Sir Roger’s prescription
Sir Roger Douglas gave the now famous Orewa Rotary Club speech last night. His full speech is here.
The Herald reports:
Act MP Sir Roger Douglas is proposing a new low-tax option for taxpayers in which the first $30,000 of income would be tax-free – but only if they pay for their own retirement, health care and welfare insurance or costs.
Income over the $30,000 tax-free threshold would be at a flat tax rate – 15 per cent – to be phased in over 15 years.
The Douglas plan would cut corporate tax rates to the same 15 per cent.
Sounds a good idea to me. Encourage people to look after themselves.
There are fish hooks though. The Centre for Independent Studies had a seminar on this a couple of years ago, and the challenge is how do you cope with people wanting to move from one option to another. Should the decision you make at 18 be unchangeable throughout your life? But if you let people change, they might take the low tax option when healthy, and then when older the high tax option.
The other challenge is what if someone has gone for the low tax option and pledged to look after their only health and retirement costs – yet they lose their savings. As a society do you let them die because they can’t pay for their health care?
As I said, I am very supportive of the principle, and like the notion of people choosing. It would be good to have some further research done on how one might practically have such a system work.
Sir Roger outlined his opt-in proposal to the Orewa Rotary Club.
He would inflation-proof the tax-free income so the $30,000 threshold would rise at the rate of inflation.
But rates would vary for income-earners with dependent children: the threshold for a couple with one child would be set at $50,000.
Families would have a guaranteed minimum income, so that if they earned less than the tax-free threshold they would receive a tax credit up to the threshold.
The concept of people paying no tax until they are earning the minimum income they need is very sound. It avoids the deadweight costs of churn where you pay taxes to then get soem of it back in welfare.
February 11th, 2009 at 6:45 am
Sounds very aggressive, but it is so much simpler for everyone.
There shouldn’t be an opt in or out.
One of the quirks of the UK tax system is that you can actually avoid it completely if you elect to do so before you pay any tax.
Not many people know that! Few have ever bothered.
Healthcare can be privatised, and insured. Retirement can be caterered for by Life Companies. Welfare assistance is the tricky one.
However if you take a view that there should be no pay for no work, then it isn’t an issue. But how do we look after the disabled, mentally ill, or Peters?
February 11th, 2009 at 6:59 am
Yesterday’s ideas from yesterday’s man.
Reminds me a bit of when I was living in Oz and Howard came up with his plan to massively subsidise private health levy collectors with public money. For every year I didn’t join a private health care levy company my future premium would rise 2%. As a healthy 40 something, hardly a sick day to my name, I calculated the savings between 45 and 65 far outweighed the extra premium if I delayed joining to 65.
Although I do agree with you re the churn and I wonder why national seems so intent on perpetuating middle class welfare.
February 11th, 2009 at 8:10 am
DPF: As a society do you let them die because they can’t pay for their health care?
Is this from the guy who had the Red Cross appeal on his website? I thought as a society the Aussies could care for themselves? And obviously with society “the government” is meant here.
If even the blue liberals don’t trust the people who make up society, why do they trust the politicians elected from that society?
I think we the people care about others. We are fair. And we have compassion. It’s on display in so many areas. We might not support a lazy bum, but we’re certainly there if your life’s savings are gone in a bush fire.
February 11th, 2009 at 8:21 am
Exactly. Although the more rabid lefties (ie many of whom post here) believe that everything I earn belongs to the state, and anything returned to me as ‘benefits’ / welfare / vote-assuring-handouts is all thanks to state benevolence . The concept of tax-free to avoid churn is completely non-compatible with this thinking.
February 11th, 2009 at 8:22 am
I think the risks are great with tax free 30,000 income because there would be a good chance that health would exceed the 20 percent now taken. Perhaps tax free income up to 17000 and include the medical, etc. It certainly would help those on lower income, especially single mothers. This might keep them from taking WINZ suggestion by going on the dbp. I like most of the plan, though. 15 percent is excellent business tax. This would attract more businesses and keep those businesses that have had their beginnings in New Zealand from going off shore. A good example would be Fisher and Pykle.
February 11th, 2009 at 8:38 am
Superficially it’s a good idea, but you end up with a situation like the US where 50% of the population pays no Federal taxes at all. Thus getting the enthusiastic support of 50% of the population to vote to increase the taxes on the other 50%.
Taxation should be universal, even for the beneficiaries, so that all have a stake in a low tax economy, and we remove a weapon from the irresponsible parties who promote class division by promising to uplift one group over the other.
By all means make it a flat tax.
JC
February 11th, 2009 at 8:44 am
Well that is the theoretical plan.
DPF and others who wonder about how to create the perfect scheme – never before seen on the face of the earth – can rest assured that Douglas’ theory would necessarily go through the real life twist of the generations of socialist attitude we have in NZ. Douglas doesn’t even have to make plans for the exceptions because between this start point and the finished product it would be so butchered and bastardised that all emergencies would be covered. No one died of starvation during the first round of Rodgernomics, there were foodbanks. So what. No one died – and that’s the backstop that the social liberals want so why can’t they accept it is there and make the step into an overall positive future?
People will always chop n change and wail about their choices. Do not mistake wailing for discomfort or emergency. The people who choose not to pay their electricity bills now will get caught out by not bothering to buy health insurance in any form other than an extra six pack of beer. But that is the whole point – NZ is paying ten times over for these people right now. Who would give money from their pay packet to such a person of their own free will? They need to be exposed to their own responsibility, to their choices, that is the key. NZ’s whole depressive/sentimental/emotional outlook needs to be tempered with real responsiblity and this theory will do it. Once people begin to experience the effects their choices make in the world the collective mental shift will change every aspect of NZ culture. And that’s how real culture works – from each individual’s experience adjusting the whole – not by legislating equality laws.
I imagine this release from ACT is a frustrated reaction to John Key’s obvious swing to the left over the last few days. He should take note – he’s had three or four warnings about his “pragmatic” compromises and appeasements already, if he does it again he may find that ACT take all of the right vote from him at the next election. He’s fast leaving the ground of right wing politics completely.
February 11th, 2009 at 8:49 am
I’m with JC on this, flat tax over tax free amount. 10% is not much to ask everybody to contribute. Even with a low tax rate above the tax free rate there is still an incentive to split income between family members to get more tax free. A low flat tax is the easiest and fairest for everyone.
February 11th, 2009 at 8:58 am
goodgod – NZ has been moving to the left for a couple of decades. The correlated drop-off is personal life-choice responsibility and increase in the ‘entitlement’ syndrome has left us with an increasingly apathetic generation. I don’t know what the cure is, but whatever it is is likely to take decades to fix and is therefore unlikely to transpire.
February 11th, 2009 at 9:05 am
A sensible prescription from Roger Douglas.
Lets make him New Zealand’s Finance Minister.
February 11th, 2009 at 9:08 am
“the ‘entitlement’ syndrome has left us with an increasingly apathetic generation”
Bloody well said getstaffed, I note that this is exactly the language used by certain fucking idiots over at the Labour party and EPMU blog when they were discussing that fat useless bitch Victoria Stevens last week.
One of the criminal apologists said it was unfair for the right to attack Stevens as she was simply receiving benefits that she was “entitled to”.
February 11th, 2009 at 9:42 am
Victoria Stevens, Vicky Pollard.
You never see them to-gether do you?
February 11th, 2009 at 10:04 am
I think he is talking guaranteed minimum family income:
http://articles.garethmorgan.com/pdf.php?id=268
February 11th, 2009 at 10:07 am
“As a society do you let them die because they can’t pay for their health care?”
As a society, do you let the prudent, disciplined and self sufficient sector die off, while preserving the lives of the foolish, lazy and self indulgent?? What is the obvious outcome of such a process??
February 11th, 2009 at 10:16 am
If Sir Roger believes a word he is saying then why is he a member of a Government doing the opposite?!?!
He complains about mortgaging our children’s future – but will vote for a budget with a record $6 billion deficit, and I am sure the mere suggestion of resigning would be met with headscratching incomprehension by Sir Roger.
The idea is an excellent one and the reason for that is because it is Libertarianz policy (which ACT have nicked!) ha ha!
February 11th, 2009 at 10:57 am
JC and Hagues, there is an argument against that idea, that people who pay no tax will vote spitefully to enrich themselves at the expense of those who do. That is, that no government will succeed for long, in not being forced to “broaden its tax base” if it goes down this track. NZ and other countries that have never really had sustained economic growth like the USA, are already in this bind and have not got the sources of revenue from higher income earners, to get out of it.
The USA and countries with a similar structure, where the lowest income earners pay no tax at all, can only do that because they have a lot of very wealthy people whose taxes, even at “wealth-friendly” rates, amount to a significant portion of government revenue. I remember a comparison, probably from ACT, that showed that the top 1% of taxpayers in the USA paid something like 35% of the total tax take; but in NZ it was more like 10%.
February 11th, 2009 at 11:06 am
The GMFI is not a million miles away from what Labour were very very slowly edging towards with the universal benefit. As you say DPF, it would reduce churn and simplify the tax and social relief mechanisms.
But the price of desocialising health care is too high. The US is facing this problem right now, with health insurers excluding every pre-existing condition they can to avoid payment, health insurance and pension schemes tied to employers that blow up when the company Chapter 11’s. Never lead pharma and doctors into a conflict of interest with the Hippocratic Oath.
The Wisconsin model of privatised social welfare is also not going too well in this recession either. US agencies are asking for more front-end funding from the state governments to deal with the splurge of unemployed. Half a million Americans are going jobless every month. How can you work on maintaining those numbers with only a handful of jobs ads to offer? That’s one sucky commission.
I’d like to hear Roger talk more about Capital Gains Tax. After all, that’s part of the Treasury’s policy mix. Move the tax structure from mobile to fixed capital.
February 11th, 2009 at 11:20 am
I agree with Zippy Gonzales in regard to Capital Gains Tax. We have to stop taxing economic activity which produces wealth and jobs and shift it onto fixed assets. But of course its also the tax that dares not speak its name to the real estate addicted masses…
February 11th, 2009 at 11:43 am
PhilBest,
One of the most serious social diseases in any Western country is caused by those disengaged from it’s economy. They have only their entitlements to protect and grow.. always at the expense of those paying for the entitlement unless you have an enlightened government governing for the welfare of *all* it’s people.
I, too, want to protect and maybe grow entitlements.. but only in a sustainable way, and that’s by cutting the costs of government and overheads.
One of the best ways to achieve this desirable status is to tax the beneficiaries so that their first desire in protecting and growing their entitlements is to call for the elimination of costs in the economy that hold them back.
We want.. we *need* beneficiaries to be our first line of defence against wanton Govt spending which increases their taxes.
JC
February 11th, 2009 at 12:15 pm
Our progressive tax scheme is aimed at disproportionately taxing those who are wealthy. Leave aside whether this is a good idea or not, it seems to be the accepted intent in NZ.
We have traditionally used income as a proxy for wealth, but whilst there is a reasonable correlation it isn’t as close as we might hope – there are plenty of people with a lot of assets who receive benefits, there are plenty of people who make a good income but aren’t wealthy in the “has two cars and a boat” sense of the word.
The reason we tax income instead of wealth is that it is easy – we can find income and measure it, whereas wealth can be hidden away in trusts and other vehicles, and in assets that produce largely capital gain.
I’d personally be all in favour of rebalancing our tax system towards other things that are also a proxy for wealth – for example:
– spending taxes (GST). People who spend more money are also probably wealthier
– capital gains tax. People who have a lot of capital gains are probably wealthier than those who don’t, and capital gain may be a better proxy than income
– carbon tax. People who emit more carbon are probably wealthier
If we reduce our reliance on pure income tax, we also reduce the incentive to hide income, and reduce the effective marginal tax rates of people moving into work.
February 11th, 2009 at 1:58 pm
I’m tied of this taxation bullshit. None of the above ideas have worked as governments are still trying to get it “right”. Yes we need taxation but taxation should be set at a flat rate for all, 10% sounds like a good number for me. Most tax is simply used as shackles for government to regulate and impose ideology on their populations. Imagine the wealth and the options generated with a 10% tax rate, I would say the state would have more then enough to care for those in genuine need. But of course I will be labelled a fruit cake, who cares my ideas are no worst then the bullshit we have suffered under and I seriously doubt the great JK is capable of thinking outside the entrenched taxation doctrine.
February 11th, 2009 at 4:51 pm
JC, I want it to be more worthwhile for beneficiaries to work. Let them have a low paying job and pay no tax, if it encourages them off welfare. The tax taken off them decreases the size of the differential too much.
February 11th, 2009 at 5:22 pm
I’m not going to knock an ideas man who stands up and puts a proposal forward.
But I thought the whole idea of the welfare state is that, if you get into trouble i.e. get sick or run out of money, then out of compassion the rest of us will provide the basics so that you won’t starve to death in some gutter somewhere.
Under the Douglas tax scheme, I forsee a lot of people signing up to the low-tax, low-services band during times of fair weather and infinite work for all. And then when economic sh*t happens and there are suddenly a hell of a lot more people than jobs around, those who paid the higher tax band all those years will end up not only looking after themselves, but forced to take care of all those who enjoyed the lower tax lifestyle for years as well.
February 11th, 2009 at 7:36 pm
Ratbiter – if the obligation is to take out private employment insurance, then no, your scenario won’t happen.
February 11th, 2009 at 10:56 pm
Is this the same Roger..
- that in October last year said (apropos) that we should look to Ireland and Iceland as models for our economic future?
February 12th, 2009 at 12:47 am
DPF: As a society do you let them die because they can’t pay for their health care?
…well I suppose you could let them die…or you could treat them, send them an invoice and they can pay later. This is what we do with tourists. For larger costs, maybe a loan is more suitable, like what we do for most students now.