Anonymous has a question on ACT’s tax policy
Act has a 25% (near) flat tax policy. If Act came to power:
-in which areas would they cut spending?
-would they have budget deficits?
At the last election, ACT had a policy of a top rate of all forms of taxation of 25%
It was not a flat tax as all those paying less than 25% would continue on the lower rate.
At a 25% rate, ACT would cut no spending. In 2002, the McLeod Report stated that NZ could drop to a 25% flat rate tax with no loss of revenue whatsoever. Huge budget surpluses also give any responsible government plenty of room to cut taxes while maintaining all current services.
ACT now advocates a “Taxpayer’s Bill of Rights”. Essentially ACT commits to freezing government spending at current levels. No increases without a 75% parliamentary majority, (to allow for emergencies such as war or a major public health crisis).
No budget deficits would be run.
The effect of this would be to gradually and painlessly reduce the proportion of government expenditure, proportionate to private spending, as the economy expands.
The well known “Laffer Curve” would also come into play here. According to Laffer, high tax levels produce certain revenues for the state, but lower tax levels can produce even more.
Imagine if we were all taxed at 80%. The government would get lots of tax, (for a while) but economic growth would be slow and may even go backwards.
If we were all taxed at 20%, economic activity would rise dramatically, more businesses would start and expand, wages would be bid up and more tax would be paid. The government would get the same, or more revenue at 20% as at 80%.
Also people would be far wealthier and more able to afford private education, health etc and so would depend less on the state.
I’m quoting from memory here but I believe the famous Caragata Report stateded that if NZ had adopted a 28% flat tax after WW2, that by the mid ’90s, this country would have been a staggering 250% richer.
Imagine that. Paying off your mortgage in six years, rather than 15.
Low flat taxes sound pretty damn good to me.