Hide Rodney: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — Second Reading In Committee 
Hide Rodney: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — Second Reading In Committee 
[Volume:636;Page:7108] 
RODNEY HIDE (Leader—ACT) 
: 
 First let me acknowledge Mr Robin Oliver from the Inland Revenue Department. I do not think anyone in the civil service has a tougher job than the man whose responsibility it is to keep his head right across our tax system and to keep up with those who would try to manoeuvre their way through the loopholes that inevitably exist. Mr Oliver and his team do an extraordinary job. 
I think too that we politicians should recognise the point that we are not experts obviously in the technical detail of tax policy and legislation or its impact and that the expectation of us in the process is really to set the broad principles and the philosophy within which Mr Oliver and his team can work. I feel that that is where we have been letting the tax system down. As I look back over the past few years at the changes that have been made I feel that in the main they have been of a retrograde nature. Our tax system has become more complicated and has moved away from good principles of taxation. 
I have to say that I always enjoy listening to Mr Copeland’s contributions because he is a politician who does understand the tax system. Although I was unable to make a full contribution to the Finance and Expenditure Committee this time around I can tell that Mr Shane Jones has grown in the role of handling legislation such as this and the changes it makes. 
But let me cover some of the principles. The first one—and we heard this from Jeanette Fitzsimons—is that the tax be broad-based. By that we mean it should cover the entire range of what it is we are taxing because to the extent that it does not we create an automatic loophole and to the extent that we have a loophole we create a distortion. It will also mean we have a higher tax rate to raise the same amount of revenue we would otherwise have. 
Broadly we have in New Zealand two tax systems. One is a tax on consumption that is called the goods and services tax which in a sense is a good tax—if there is such a thing—because it does not double tax investments. It taxes only consumption. On top of that we have an additional tax system that is a tax on income which automatically is a double tax on investment because when we earn a dollar we get taxed then we get taxed again if we invest it. That is why tax economists favour a consumption tax over an income tax. Then we have a variety of sin taxes for people who smoke gamble drink and do other things that we deem society not to want. 
Gordon Copeland 
: Back the horses. 
RODNEY HIDE 
: And back the horses. So we like the tax system to be broad-based. 
We also—and Jeanette Fitzsimons made this point—like the system to be fair. There is always a debate about what is fair. One person’s fairness is another person’s injustice. When I think about fairness I think that each person in the same circumstance should be taxed the same obviously and that those who earn more should pay more tax. I think that is not a bad principle. But I do not think it is fair that as one earns more money one goes into a higher and higher tax bracket. I do not see why a person who earns twice as much as his or her neighbour should pay four or five times the amount of tax. It seems to me that if we are to be fair a person who earns twice as much should pay twice as much tax. Of course if we are to do that then we are striving towards a flat tax. 
I listened carefully to Mr Flavell who said he was concerned about income distribution. That is true but I make two points. The first is that it may well be that some percentage of the world of a country or of Auckland owns a large percentage of the wealth or receives a large amount of income. But how is that achieved? 
Hon Member 
: Hard work. 
RODNEY HIDE 
: Maybe but it is not something that just fell out of the sky necessarily. When we are thinking about redistributing wealth we should understand that it is not smart to do it through the tax system actually. Tax is a very very blunt instrument with which to distribute wealth. Why? The reason is that when we tax hard the people who are on a high income or who have a lot wealth then those people tend—and I will not use a profanity—to leave the country or they tend not to invest here. Therefore the economy is flatter than it would otherwise be. So it is not smart to be taxing people hard; it is actually better to have a tax system that raises the money needed then provide for those we want to help with direct payments rather than by trying to corkscrew the tax system. By the way if we try to corkscrew the system we will not actually get very far because people do not like being punished through the tax system. When Britain had a tax rate of 98c in the dollar no rich person paid it. That was the reality. Actually the income gaps in the UK widened with high taxes. 
So I make the point that although we have a concern about helping those on a low income giving that help through the tax system is not the smartest way. Really if we want to be fair we want one tax rate so that people who earn twice as much as other people pay twice as much tax. By the way GST is a flat tax. It is a flat tax on consumption. If we spend twice as much as other people we pay twice as much GST. That again seems to me to be fair. If we have a flat tax for GST why not have a flat tax for income? 
We also want a system that is easy for the Inland Revenue Department to administer. I say to Mr Copeland that that is what I am worried about. Imagine having a tax system that relates to the “intent” of a taxpayer. That is actually pretty tough and I think we are giving a big job to Inland Revenue Department officials and to the courts because people who truly want to rip off the system will know how to get around the intent clause—by being very careful about it. How can it be that a person’s tax is determined by what he or she intended at the time and how on earth is an official to know when looking at a tax return what the intent of the taxpayer was when he or she made a purchase? People can make up a great cock-and-bull story about why they bought a house and are now selling it and why they have done it 10 times over a year. At some point one has to accept the story; at some point one does not. It actually becomes an arbitrary system whereby Inland Revenue Department officials and the courts judge what is in a taxpayer’s mind at the time. I do not believe that it is necessarily a good system. 
By the way we also want a tax system that is easy to comply with—but the system has become a whole lot harder. Why? Because we have tried to hit the rich by putting the tax rate up to 39c. We have tried to screw the playing field around to encourage this and discourage that. The tax system has become so much harder in the last few years. If the Government wanted to make it easy it would make it flat. That would make it easy and fair. 
We also want a tax system to be efficient. By that I mean that the Government has a target of how much money it needs. In the case of the Labour Government I think its target is way too high given the surplus. When a Government is designing a tax system it should be doing it so that it raises the amount of money with the least cost possible. The real costs are not in filling out the paper in having an Inland Revenue Department to run and in the court system; those are actually a small part of it. The big cost is the impact on the economy on jobs on investment and on trade. That is the cost of tax. We want a system that raises the targeted amount of revenue for the least cost. As politicians we do not think about that enough. 
I again ask Mr Flavell to think about this. If we have a costly tax system—a system that is making it hard to invest in New Zealand is discouraging investment or is discouraging business—then over time we will have an economy that is smaller than we otherwise would have. What gives us a costly tax system is for example our trying to register our wealth through it. If we try to do that trick we are not helping the poor at all. What we are doing is making the whole country poor. That is why I say that the efficiency of the tax system is a key point. We want a low flat tax rate and a strong economy. To get that the Government should set the tax rate for the amount of money it wants. It can set it at 10c 20c 40c or 50c. It will have an efficient system for the amount of money it wants to raise therefore it will have more money and therefore it will be able to help more poor people and have more Government-run hospitals. If that is what it wants it can do it. As politicians we have to ask ourselves about the principles and efficiency of the tax system. In terms of the technical side of things I suggest that in Mr Oliver we are in good capable hands. Thank you.