Strong case for tax changes — expert

Press, 25 October 1985, Page 25

Strong case for tax changes — expert

PA Wellington Pressure on the income tax system has grown with little effort made to relieve it through structural change, says a taxation expert, Mr Malcolm McCaw. Politicians opted for the status quo unless they were satisfiea that a change was politically saleable, Mr McCaw told a meeting of the Rotary Club of Wellington. A senior partner in a Wellington chartered accountancy firm, he was chairman of the Task Force on Tax Reform which reported to the Government in 1982. Acceptance of desirable change came through understanding of the main issues involved and the results of such change, he said. “Whatever the position over the last three or four decades, we now have a Government which is clearly committed to tax reform,” he said. But Mr McCaw did not believe that the Government was acting from any long-held principle.

In normal circumstances Governments did not win elections by “rocking the boat” In that sense the Government deserved acclaim for its courage in heading down a path which bristled with so many fishhooks, he said. There were strong economic reasons - even necessities - for implementing major changes now.

The nation was in serious difficulty, not having coped well with the economic realities of a serious deterioration in its terms of trade. It had increasingly been living beyond its means.

Internally, the gap between Government expenditure and revenue fiscal deficit had risen alarmingly in recent years. Mr McCaw said that the Government had said quite clearly that it was too high and that a concerted effort must be made to achieve a reduction in the gap of at least 2 per cent of gross domestic product over each of the next three or four years. To achieve this, the only three routes to follow were: An increase in gross domestic product (and therefore taxation revenues); A reduction in public expenditureas a proportion of gross domestic product; an increase in taxation revenue as a proportion of gross domestic product. The most attractive way out of the difficulty would be through increasing gross domestic product while holding Government expenditure. Without making any changes in the taxation system this would automatically lead to increased taxation revenue.

“In my view, we have an outmoded and ill-balanced taxation system which places too much emphasis in some areas of financial activity and ignores Athens almost completely,” Unsaid.

In any taxation system designed to produce significant revenues, the over-all aim should be to make the base as large as possible and to keep rates as low as possible. Also, any well balanced tax system required more, than one base. Traditionally, tax had been levied on incomes, wealth, and consumption. He was not arguing the worth of each type of tax but pointing out that multiple tax bases acted more equitably in spreading the tax burden.

There was a heavy strain upon the income tax system and a very strong case for a reduction in dependence upon it compensated by an increase in consumption taxes, he said. Greater reliance on consumption taxes required much careful investigation, preceded by - detailed information programmes so that they were understood by the public. , . “A lot remains to be done if a successful start is to be made on April 1, 1986,” said Mr McCaw.