Tax As A Social Policy Weapon

Gareth MorganTax and Welfare

Gareth Morgan, Director of Gareth Morgan Investments

The idea that the tax system has somehow been reformed to a more neutral structure over recent years, is popular but misconstrued. NZ welfare benefits are equivalent to some of the largest negative tax rates in the world.

One wonders why we’ve been so preoccupied with achievement of certain neutralities in our tax system, such as the equilibration of company and top personal tax rates, and the reduction of the gap between the top personal marginal rate and the lowest positive marginal rate, when the lowest effective personal tax rate has become so negative for so many of the population.

The idea from Lockwood Smith that the tax rate can be used to “punish” bad parents is a long overdue perspective on the use of tax rates as a weapon of government social policy. Tax should be seen in a wider context than simply as the revenue means for financing greater government social policy expenditure. Instead, differential tax rates can be employed by the government as a critical element of achieving social objectives. The Minister has highlighted one instance of tax being used as a stick to punish parents whose children are truants. He unnecessarily restricts his suggestion to the children of beneficiaries. More equitably, all parents so offending could be punished via “adjusting” their tax rates.

Tax rates can be varied to provide an incentive for people to attain other socially and economically- desired standards as well. For example, New Zealand 18 year olds have deplorably low average education levels. This deficiency could be addressed in part via provision of fiscal incentives to both the pupils and their parents. For the pupils the reform that is most overdue is a demonstration to them of the value of scholarship. At present the University A bursary is worth a mere $200 pa, a pittance against the cost of undertaking a years University study, which all up is around $10,000. That we place such a pathetic value on scholarship fuels the attainment of such low standards. Uneducated though, they become a probable future load on the government sector either directly through unemployment payments, or indirectly through subsidised low skill job creation programmes. By raising the cost of University education closer to its actual cost, but on the other hand raising an A Bursary say to $5000 pa, the importance of scholarship would be more apparent to students, without being a higher direct cost to government.

Then there are the attitudes of students’ parents. As does poverty beget poverty, so often a low level of educational achievement by parents is passed on to their children, via anti-education parental attitude. To break this cycle of under- achievement, parents’ tax rates could be linked to the academic achievement of their siblings. Effectively they would be taxed for producing offspring destined to become a load on other taxpayers.

The role tax structures can play in effecting reform of education, and other costly anti-social behaviour is immense. It offers more scope for sustained reduction in State dependency, than does the cycle of higher government expenditure.

Tax As A Social Policy Weapon was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.