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Putting Government on a diet & the case for a simplified tax system.

In today’s show we are joined by David Seymour, leader of the ACT party to discuss their bold tax vision for the future, his love of peanuts, why the government needs a downsize, why free markets = more knowledge, Modern Monetary Theory, and how New Zealand can pull ourselves out of this mess.

Is tax love, or is it tall poppy syndrome? Should we keep printing cash until everybody’s rich and is this even possible, or are we setting our kids up for failure in the future?

By all measures, the ACT party is surging. If polling is anything to go by, its sole representative in parliament this past term, David Seymour, is set to be joined by a number of ACT colleagues this next term.

So what does the ACT party stand for and what can we expect from the most libertarian-leaning party heading into next month’s vote?

Less government, for one thing.

“Government is undoubtedly good for some things, but people should, by default, be voting for smaller government,” said Seymour. The belief here is that more money in the hands of everyday Kiwi’s will likely create better aggregated outcomes than a centralised ‘wealth redistributor’.

From an outsider’s perspective, it’s initially quite easy to agree with this. When I pay tax I don’t feel the “love” (as the Greens so kindly described it recently). In fact, I’m still waiting for a ‘thank-you’ card for all the working groups I’ve funded lately. It’s not so much the magnitude f tax paid, it’s how it’s being spent that some take issue with. Of course there is a role for government still – when it comes to health, infrastructure and education – some government of course is absolutely essential. When you’re literally the country at the end of the earth  though, we need to be efficient – really efficient.

In the short run, perhaps increasing taxes on the most wealthy (subject to how that’s determined!), can potentially unlock some dollars and create some momentum in the economy – in the short run. This of course assumes an efficient and effective re-distribution of that wealth. But what happens after that wealth is redistributed if you’ve murdered the golden goose that produces it in the process. Well nothing I guess, it’s dead. That’s the end game of every other country that’s been tempted into following the ideals of socialism.

So it was disappointing, albeit expected, when Seymour reminded me that they’ll be pausing their 17.5% flat tax rate in light of our recent economic plights. The proposal, suggested before the pandemic, simplified tax across the board, so every dollar earned whether it’s your thousandth or your millionth, attracts the same tax rate. Simple. Efficient. Motivating. If you’re ambitious, knowing you can keep more of what you can earn , should be music to your ears. And hey, if it incentivises you to earn 3x more as a result, you could end up paying the same nominal amount of tax regardless, but with a larger smile on your dial.

Seymour argues that a flat-tax would cut down the bulk of the administration (increase efficiencies). More importantly, it could greatly reduce the likelihood that thousands of family trusts and limited liability companies will find new life as tax avoidance vehicles.

The flat-tax though, while  potentially rational in regular economic conditions, simply couldn’t fly with the sheer volumes of debt we’ve recently taken on and will continue to take on. Having said that – if it’s really true that we cannot tax our way out of a recession, perhaps there’s still a case for it?

Until change happens, we still have more of the same type of tax-system in NZ – You could call a progressive tax system “tall poppy syndrome in the tax code,” but it undoubtedly has benefits for a country wrestling with a considerable recession.

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