Joe Hendren

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Friday, May 09, 2008

Leading the tax system in a progressive direction

Vernon Small of the Dominion Post has made a cheeky post where he speculates on how Cullen could stop the very rich from taking the lions share of benefits from tax cuts.

His solution - introduce a new top tax rate of 42c in the dollar on incomes above $150,000, and thus allow greater tax relief to be given to those on lower incomes.

While I don't think its going to happen, I like it. The call for tax cuts could be answered, yet the left could claim a victory in making the tax system more progressive. If there are to be tax cuts, this does not necessitate complete submission to the screaming of the right.

There are many other ways the tax system could be improved. I would be happier about cuts to the top tax rate (39c at 60,000) if Cullen used the opportunity to introduce structurally useful changes such as a capital gains tax on secondary residential properties, and/or a financial transactions tax to discourage short term speculation. While the currency speculators may have means of avoiding the later (eg the EuroKiwi), it may still lead to a lower and more stable currency, which makes the Kiwi a less exiting toy for international currency speculators.

Many other countries have a higher top tax rate than 39c, but they generally apply at a higher threshold. If Cullen dared to introduce a new top tax rate, the National party would scream on behalf of its very rich mates, and Cullen could point this out with some of his trademark glee. Yet in order for this to work Cullen would be best to deliver tax cuts before the election, so voters can't be hoodwinked by the Nats into believing a $150,000 threshold is going to affect them.

As the Nats have called for the New Zealand tax system to be more like Australia, shouldn't we also have higher tax rates at higher thresholds? Kevin Rudd recently increased the threshold of 45c tax rate to $180,000 - why do the right wingers never mention the existence of the 45c rate?

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