having a tax cut that will lower the company rate of tax. Well that is great but how silly is it to have a company rate that is not aligning to the personal rate? They should be lined up. In fact why would you not have a tax rate that is the same for every entity? Would not that be the way to run the tax policy? If it was the ACT party taxpayers would have it at 20c. 
Gordon Copeland 
: What about charities? 
RODNEY HIDE 
: What about charities? 
Gordon Copeland 
: Should they pay tax too? 
RODNEY HIDE 
: Well if they are earning income of course they should pay tax. If a charity is making money it should pay tax because the principle is that one is taxing income and the charities are earning income. They should pay tax. Should they pay GST? Of course because they are consuming goods and services and one wants a comprehensive tax system. In fact the way to encourage charity is by letting people have more of their money through tax cuts not by trying to shape the playing field. 
Nandor Tanczos 
: What about taxing resource use? 
RODNEY HIDE 
: Well in a funny way it depends on how one defines resources and on what the issue is. One of the resources is my labour and I do not think that should be taxed beyond anything else. If resources like land are being used then I do not think those resources should be taxed because in a way the market is capturing that. People are buying and selling land and its value— 
Nandor Tanczos 
: What about water? 
RODNEY HIDE 
: Then the question becomes whether we should be taxing water. Actually what we have there is a big externality. Let us assume for a moment that I am going the way of the Resource Management Act: I could pile a bucket of crap into a river and not pay for it. Of course there should be a payment or a regulation on that but not necessarily on my land because I am capturing that externality. 
Interestingly better than a tax on water use is actually a market in the use of water. Why do I say that? The reason is that it is more flexible and adaptive. It is not like the Government setting a particular rate for the whole of the country and saying: “This is it for all time.” The great thing about a market and the way prices get set by supply and demand is that it is able to adjust. So where possible I think we should be charging for all resource use. We should not be able to use scarce resources for free because that encourages waste. But where possible we want a market price and not a price set by the Government. I do not think that is possible for the use of air and things like that but in principle that is what we should be doing. 
I think tax cuts are a great idea but we should not lose sight of good tax policy. Good tax policy is a flat rate of tax and very very good tax policy is a low flat rate of tax. Thank you.