Tax - What is it for?

[jonu]

After seeing the discussion mainly on the Act thread regarding tax, I thought it deserving of its own thread.

The problem as I see it, is people are approaching the issue without a clear reference point. What is tax actually for?

IMHO there appears to be two main points of view.

Tax is either to redistribute income (very much a socialist POV) or to provide the essential services expected of a State ie Security, Justice, Education and Health. (probably in that order, and using the US as an example, the last two are debatable. Whereas many other democratic states would include them to some level.)

It appears self-evident that governments only increase in their reach and size. Feel free to give examples of a government that willingly shrunk and removed powers of influence and intervention.

My own view is that a redistribution of wealth model is doomed to failure and abuse. Many argue that Socialism and Christianity are closely aligned, but the critical difference is that Socialism demands charity of the State, whereas Christianity demands charity of the individual. In my view that is one area where we are failing as a society.

Anyway, hopefully this is a catalyst for a respectful and engaging discussion.

[fungus pudding]

It appears self-evident that governments only increase in their reach and size. Feel free to give examples of a government that willingly shrunk and removed powers of influence and intervention.

My own view is that a redistribution of wealth model is doomed to failure and abuse. Many argue that Socialism and Christianity are closely aligned, but the critical difference is that Socialism demands charity of the State, whereas Christianity demands charity of the individual. In my view that is one area where we are failing as a society.

Anyway, hopefully this is a catalyst for a respectful and engaging discussion.

'Socialism demands charity of the state?'Hardly. 'The state' can't think or reason. It can simply legislate to redistrbute what it has taken from others. That's hardly charity. Was Robin Hood a giver - or was he a bandit?

[jonu]

'Socialism demands charity of the state?'Hardly. 'The state' can't think or reason. It can simply legislate to redistrbute what it has taken from others. That's hardly charity. Was Robin Hood a giver - or was he a bandit?

Au contraire fungus. If the State can legislate it can reason. ie those elected to represent the State.

So is the state a bandit if it taxes you?

[Baa_Baa]

Au contraire fungus. If the State can legislate it can reason. ie those elected to represent the State.

So is the state a bandit if it taxes you?

The trap you've fallen into imo is by introducing the word 'socialism' into an otherwise valid and reasonable question "Tax - What is it for", and then comparing it to a religion? Confused conflations, not helping considered conversation.

It is immaterial to your question whether the government of the time is socialist, liberalist, conservative, communist or whatever, let alone religion, is 'what is tax for'?. But you skewed the question in a certain direction and muddied it as well.

I'm a taxpayer who pays imo a large amount of money per annum as a percentage of my earnings, in the 1% as some measure it, to the government. Certainly my taxes are a lot more money than I can save for myself and my family after other expenses. They get a lot of my earnings in tax. And that's not including anything additional like the consumption taxes, GST, sewerage, rubbish, transport, liquor, water etc etc.

It is more than enough to cover the costs of multiple beneficiaries, dependents, infrastructure considerations and others relying on taxpayer funding. I would hope that my contribution is a societal responsibility that is reasonable, but more importantly reasonably spent.

My opinion is that every individual should pay a tax to contribute to society (although many don't pay anything), but the amount of the tax they pay should not be proportional to the amount that they earn. That is a ridiculous proposition, that depending on what one earns, determines what they should contribute to the taxable income of the country. It invites avoidance (legal) and evasion (illegal).

My concern is that I am disproportionally taxed based on how much I earn, and, that it is not reasonably spent by the government.

[jonu]

The trap you've fallen into imo is by introducing the word 'socialism' into an otherwise valid and reasonable question "Tax - What is it for", and then comparing it to a religion? Confused conflations, not helping considered conversation.

It is immaterial to your question whether the government of the time is socialist, liberalist, conservative, communist or whatever, let alone religion, is 'what is tax for'?. But you skewed the question in a certain direction and muddied it as well.

I'm a taxpayer who pays imo a large amount of money per annum as a percentage of my earnings, in the 1% as some measure it, to the government. Certainly my taxes are a lot more money than I can save for myself and my family after other expenses. They get a lot of my earnings in tax. And that's not including anything additional like the consumption taxes, GST, sewerage, rubbish, transport, liquor, water etc etc.

It is more than enough to cover the costs of multiple beneficiaries, dependents, infrastructure considerations and others relying on taxpayer funding. I would hope that my contribution is a societal responsibility that is reasonable, but more importantly reasonably spent.

My opinion is that every individual should pay a tax to contribute to society (although many don't pay anything), but the amount of the tax they pay should not be proportional to the amount that they earn. That is a ridiculous proposition, that depending on what one earns, determines what they should contribute to the taxable income of the country. It invites avoidance (legal) and evasion (illegal).

My concern is that I am disproportionally taxed based on how much I earn, and, that it is not reasonably spent by the government.

Thanks for the thoughtful contribution Baa Baa, but I don't think you have addressed the fundamental question as to what tax is for? You say we should pay tax to contribute to society. What does that mean? Why does "society" need tax? What is it providing for society?

[ValueNZ]

My opinion is that every individual should pay a tax to contribute to society (although many don't pay anything), but the amount of the tax they pay should not be proportional to the amount that they earn. That is a ridiculous proposition, that depending on what one earns, determines what they should contribute to the taxable income of the country. It invites avoidance (legal) and evasion (illegal).
I like GST since it is mostly unavoidable and is proportional to the amount you consume as apposed to the amount you earn. Given the choice to significantly slash income tax for higher GST, I think I would prefer that.

[jonu]

I like GST since it is mostly unavoidable and is proportional to the amount you consume as apposed to the amount you earn. Given the choice to significantly slash income tax for higher GST, I think I would prefer that.

But what is GST for ValueNZ?

[Baa_Baa]

Thanks for the thoughtful contribution Baa Baa, but I don't think you have addressed the fundamental question as to what tax is for? You say we should pay tax to contribute to society. What does that mean? Why does "society" need tax? What is it providing for society?

Nice diversion, but it should be obvious what tax pays for. It pays for the things that cannot or is not provided for by commercial enterprise, like state funded things like transport, education, health care, law and order, and numerous government interventions like dependents on the state, immigration, customs, and so forth.

Commerce would forsake any and all of these for profit and/or sustainable growth. Quite a conundrum for investors in a capital market.

In any event, tax is not a pathway to prosperity for any country and imo NZ is well behind contemporary thinking, by taxing disproportionately the wealthy.

[jonu]

Nice diversion, but it should be obvious what tax pays for. It pays for the things that cannot or is not provided for by commercial enterprise, like state funded things like transport, education, health care, law and order, and numerous government interventions like dependents on the state, immigration, customs, and so forth.

Commerce would forsake any and all of these for profit and/or sustainable growth. Quite a conundrum for investors in a capital market.

In any event, tax is not a pathway to prosperity for any country and imo NZ is well behind contemporary thinking, by taxing disproportionately the wealthy.

Not a diversion at all Baa Baa. As I said when I started this thread, the fundamental question of what tax is for is overlooked. Once a clear reason for gathering tax is established it becomes justifiable. If the expenditure extends beyond those reasons it becomes unjustifiable. Where are the limits? What is tax for?

[Baa_Baa]

Put yourself in the shoes of the legislature, you need money, income, so who do you go after? Those that have money. Doh. It's 101 money grabbing.

The NZ tax system is fundamentally biased toward penalising those that have, while justifying it against those that have not.

It is not a long bow to draw to suggest every person in NZ has a responsibility to pay a fair tax, but it is not imo fair to suggest that responsibility is aligned to how much they earn.

A simple flat tax rate on all income, by anyone, under any circumstances, would be be fair and reasonable.

[Baa_Baa]

Not a diversion at all Baa Baa. As I said when I started this thread, the fundamental question of what tax is for is overlooked. Once a clear reason for gathering tax is established it becomes justifiable. If the expenditure extends beyond those reasons it becomes unjustifiable. Where are the limits? What is tax for?

I've said my piece. I'm one of those funding the largese who don't know whether it's being reasonably spent.

What are your thoughts on your questions.

[jonu]

Put yourself in the shoes of the legislature, you need money, income, so who do you go after? Those that have money. Doh. It's 101 money grabbing.

The NZ tax system is fundamentally biased toward penalising those that have, while justifying it against those that have not.

It is not a long bow to draw to suggest every person in NZ has a responsibility to pay a fair tax, but it is not imo fair to suggest that responsibility is aligned to how much they earn.

A simple flat tax rate on all income, by anyone, under any circumstances, would be be fair and reasonable.

Correct me if I am wrong, but I take that to mean you are saying the NZ tax system leans heavily to the redistribution of wealth model. If that's the case it seems it does it very inefficiently. You also imply that the legislature is in the business of keeping itself employed (not something I entirely disagree with).

Do we need to get back to basics? How do we do that?

[fungus pudding]

I like GST since it is mostly unavoidable and is proportional to the amount you consume as apposed to the amount you earn. Given the choice to significantly slash income tax for higher GST, I think I would prefer that.

Bang on! It's hardly good for the economy to clobber anyone for being productive - or to dicourage them from earning. Far better to clip the ticket when they spend it. The only way to avoid gst is to not spend, IOW encourage savings, and that is good for the individual as well as the country.

[Baa_Baa]

I like GST since it is mostly unavoidable and is proportional to the amount you consume as apposed to the amount you earn. Given the choice to significantly slash income tax for higher GST, I think I would prefer that.

Some will argue that GST is an awful tax, as it's regressive and disproportionately affects people relative to their incomes, especially tax on essential items like food, as opposed to discretionary items and services. It is easily proven that a flat % consumption tax takes a greater % of a lower income than it does of a higher income.

[ValueNZ]

Some will argue that GST is an awful tax, as it's regressive and disproportionately affects people relative to their incomes, especially tax on essential items like food, as opposed to discretionary items and services. It is easily proven that a flat % consumption tax takes a greater % of a lower income than it does of a higher income.
It's proportionate to your consumption by definition. If you are on a low income you are more likely to spend a larger percentage of your income than someone on a high income which gives the appearance of disproportionately impacting low income households.

As fungus pudding has stated GST encourages savings. I prefer a society where there exists incentives to build wealth through investment/savings, remembering that cash in the bank is able to be lent out for investment (and sometimes multiple times over). Theoretically if income tax was slashed with GST covering the difference there would be a greater amount of capital allocated towards productive assets rather than non productive consumption which in my opinion should improve GDP growth over time.

[Panda-NZ-]

Let's have a land tax since that is also an efficient tax.

[Panda-NZ-]

As fungus pudding has stated GST encourages savings. I prefer a society where there exists incentives to build wealth through investment/savings, remembering that cash in the bank is able to be lent out for investment (and sometimes multiple times over). Theoretically if income tax was slashed with GST covering the difference there would be a greater amount of capital allocated towards productive assets rather than non productive consumption which in my opinion should improve GDP growth over time.

Consumption is highly productive, without it there is stagnation (see Japan).

Also investment in current property and most share transactions are useless. Have tax exemptions for situations where "new money" is involved like capital raises, ipo's or new property if you want but otherwise it's simply a rort.

[ValueNZ]

Consumption is highly productive, without it there is stagnation (see Japan).

Also investment in current property and most share transactions are useless. Have tax exemptions for situations where "new money" is involved like capital raises, ipo's or new property if you want but otherwise it's simply a rort.
Say I have a hundred thousand dollars, and I have the choice to either start up a business and buy machinery OR buy a ultra luxury vehicle, which choice is better for society? When I say investment I do mean it in the economics definition of the term that is the purchase of productive physical assets.

[Panda-NZ-]

Say I have a hundred thousand dollars, and I have the choice to either start up a business and buy machinery OR buy a ultra luxury vehicle, which choice is better for society? When I say investment I do mean it in the economics definition of the term that is the purchase of productive physical assets.

In practice it's a choice of buying $100k in shares or that luxury vehicle.

In that case it's the Luxury vehicle hands down.

[blackcap]

In practice it's a choice of buying $100k in shares or that luxury vehicle.

In that case it's the Luxury vehicle hands down.

It is far better for society if I invest in a business and make some that is actually of some use, rather than something that provides a service.

[SBQ]

I view taxation is a way for the gov't to provide 'stability' or 'security' for the country. The private sector can not provide for everything and key issues like military and defense is a good example where no private individual and property provide security for the whole country they're living in. This must be done at a governing level. The "Free Market" Laissez-faire model does not work as it's too individualistic. We can see this with the problems why NZ lacks the high # of housing builds as infrastructure builds are funded entirely by the individual developer (whereas in Canada, both municipal/provincial/& federal fund infrastructures). So when we pay taxes, we ensure our gov't leads our country in a corrupt free, stable, and safe manner.

The problem in NZ is our tax system is not fair. The high income earners comprise most of their wealth in owning tax free capital gain real estate. While the next generation that are not born into wealth, have a more difficult chance in buying their first home. All the incentives in NZ is pushed into owning real estate which is a far less productive asset than owning shares of companies or starting new businesses venture or resource extraction.

[ValueNZ]

In practice it's a choice of buying $100k in shares or that luxury vehicle.

In that case it's the Luxury vehicle hands down.
A purchase of 100k in shares is simply a transaction where the buyer receives the shares and the seller receives the cash.

Whether it is better for society if the shares are transacted or the luxury vehicle is bought is dependent on what the seller does with the cash. If the seller saves the cash in the bank it would be better for society that the shares be transacted.

The only time I can think of that it is better that the luxury vehicle is bought is if the seller withdrew all the cash and stashed it under their mattress. Highly unlikely...

[moka]

I view taxation is a way for the gov't to provide 'stability' or 'security' for the country. The private sector can not provide for everything and key issues like military and defense is a good example where no private individual and property provide security for the whole country they're living in. This must be done at a governing level. The "Free Market" Laissez-faire model does not work as it's too individualistic. We can see this with the problems why NZ lacks the high # of housing builds as infrastructure builds are funded entirely by the individual developer (whereas in Canada, both municipal/provincial/& federal fund infrastructures). So when we pay taxes, we ensure our gov't leads our country in a corrupt free, stable, and safe manner.

The problem in NZ is our tax system is not fair. The high income earners comprise most of their wealth in owning tax free capital gain real estate. While the next generation that are not born into wealth, have a more difficult chance in buying their first home. All the incentives in NZ is pushed into owning real estate which is a far less productive asset than owning shares of companies or starting new businesses venture or resource extraction.The “Free Market” Laissez-faire model is definitely not working with housing in NZ. The current situation proves that the government needs to be very active in building homes for the lower end of the market. A high level of home ownership has many benefits for a country.

https://www.nzherald.co.nz/business/forever-home-the-nation-wide-economic-benefits-of-owning-a-home/SQAQQTNWZ42PLE3AZXBX4MQCUE/
(https://www.nzherald.co.nz/business/forever-home-the-nation-wide-economic-benefits-of-owning-a-home/SQAQQTNWZ42PLE3AZXBX4MQCUE/)
The nation-wide economic benefits of owning a home.
Getting 2000 people out of a rental into their forever home could save the Government $17.5 million over 15 years.
The findings are part of a trio of research papers released today examining social and economic costs of renters versus those living in their own home.

It suggested getting people into their own home could alleviate a number of issues, such as ill-health linked to poorer quality rentals and a lack of community engagement among tenants that could be a factor in criminal offending, and thus save the Government spending on health and corrections.

One study, carried out by Business Economic Research Ltd (Berl), estimated helping renters move into their own home could save millions in taxpayers dollars over time.
"Moving people along the housing continuum reduces the long-term liability to the Crown, improves household outcomes, builds communities and is morally and fiscally the right course to take."

A second piece of research, an analysis of international studies carried out by the Family Centre Social Policy Research Unit, supported Berl's findings.

[Logen Ninefingers]

The “Free Market” Laissez-faire model is definitely not working with housing in NZ. The current situation proves that the government needs to be very active in building homes for the lower end of the market. A high level of home ownership has many benefits for a country.

https://www.nzherald.co.nz/business/forever-home-the-nation-wide-economic-benefits-of-owning-a-home/SQAQQTNWZ42PLE3AZXBX4MQCUE/
(https://www.nzherald.co.nz/business/forever-home-the-nation-wide-economic-benefits-of-owning-a-home/SQAQQTNWZ42PLE3AZXBX4MQCUE/)
The nation-wide economic benefits of owning a home.
Getting 2000 people out of a rental into their forever home could save the Government $17.5 million over 15 years.
The findings are part of a trio of research papers released today examining social and economic costs of renters versus those living in their own home.

It suggested getting people into their own home could alleviate a number of issues, such as ill-health linked to poorer quality rentals and a lack of community engagement among tenants that could be a factor in criminal offending, and thus save the Government spending on health and corrections.

One study, carried out by Business Economic Research Ltd (Berl), estimated helping renters move into their own home could save millions in taxpayers dollars over time.
"Moving people along the housing continuum reduces the long-term liability to the Crown, improves household outcomes, builds communities and is morally and fiscally the right course to take."

A second piece of research, an analysis of international studies carried out by the Family Centre Social Policy Research Unit, supported Berl's findings.

‘The free market is not working in housing’.

Where is the free market in evidence in the great New Zealand property ponzi scheme?

A central bank that drives the OCR to an extraordinary low of 0.25%….how is that ‘the free market’?

Successive governments that facilitate the mass immigration of 100,000+ people a year to NZ over many years…..how is that ‘the free market’?

Successive governments that - through taxation policies - skew investment towards residential property….how is that ‘the free market’?

Successive governments that allow people to gut their KiwiSaver (purportedly ‘retirement savings’) accounts to buy residential property….how is that ‘the free market’?

Successive governments who dole out taxpayer money as ‘first home buyer grants’….how is that ‘the free market’?

[dln]

https://teara.govt.nz/en/taxes

[Balance]

‘The free market is not working in housing’.

Where is the free market in evidence in the great New Zealand property ponzi scheme?

A central bank that drives the OCR to an extraordinary low of 0.25%….how is that ‘the free market’?

Successive governments that facilitate the mass immigration of 100,000+ people a year to NZ over many years…..how is that ‘the free market’?

Successive governments that - through taxation policies - skew investment towards residential property….how is that ‘the free market’?

Successive governments that allow people to gut their KiwiSaver (purportedly ‘retirement savings’) accounts to buy residential property….how is that ‘the free market’?

Successive governments who dole out taxpayer money as ‘first home buyer grants’….how is that ‘the free market’?

Go to Singapore and observe how a second world country successfully implemented a public housing policy alongside a free market to deliver affordable homes to be OWNED 75% of its population.

NZ can learn a lot but is either too dumb or too arrogant to learn, building rental state houses instead where substandard housing and irresponsible state tenants combine to deliver the crime ridden housing ghettos.

[Azz]

Go to Singapore and observe how a second world country successfully implemented a public housing policy alongside a free market to deliver affordable homes to be OWNED 75% of its population.

Balance, sounds interesting, and I'm reading up on it; but can you provide a succinct rundown here on how it works? :-) Question: There is a freehold market?

[fungus pudding]

Balance, sounds interesting, and I'm reading up on it; but can you provide a succinct rundown here on how it works? :-) Question: There is a freehold market?

Yes, for multi-squillionaires. Most rent.
https://www.singaporeexpats.com/housing-in-singapore/housing-in-singapore.htm

[Azz]

Yes, for multi-squillionaires. Most rent.
https://www.singaporeexpats.com/housing-in-singapore/housing-in-singapore.htm

Thanks, I'll have a read!

Singapore is probably quite a bad comparison country to NZ, right off the bat. I mean, don't we have much more land?

[Bjauck]

‘The free market is not working in housing’.

Where is the free market in evidence in the great New Zealand property ponzi scheme?

A central bank that drives the OCR to an extraordinary low of 0.25%….how is that ‘the free market’?

Successive governments that facilitate the mass immigration of 100,000+ people a year to NZ over many years…..how is that ‘the free market’?

Successive governments that - through taxation policies - skew investment towards residential property….how is that ‘the free market’?

Successive governments that allow people to gut their KiwiSaver (purportedly ‘retirement savings’) accounts to buy residential property….how is that ‘the free market’?

Successive governments who dole out taxpayer money as ‘first home buyer grants’….how is that ‘the free market’?
NZ Terminology:
“The free market” = regressive tax and government policies and interventions that benefit landowners, farmers and other holders of assets.
”Socialism” = anything that may counter regressive tax, and promote expenditure on public health and welfare..

[Panda-NZ-]

NZ Terminology:
“The free market” = regressive tax and government policies and interventions that benefit landowners, farmers and other holders of assets.

Add a series of monopolies we consider a free market.

NZ Free market: Pay more for a leg of lamb made down the road, compared to a UK customer.

[Logen Ninefingers]

NZ Terminology:
“The free market” = regressive tax and government policies and interventions that benefit landowners, farmers and other holders of assets.
”Socialism” = anything that may counter regressive tax, and promote expenditure on public health and welfare..

Well you defined both ‘the free market’ and ‘socialism’ as - in a New Zealand context - involving extensive government intervention. The classic definition of one of these terms wouldn’t involve extensive government intervention, and the other would.
You’ve been a little biased there in talking about ‘landowners, farmers’ in the first instance, and then referring to ‘other holders of assets’. Since the GFC there has been a huge windfall into the hands of urban property owners simply because of the extraordinary policies of central banks in pushing interest rates towards zero, and carrying out massive QE. This post-GFC ‘wealth effect pursuing’ disease spread from the US, and NZ was duly infected by a virulent dose of it. These property owners still to this day genuinely believe they were entitled to massive capital gains cos ‘hard work’, failing to recognise that they were the lucky beneficiaries of the biggest central bank monetary experiment in history.