Reducing the Burden on the People

Or, to put it more succinctly, Tax Cuts.

In New Zealand, the Budget was introduced a few days ago. There were, of course, many measures of importance in it, but it was notable chiefly for two things. The first is a rise in GST from 12.5% to 15%. The second is a reduction in some of the higher personal income tax rates.

Several of those on the left of the political spectrum denounced the Budget as "tax cuts for the rich". Let's look at that statement.

My esteemed colleague, ScrubOne, has done an analysis of the tax cuts, using the illustration of ten men who eat dinner at a restaurant and split the cost roughly based on their wealth. When the restaurant owner reduces their bill of fare one night, how do they apportion the savings?

My gut reaction is that the savings should be apportioned according to how much each was paying originally. Now, of course, if the tax system is progressive - as New Zealand's most definitely is - that means the richest man is not only paying the lion's share of all taxation, but is also parting with the highest proportion of his gross income in income tax (we'll ignore GST, rates and excise for present purposes). It follows that he will benefit the most from any tax reduction.

This is where the political left complain about unfairness. If taxes are being cut, they argue, why should "the rich" benefit?

To my mind, that question assumes several things that are at least open to question. The first is that "the rich" have too much money already. Now, in some cases, that may be the case: I have very little time for dishonest gain, and not much more for gain made solely through speculative investments. And then people are paid for some kind of honest work or commitment, but are paid more than I might choose. But in this world I'm not the arbiter of value, and nor, thankfully, is the not yet almighty State.

The second assumption, it seems to me, is that a tax cut is really a form of "welfare" - and not even welfare of the OK sort, that attempts to take care of honest and hardworking people and families that have fallen on hard times through no fault of their own, but - basically - vote-buying: a corrupt bargain of the sort that sees successive Governments bribe constituencies with taxpayer money.

But hold on. How are "tax cuts" welfare? They aren't Government spending - if the tax take is reduced, the money doesn't go through the Consolidated Fund and the Ministry of Social Welfare (however renamed) before being returned to the taxpayers.

Indeed, it is only Government spending if one assumes that any income that has ever been taxed "really" belongs to the Government. Let's explore that position: it asserts that if tax rates are as high as 66% (and I've heard they were that high in New Zealand, once), then any reduction after that point is some kind of welfare - the Government is generously handing back some of its income to those who originally provided it, instead of spending it on its pet projects. But then, if you're going to push that line, why stop at those proportions of income that were taxed? Why is not all income the property of the Government? Indeed, this quickly approximates classical Socialist thinking, as I understand it: the idea that all property belongs, and ought to belong, to the whole community, and to be used in order to benefit the whole community.

The right has, I understand, quite a different view of taxation: the Government is allowed to tax for legitimate purposes, but such taxation should be kept to a minimum, and based on the principle that income belongs, in the first instance, to him who earned it.

That's the view which I currently hold - and why I won't object to tax cuts benefiting "the rich". Indeed, on the whole, I would argue for less, and better focused, Government spending. And, it seems, the older I get, the more I favour one of the income distribution models encountered in high school economics: the distribution that comes from the market, with a safety net.