There’s times where taxing consumption; particularly if targetted to more luxury goods rather than food etc would be a decent way to pull money back out of supply to try to rein in inflation.
Of course, just having a floating top tax rate would probably do a similar thing and be easier to administer.
Floating top tax rate? As in you adjust the top tax rate based on inflation?
I used to work at IRD many moons ago, and if the government changed the tax rates during the tax year everyone hated them. I can’t imagine doing it multiple times a year!
It’s all well and good for PAYE, but when you’re income is taxed annually it gets annoying to change the rate part way through the year.
Heh, well that was in part due to the inflexibility of FIRST wasn’t it? I wouldn’t suggest changing it every year, but I think responding to inflation with tax increases on those that can most afford it to reduce supply would be a better first port of call than chucking a bunch of people out of work by lifting interest rates heavily.
I mean I’m not sure it’s quite fast enough. When inflation is high, you don’t want to have to wait until the next tax year to do something about it. I guess it could be used in combination. You put up the OCR initially, then increase the top tax bracket as a next step, which prevents you having to put the OCR up as high.
I’d be curious if that actually has the impact you’re expecting. It removes money from the supply, which in theory helps inflation, but if it’s on the top 1% of earners, that money probably wasn’t being spent anyway. When people have more money and there’s a shortage of housing, then they pay more for houses. This pushes up the price of housing, in turn increasing inflation.
If you stop the top 1% from being able to buy mansions by taxing them more, this doesn’t have a lot of impact on the average sale price, and so I’m unconvinced it would help inflation by any meaningful amount.
You need to find the solution that stops supermarkets putting up prices, not the one that collects more tax money.
That is if we assume inflation is bad. If we collect more tax to feed back into the lower income group, perhaps inflation isn’t so bad after all?
Well yeah, there’s all sorts of reasons for inflation - and taxing to reduce over supply of money only solves that reason. High overseas inputs or transportation etc there’s not much any NZ government can do to combat.
I’m not convinced that all money is equal. Money that is not moving (i.e. sitting in a bank account or passive investment) is not really contributing to inflation. The highest earners are far less likely to spend less from having less money than the lowest income earners. The bottom 1% spend every cent they have (to survive), someone making $180k+ is probably just going to have less money in their bank account. If they reduce spending, it won’t be at the same rate as the lowest income earners, so you’ll have to take more to have the same impact.
But the bit that concerns me is not that part, it’s the next part. The part where the government has more cash. They need to not spend it, if they want to reign in inflation.
Again, I’m not convinced inflation is inherently bad, but in it’s current form it certainly hurts the worst off in society. That doesn’t have to be the case, though.
But the bit that concerns me is not that part, it’s the next part. The part where the government has more cash. They need to not spend it, if they want to reign in inflation.
Yeah exactly - this thing comes from an article I read on the website of a British financial paper of some kind - and for the life of me i’ve always struggled to find it again. The author’s main point was that its a good idea for governments to borrow and spend on infrastructure when there’s economic downturns, or things like pandemics etc but that the flip side was that once there was recovery they should tax and pay down debt to counter the inflationary cycle.
Where I was coming from on tax is that I contend NZ is under taxing already - hence our diminishing health & education sector, crumbling infrastructure etc. So we can’t just use our existing tax take to pay down debt, because all that does as austerity is further erode all of those public services which is a long term net negative. So we need to increase the tax take and use that instead, and given low-middle income earners are already under a fairly heavy tax burden, particularly if they’re under the age of 40 the only logical way to do it is some kind of tax that disproportionately impacts the wealthy.
Yeah that makes sense. I’m not convinced it would 100% negate the need for OCR adjustments, but taxing and paying down debt while the economy is doing well then spending up on infrastructure during times the economy is doing poorly sounds like a much better plan than what we do currently
Yeah, I mean I guess i’m trying to make too many points at once because I firmly believe we need to increase our tax take; not keep cutting it - and I wish there was as much freedom to put taxes up as there is to drop them as while you wouldn’t want it happening every year, having flexibility to do so would actually be of benefit. Heck if taxes were higher during boom times, then cutting them to put money back into supply when there’s a dip would probably actually do something.
I think it depends when & where you use it.
There’s times where taxing consumption; particularly if targetted to more luxury goods rather than food etc would be a decent way to pull money back out of supply to try to rein in inflation.
Of course, just having a floating top tax rate would probably do a similar thing and be easier to administer.
Floating top tax rate? As in you adjust the top tax rate based on inflation?
I used to work at IRD many moons ago, and if the government changed the tax rates during the tax year everyone hated them. I can’t imagine doing it multiple times a year!
It’s all well and good for PAYE, but when you’re income is taxed annually it gets annoying to change the rate part way through the year.
Heh, well that was in part due to the inflexibility of FIRST wasn’t it? I wouldn’t suggest changing it every year, but I think responding to inflation with tax increases on those that can most afford it to reduce supply would be a better first port of call than chucking a bunch of people out of work by lifting interest rates heavily.
I mean I’m not sure it’s quite fast enough. When inflation is high, you don’t want to have to wait until the next tax year to do something about it. I guess it could be used in combination. You put up the OCR initially, then increase the top tax bracket as a next step, which prevents you having to put the OCR up as high.
I’d be curious if that actually has the impact you’re expecting. It removes money from the supply, which in theory helps inflation, but if it’s on the top 1% of earners, that money probably wasn’t being spent anyway. When people have more money and there’s a shortage of housing, then they pay more for houses. This pushes up the price of housing, in turn increasing inflation.
If you stop the top 1% from being able to buy mansions by taxing them more, this doesn’t have a lot of impact on the average sale price, and so I’m unconvinced it would help inflation by any meaningful amount.
You need to find the solution that stops supermarkets putting up prices, not the one that collects more tax money.
That is if we assume inflation is bad. If we collect more tax to feed back into the lower income group, perhaps inflation isn’t so bad after all?
Well yeah, there’s all sorts of reasons for inflation - and taxing to reduce over supply of money only solves that reason. High overseas inputs or transportation etc there’s not much any NZ government can do to combat.
I’m not convinced that all money is equal. Money that is not moving (i.e. sitting in a bank account or passive investment) is not really contributing to inflation. The highest earners are far less likely to spend less from having less money than the lowest income earners. The bottom 1% spend every cent they have (to survive), someone making $180k+ is probably just going to have less money in their bank account. If they reduce spending, it won’t be at the same rate as the lowest income earners, so you’ll have to take more to have the same impact.
But the bit that concerns me is not that part, it’s the next part. The part where the government has more cash. They need to not spend it, if they want to reign in inflation.
Again, I’m not convinced inflation is inherently bad, but in it’s current form it certainly hurts the worst off in society. That doesn’t have to be the case, though.
Yeah exactly - this thing comes from an article I read on the website of a British financial paper of some kind - and for the life of me i’ve always struggled to find it again. The author’s main point was that its a good idea for governments to borrow and spend on infrastructure when there’s economic downturns, or things like pandemics etc but that the flip side was that once there was recovery they should tax and pay down debt to counter the inflationary cycle.
Where I was coming from on tax is that I contend NZ is under taxing already - hence our diminishing health & education sector, crumbling infrastructure etc. So we can’t just use our existing tax take to pay down debt, because all that does as austerity is further erode all of those public services which is a long term net negative. So we need to increase the tax take and use that instead, and given low-middle income earners are already under a fairly heavy tax burden, particularly if they’re under the age of 40 the only logical way to do it is some kind of tax that disproportionately impacts the wealthy.
Yeah that makes sense. I’m not convinced it would 100% negate the need for OCR adjustments, but taxing and paying down debt while the economy is doing well then spending up on infrastructure during times the economy is doing poorly sounds like a much better plan than what we do currently
Yeah, I mean I guess i’m trying to make too many points at once because I firmly believe we need to increase our tax take; not keep cutting it - and I wish there was as much freedom to put taxes up as there is to drop them as while you wouldn’t want it happening every year, having flexibility to do so would actually be of benefit. Heck if taxes were higher during boom times, then cutting them to put money back into supply when there’s a dip would probably actually do something.