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Tax

Tax

A good tax system should be simple, fair, comprehensive, cheap to run, unavoidable and easy to comply with. Our current system is complex, inequitable, avoidable and involves a good number of accountants and lawyers employed to ensure or avoid compliance. Can I suggest we tax all income as its received into a bank account. So every deposit would automatically have (say)10% deducted by the bank and paid to the government. That's every deposit regardless – no exceptions. This would be the only tax unless the govt wished to disincentivise some behaviour (sugary drinks, alcohol, tobacco, plastic bags) which they might do with an additional tax. Cash would have (say) 20% deducted on withdrawal and a further 20% deducted on deposit so the disincentive to use cash would apply to both buyer and seller. The banks would administer this as a cost of doing business – and its probably a lot easier than the administration they currently have to do. The only failing I can see is that this system is not exportable, ie we can't get others to pay it. It may also reduce the number of people conducting business as intermediaries – but I don't think that's such a bad thing.

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    • Robert Murray
      commented 2016-12-10 20:14:14 +1300
      John, not apocryphal at all – Irish Banking strike – see here:
      http://wiki.p2pfoundation.net/Irish_Banking_Strike_of_the_1970's
      The factors that permitted the Irish to continue without the banks don’t generally exist in NZ today – but I take your point: people will try to find a way around it. Some proper analysis of the idea might produce a lower rate which will reduce the incentive to evade. There is a theoretical assessment that it may only have to be half a percent – but if it starts high, it will counter any reduction in transactions and reduce our foreign debt. People also are a lot happier with a tax cut.
    • John Gibson
      commented 2016-12-10 19:41:16 +1300
      I am reminded of an apocryphal story which may be an urban myth. But it sounds good. There was a natural disaster somewhere which took the banking system offline for a considerable time. Cash supplies were limited. No bank based transactions were possible. People took to writing cheques knowing that it would be some time before they could be cashed. Common practice became to write multiple cheques in denominations which could be readily reused in other transactions. Cheques became the currency. Some were countersigned multiple times as they passed from hand to hand. When the banks came back on stream all of these cheques were eventually processed and the dishonour rate was LESS than that experienced in normal times. Taxing transactions will ultimately be counterproductive and drive the economy underground where it will be harder to regulate and harder to tax. Bit coin will become the common currency. Try and tax that if you will.
    • John Gibson
      tagged this with dislike 2016-12-10 19:41:16 +1300
    • Michael Shallcrass
      tagged this with interesting 2016-12-02 19:33:42 +1300
    • Robert Murray
      commented 2016-11-30 20:56:44 +1300
      Putting an additional tax on both the buyer and the seller is one way to discourage a black economy: another is the high tax on cash – 4 times bank transactions. I concede the risk of a black economy is present but the people who wont be able to avoid the tax will be the corporates.
    • Bruce Thomas
      commented 2016-11-30 20:21:52 +1300
      I agree with your opening paragraphs. But I would be concerned that we would be encouraging black economy – that is one where cash never gets deposited in order to avoid the tax. The wide boys would be onto this in a flash, yet the good old PAYE earner would not be able to avoid the tax. India has recently tried to wind back the affects of a black economy, and it has been a bit of a disaster. interesting thought though.
    • Bruce Thomas
      tagged this with interesting 2016-11-30 20:21:51 +1300
    • John Alan Draper
      tagged this with interesting 2016-11-29 20:14:29 +1300
    • Robert Murray
      commented 2016-11-28 00:04:24 +1300
      Duncan, sorry – by small business I thought you meant those who aren’t registered for GST. I have been GST registered and understand how it works but there is still a 6 month delay between paying and receiving. And I’d rather have 10% tax automatically deducted than spend time and money complying with the current raft of taxes. Admittedly I would structure the business differently under the proposed regime. But I still don’t see why my costs as an employee aren’t deductible whereas those of a business are.
    • duncan cairncross
      commented 2016-11-27 23:43:46 +1300
      Robert
      Small businesses pay GST
      Then they claim it back – it is a Value Added Tax – so they are taxed on the added value NOT on the whole sum
    • Robert Murray
      commented 2016-11-27 20:28:03 +1300
      Alan "Tax should only be paid on profit " – like income tax I suppose. That’s one of the inequalities I’m trying to address. Small businesses have to pay GST so replacing this with a deposit tax wouldn’t be significantly different. This system would positively disencourage the use of cash and I would expect business to respond with its usual swiftness (and grumbling! – despite the reduction in bureaucratic duties

      Duncan: Its not the bank getting a bite every transaction its you and I as taxpayers. While you may wish to use cash all the way, you may have difficulty getting people to accept it – except at a discount.

      Note I’ve found a similar proposal called "automated payment tax " and the academic there thinks the rate would be 1/3 % rather than 10% but I’m reluctant to put the country’s future in the hands of one academic: anyway 10% might clear up our foreign debt. Its all better than 15% GST and 30% income tax.
    • duncan cairncross
      commented 2016-11-27 19:52:39 +1300
      Hi Robert
      The bank would only get one bite – then it would be cash all the way
      Your method the bank would get a bite every time there was a transaction – no way!
    • Alan Dawn
      commented 2016-11-27 18:43:15 +1300
      Small business deposits significant amounts every day, yet many run at a loss or low profit. Tax should only be payable on profit.
    • Alan Dawn
      tagged this with dislike 2016-11-27 18:43:15 +1300
    • Robert Murray
      commented 2016-11-27 18:28:33 +1300
      Tim, unless the smart/rich people have wads of money under their mattress, any cash they get will have 20% tax deducted. Can you please provide an example?
      An aside: If the current tax revenue is $70 billion and there are 4 million of us, we each on average pay $17,000 tax annually: if only 2 million of us pay tax that’s $34,000 each. (I know its not like that – its just an interesting indicator. )
      Treasury facts here: http://www.treasury.govt.nz/budget/2007/taxpayers/01.htm
    • Robert Murray
      commented 2016-11-27 18:10:49 +1300
      Ok Duncan, where would you get your cash from? Someone in the chain before you had to get it from the bank initially and they paid 20% tax to get it (and they will want an extra 20% of what you’ve got to compensate for that). Anyone you give it to will know that they will have to pay 20% to put it in the bank (so they will want to give you 20% less of what you want ) so using cash will be very expensive and bothersome. As for krugerrands etc just try it. Get $10 US (from the bank!) tomorrow and see who will take it off you for anything you want to buy and note what exchange rate you get. Might be cheaper to pay the tax.
    • Tim O'Donnell
      commented 2016-11-27 18:02:21 +1300
      Hi Robert, for some reason you’re under the impression that money must be deposited in an NZ bank. Many other options are available for the money to go into which bypasses your tax collection. Smart/Rich people will easily get around this. I think we’re talking something similar but different. I would prefer a transaction fee like GST.
    • duncan cairncross
      commented 2016-11-27 17:47:37 +1300
      Hi Robert
      If you put a 10% tax on all money going into a bank then I for one would simply not use the bank
      You would have to simultaneously ban all other forms of “money” – from banknotes to krugerrands
      And that would be incredibly difficult! – if possible at all
    • Robert Murray
      commented 2016-11-27 16:57:37 +1300
      Duncan, please explain how dodgy individuals would pay no tax. Any money that went into their bank account would have 10% tax deducted and the payee would have paid 20% tax on any cash they received and anyone receiving cash from them would soon learn they had to pay 20% if they wanted to legitimise that cash.
    • duncan cairncross
      commented 2016-11-27 15:53:01 +1300
      This is a bloody silly idea! – it would end up with dodgy individuals paying no tax

      Leave the initial responsibility for collecting the tax where it should be in the hands of the employers with the final responsibility in the hands of the IRS
    • duncan cairncross
      tagged this with dislike 2016-11-27 15:53:01 +1300
    • Robert Murray
      commented 2016-11-27 15:27:25 +1300
      Tim, if you send money offshore you’ve already paid 20% tax to get it out of the bank. Anyone overseas will also have to at some stage deposit this money with an NZ bank to realise its value tat which point it pays another 20% tax. Same with using non bank orgs.But this system addresses corporates because as soon as money goes into their account it pays tax: before they can start shuffling it around. Sale of property also gets caught – ie it is a capital gains tax in practice. Even old stuff flicked off on trademe and overseas credit card purchases get caught. Only problem might be barter.
    • Tim O'Donnell
      commented 2016-11-27 15:03:21 +1300
      I agree with the first half but can see loop holes already. Money could be sent offshore, you could send your money to an organisation other than a bank etc. I also see problems. A person drawing cash then redepositing would be badly disadvantaged & I don’t think cash should be disadvantaged. We do need a way to capture this tax to make it unavoidable. I would suggest it’s better to collect every time you spend money with no way claiming back or exemption. Effectively everything would have a GST content on every purchase transaction. Should you buy oversea product it would be paid before or on arrival of the goods.
    • Tim O'Donnell
      tagged this with interesting 2016-11-27 15:03:20 +1300
    • Robert Murray
      published this page in Suggestions 2016-11-27 12:36:07 +1300