It is very, very easy to break a beautiful tax system. Here is the recipe for doing it.
Start by finding some product that seems a little frivolous – a bit of a luxury – and preferably one that’s mostly used by people that the typical voter does not really like anyway. Say, for example, the fancy beard oil used by hipsters to maintain their elegant facial appendages.
Then, find some cause that nobody could object to. Something really motherhood and feijoa pie. Tieke recovery. Who doesn’t love the New Zealand saddleback and support its recovery? Nobody.
Add the two together and propose a tax on hipster beard oil to help fund Tieke recovery programmes. Who could object? Hipsters are at best a mild nuisance, and at worst a looming threat to national identity; beard oil seems the height of frivolous consumption; and Tieke are a perennial entry in Bird of the Year competitions.
The bundle is an economic abomination. If Tieke recovery is the best use of the next public dollar, it is best regardless of whether we tax hipsters’ beard oil. And if a tax on hipsters’ beard oil is the most efficient next tax to impose, then the government should tax it regardless of whether the money raised is used to cut other taxes, fund Tieke recovery, or fund something else entirely.
Many countries have a tax system where hundreds or thousands of different products have different tax rates applied to them. I’m glad we don’t in NZ, and hope we don’t change.
My starting point for anyone advocating a new tax, is that they should identify an existing tax to eliminate or reduce so that overall tax levels on families and businesses doesn’t increase.