Capital Gains Tax

[rpcas]

That begs the question then why do we pay taxes. The govt does indeed issue securities to raise funds to spend.

Why does the government tax?

a) To create demand for New Zealand dollars. Have you ever asked yourself why you accept a paycheck in NZD's, and why shops accept NZD's in exchange for real goods and services? By placing a tax liability on the private sector that is payable in NZD's and nothing else, the private sector instantly demands NZD's. Essentially, a fiat currency is only as good as governments ability to enforce its use (taxes).

b) To regulate aggregate demand (spending power). If consumers have too many net financial assets, aggregate demand may exceed the real productive capacity of the economy, and thus drive up prices (inflation). Taxing drains net financial assets from the private sector (government spending does the reverse - adds net financial assets), and therefore reduces the private sectors spending power.

c) To discourage the use of a certain product/action etc (smoking for example)

Don't get me wrong, taxes are absolutely essential, but just not for the commonly thought reason.

When the govt borrows to spend its just a delayed form of taxation as the taxpayer not the govt has to repay the debt.

No they don't.

I think what you mean is the govt can print money. But I dont think the RBNZ would be too keen on doing that. The end game of that scenario is inflation which is also a form of taxation, the one you dont get to vote for.

A government deficit that is followed by the issue of securities is actually LESS inflationary than a deficit "funded" by "money printing". This is because interest is payable on the securities, which further increases the deficit. If the government choose not to issue Treasury securities (which would most likely be a better alternative to the current risk free welfare that bonds are), then government spending would be less inflationary.

What you don't realize is that government spending occurs the same way (operationally) regardless of whether it's "funded" by taxes, debt or "money printing".