Let’s talk about tax.
Or more particularly let’s talk about sugar tax and Jacinda’s announcement about a regional fuel tax.
As of last week my gap year officially ended. Really keen now to go back to being a grownup. Trouble is still don’t know what that looks like. So as a bit of a transition path; decided tutoring tax to lovely young people at Victoria would be a good idea. Had no idea it would require seven hours of training – don’t ask – before I could get in front of them though. But all over now and three weeks of actual tutoring has now taken place. Hence the transmission silence.
Now the first week of classes included a question on legal v economic incidence of taxation aka who bears the tax aka taxes are gross.
And since I last posted the Sugar tax people have done some work and the lovely Jacinda – who may or may not have a baby as PM – has announced a regional fuel tax to fix Auckland. Well transport anyway.
So as this is what passes as topical these days for tax; today I’ll look at sugar and petrol taxes. More similar than you’d think. And both come down to who pays the tax is different to who bears the tax. TAXN 201.
Now while a sugar tax is but a dream of public health professionals; petrol tax is currently in existence. And unlike GST which cascades; petrol tax is an excise simply applied either at the border or at the refinery. Same applies to alcohol and cigarettes – except for the refinery bit. One off charge to producers or importers which then flows through – or not – to the final consumer.
Now there is the whole ‘paying for roads’ thing with a petrol tax but fundamentally it is a tax because we can. Petrol – almost like insulin – has a relatively inelastic demand. No or minimal dead weight loss. No triangles. What’s not to love?
And because of this no deadweight loss/inelastic demand, the tax that is paid by the oil company feeds through to the price paid by the car driver. And so my aversion to driving and cars makes it a form of legitimate tax avoidance. Sweet. But otherwise tax is raised with little change in behaviour.
Now a regional fuel tax is interesting. I guess the vibe is that petrol that is consumed in Greater Auckland gets the tax and petrol that isn’t – doesn’t. It could be that the destination can be broadly worked out once it leaves the refinery on its way to the Wiri tank farm. Auckland pipeline or something. In which case it will be a matter of the oil companies adding another set of codes to their computer system. I’m sure that they accept that without comment. Even then there’ll probs need to be a crediting system for fuel delivered outside the taxable region.
Alternatively if it can’t be worked out – then it will have to be charged by the individual petrol station. Possibly by the oil companies when they deliver to them. They’ll enjoy that too.
But one way or another because of our carbon economy, serious money will be raised. Perhaps more buses will be taken but broadly Auckland car drivers will have less money to spend on other things.
On the other hand – the Sugar Tax people’s gig is not that they want revenue raised per se. Although they do have a laundry list of stuff they want the money spent on. More that they want an increased price so that less of it is consumed. Because health reasons. And as someone who has a tricky relationship with the white stuff – am sympathetic. But whether it ends up being a corrective tax with some revenue raised – like cigarettes – or just a tax grab all depends on the elasticity of demand for it.
If we turn our minds back to taxes are gross. Wage income has an elasticity of 0.414; non- wage income of 0.909 – source Treasury. While cigarettes have an elasticity of 0.5 – source my aging brain.
Now working on the assumption that sugar is less addictive than cigarettes and less embedded than Auckland car driving; all things being equal there should be less of it consumed. So although it would have a similar structure to a petrol tax it would be a corrective tax rather than a revenue raiser per se. Although with cigarettes it does a good job at being both. But as is seen with cigarettes the tax has to get to eye watering levels to actually have a significant impact.
The complexities with a sugar tax all come with:
- What is taxed? Sugar or soft drink
- What is the level of the tax? Ultimately a political decision like all taxation.
- Who collects it? Probably the importers.
Personally I am an agnostic. For people who are really interested in this stuff I’d recommend the recent book co written by Lisa Marriott on this. After reading it: still agnostic. With all taxes the compliance and administration is far more than proponents ever realise. So I’d prefer far tougher regulation on advertising to children before moving to tax. But as part of a package like cigarettes – maybe.
And no removing GST from healthy food is so not the answer. Because rich people spend far more in absolute terms on healthy food than poor people do. And like the whole tax free threshold thing – ends up being a bigger tax cut to the rich than the poor.
Now dear readers you may have noticed that my weekly postings are no longer happening. I am still fairly active on the blog’s facebook page https://www.facebook.com/Letstalkabouttaxnz/ but full blog posts – not so much. Because busy.
Coming up to the election; I have views. And as I am no longer a bureaucrat; will be doing some partisan foot soldier stuff. So maybe a transmission silence until then.
I am however fascinated by what is happening and am seeing parallels to the 1984 election. If I get time I will share that with you.
But otherwise see you all on the other side – of the election.
Let’s talk about tax.
Or more particularly let’s talk about tax, debt and approach to law changes.
Twenty plus years ago I came back to New Zealand a little bit pregnant. And before 1992 – unless you were in the public service – pregnancy meant (job) resignation. A stage up I guess from marriage or engagement meaning resignation but pretty antediluvian even with today’s – Is Jacinda having a baby? – eyes.
Parental Leave had come in two years before I came back but couldn’t apply to me as I had left a job in the UK – not New Zealand. I was also more than a little over being an accountant – I was young what can I say – and fascinated by economics. Again young.
So decided I would use this time to retrain as an economist. I mean seriously how hard could raising children be? Again young. And of course in reality studying was a blissful break from domesticity – not the other way around.
One of the super perks of studying was the Student creche. Super high quality childcare; very reasonable pricing and super flexible. Why sure Andrea: Tuesday 10-1; Thursday 3-5; and all day Friday is completely fine. Please pay by the hour. One child or two?
And at that creche there were two types of mothers – yes mothers; men appeared only occasionally. There were the middle class married women – like me – late twenties early/ mid thirties doing post graduate work or retraining and then there were the late teens/early twenties single women who were at university for the first time.
The young women had a number of things in common:
- Straight A students;
- Determined and resourceful;
- Highly motivated; and
- Dirt poor.
The other thing they had in common is that pretty much all of them were lying to WINZ in some form. Part time undeclared untaxed income was very common as was parental financial help. I don’t remember extra flat mates but I am sure that was in the mix. Because resourceful.
But all of this just meant that they could have their kids nits treated as I did, pay rent and eat. Although I do remember one of them brightly telling me that just eating potatoes for a week was an easy way of managing when unexpected bills came in. Right ok.
So in other words they were all Metiria. And the actual amounts of money involved were absolutely trifling. $20 or $30 a week max for a relatively short period of time. But it was the difference between sinking and not sinking. Swimming didn’t come into it.
Of course this was when there was a training incentive allowance to help with creche fees. And while it was post Mother of all Budgets the relative value of the welfare system was more than it is now. So I guess the current generation of young women just don’t go to university. Social Investment anyone?
And from time to time I run into them. Also like Metiria they are now professionals, (re)partnered and have other (step) children. Taxpaying, respectable pillars of society.
Now into this discourse has come Lisa Marriott’s seminal work on how we as a society treat tax evasion v welfare fraud. And I have nothing to add to this. Coz yup she is right. Nailed it.
But the two things I would like to add to the conversation – assuming there still is one now Jacinda has arrived – is a bit of a comparison with how we treat tax debt and how we treat widespread tax non-compliance.
In the early days of the last Labour government changes were made to the rules governing tax debt. Basically the intent was to get the department to calm the F down in terms of collecting tax debt. The rules were changed so that debt will not be recovered if it:
- is an inefficient use of the Commissioner’s resources or
- would leave a taxpayer in serious hardship.
And note the all important or. Not only should the Commissioner not pursue debt when there isn’t a bang for the buck but even when there is – if it would be unkind. At least these are the rules that apply to Working for Families overpayments.
But looking at some of the cases taken by WINZ, clearly these criteria are not in their legislation.
The other thing that made me realise how differently tax is treated to welfare are situations where there is widespread non-compliance. Either through a misunderstanding with how the law applied; wilful blindless; or a desire to put the past in the past; the law can be changed to make the illegal legal. And at times retrospectively.
Because they are doing it already; not in the forecast; can’t audit our way out or taxpayer friendly. The latter of course meaning friendly to specific taxpayers rather than friendly to taxpayers as a whole. Examples include:
- GST registration for body corporates was made optional. Of course meaning will only register if can get refunds;
- Use of tax pooling was allowed in circumstances that weren’t previously allowed for in the legislation;
- Canterbury Earthquake employee accommodation allowances were specifically made tax free;
- crews on super yachts income was made tax free;
- The contingent liability associated with conduit relief was extinguished.
Now these are just a few examples. Most tax bills contain versions of these. And all have good reasons behind them and help make the tax system breathe. I am comfortable with – pretty much – all of them.
But all were at some stage against the legislation. In all cases, at some stage, some people were ‘incorrectly’ on the wrong side of the law. Usually individually or cumulatively with quite large amounts of money at stake. Far more than a trifling $20/ week.
But rather than ruthlessly enforce the ‘incorrect’ legislation; the legislation changed. It changed following representations made to Ministers and officials by affected parties. In the same way I see welfare advocates make similar representations. The only difference is that the tax advocates get listened to. Because structural imbalances.
So even though tax and welfare are mirror images of each other, this is another case where public policy talks out of both sides of its mouth. And unfortunately as there is little or no overlap between the two worlds; joined up government just means easier detection of welfare discrepancies.
Now finally in case I have been a little too subtle:
To all the people baying for Metiria’s blood – did you ever do babysitting; lawnmowing or car washing when you were younger and not put it on your tax return? I know that is me.
Well that is what tax evasion looks like. We committed a tax crime. We lied to Inland Revenue. FFS #WeareallMetiria.
Should we fall on our swords. No. We should get on with our taxpaying lives. And section 176(2)(b) – the bang for buck provision – quite correctly stops the department from chasing us.
Shame the same approach can’t be taken to Welfare.