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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 17
to be a sasfactorily working market, it is necessary for the state to be involved to ensure
that happens
In order for the market to operate, we need a legal system (e.g. law of contract, property
rights, currency, police force) – if taxes were reduced to zero, the government will not
provide any of these things, so it will be bad in various aspects including the economy
OTHER CRITERIA FOR ASSESSING TAX SYSTEMS
Smith’s criteria for assessing tax systems were equity, certainty, convenience and efficiency – these remain key
components in any theory of taxaon, but there are other criteria that might be relevant, such as:
o
Yield
Opinions differ widely as to how much money the government should spend, and what they should
spend money on – but whatever the answer is,
it is necessary for the tax system to produce enough
money to cover the government’s expenditure
o
Simplicity
The Income Tax Act is very lengthy and there is a vast number of cases interpreng legislaon – the
law relang to taxaon is so complex, that it is generally perceived as being desirable for it to be
simplified
Some people regard this not as a separate criterion, but as an aspect of efficiency – the simpler a tax
system is, the cheaper it will be to administer and comply with
o
Neutrality / incenves
All else being equal, a tax system should be neutral in its effect – it should not lead taxpayers to make
decisions as regards investment or consumpon by reference to the tax consequences
For example, if there are two different investments that an investor is thinking about, they
should be able to choose between them solely on the grounds of each investment’s
commercial advantages and disadvantages, and not be movated by the tax consequences of
each investment
Example: it is widely thought that the New Zealand tax system provides a large incenve for
investors to invest in residenal property, so the tax system should not discriminate in favour
of investment in residenal property by taxing it on the same basis as other investments are
taxed
Furthermore, it is commonly thought that it is appropriate to use the tax system as a means of
encouraging or discouraging certain forms of behaviour that are seen as respecvely advantageous or
disadvantageous
For example, there are tax incenves for the film industry and there are tax disincenves for
smoking (i.e. high taxes on tobacco products because smoking is harmful for the populace
and therefore should be discouraged)
o
Visibility
Somemes, visibility clashes with convenience – some taxes (e.g. PAYE, GST) are so convenient that
people forget that they exist and have no idea of how much tax they pay
A contrary argument is that convenience is undesirable because they make the taxpayer unaware of
what is going on
The extreme convenience of PAYE and GST might be unproblemac. It might also be said,
however, that it is desirable in a democracy that people vote on the basis of a raonal
understanding of what the government is doing – and if voters are unaware of how much tax
they pay, it is difficult to see how their views on taxaon and public finance (and their vote)
can be raonal. Thus, whilst a degree of convenience in taxaon is no doubt a good thing, it
might be desirable also for taxes to be
visible
or
evident
or
manifest
, so that people know
how much they are paying and are consequently able to vote responsibly
This assumes that an alert and informed cizenry is a good thing. But perhaps the contrary is
true. Maybe people are to varying degrees asleep, blissfully unaware of how much tax
they’re paying; and maybe waking them up is the last thing you want to do
o
Stability
Every me the government changes the law, the compliance cost escalates (even if the change
improves the tax system) – taxpayers must learn the new law and how to comply with it
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