The coalition’s 100-day action plans reveal that the Act Party, which came out of the association, is providing the policy grunt.
The association’s founder, Sir Roger Douglas, discovered why tax and spend programmes not only fail but make the problem worse. There are many examples of tax and spend failure.
In 1877, when the government made education free and compulsory, historians estimate around 15% of adults were illiterate. Today, after spending billions of dollars, around 40% of school leavers are functionally illiterate. That means they lack the literacy to cope with most jobs and many everyday situations.
The Labour government’s number one priority was reducing child poverty. After six years and billions of dollars, the Department of Statistics reported the number of children in poverty increased.
Douglas’ insight was that the government treats taxpayers and the consumers of government services as if they are different people. There are departments solely focused on raising revenue and other departments solely focused on spending.
While there are core government activities such as law and order that must be done collectively, most government services we could purchase ourselves.
It is hugely wasteful to take money off us as taxpayers only to return it to us as consumers.
It costs a lot of money to raise taxes.
When the government provides a service inevitably it is one size fits all. Thousands of pupils are absent today but where pupils attend a school that meets their needs truancy is not an issue.
People spending their own money choose services that meet their needs.
We value what we pay for.
The demand for a free service is infinite.
The government is enabling irresponsibility by making decisions that we can and should make ourselves.
If adults took responsibility for their actions, child poverty would dramatically reduce.
Taking personal responsibility would reduce every social problem.
Then there are the freeloaders who want others to provide. Douglas’ book Unfinished Business says the solution is compulsory insurance with taxpayer top-ups for the poor.
Our tax and spend “free” health service is failing. Singapore’s compulsory health insurance model that gives consumers choice is perhaps the world’s best health system.
Our tax and spend pension scheme is unsustainable. Singapore’s savings-based scheme is thriving.
The Treasury warns that government spending is unsustainable. Labour and the coalition are borrow-and-spend governments. Borrowing for today’s consumption is theft from our grandchildren.
Successive governments have made commitments regarding retirement, health, welfare and education that cannot be funded. If the government were a company and ministers were directors, then ministers would be guilty of trading while insolvent and liable for a significant prison sentence.
Politicians are doubling down. We are told that the system is failing because we are not taxing enough. Chris Hipkins boasted last week that he can sell to the electorate wealth taxes. Maybe he can but only by persuading us that we are the consumers and someone else is the taxpayer.
Everyone who is in KiwiSaver will be paying wealth taxes. Māori corporations with assets worth many billions of dollars will be paying. Wealth taxes make the country poorer. Everyone will be affected.
Taxes are like acorns; they all start small and grow into mighty oak trees. When income tax was introduced in 1891, the tax did not apply to individuals with income less than £300 which exempted most of the population and the top rate was 5%. Only the wealthy paid income tax. In 1891 no one imagined that in 2024 the government would levy income tax from the first dollar we earn.
Increasing taxes will fail for another reason. People change their behaviour to avoid tax. This reduces the economy’s wealth creation and tax revenue. Economists like Gerald Sully say there is an optimal level of tax after which, regardless of the type, so damage the private sector that no more revenue can be collected.
Government expenditure is 41.27% of GDP. Increasing tax rates or introducing new taxes will produce no more revenue.
Labour’s increase in the top tax rate to 39% was estimated to raise an extra $510 million a year, just 0.4% of government spending. Changes in people’s behaviour mean the top rate increase may not have lifted overall revenue. Whereas when Douglas lowered the top rate of income tax from 66 cents to 33 cents income tax revenue increased.
Tax and spend is not only the reason why so many government programmes fail but it is also a reason why our economy is so lacklustre.
When the Act Party was formed the Association of Consumers and Taxpayers went into suspension.
We need the Association of Consumers and Taxpayers to come out of hibernation to advocate an alternative to tax and spend; policies that recognise that we are both taxpayers and consumers.
