Tax - Income Inequality: Of the Prison Built by David Haywood (EY) from Horizontal and Vertical Equity.

Here’s the problem we face in the West, again. The frightening thing about David Haywood’s stuffed Stuff article of this weekend, The Rising Price of the Sin Tax, is that David is a partner at EY (for those of you not hip, that’s the old accountancy firm Ernst & Young.) At least I imagine his article would be frightening for clients of EY.

David starts out fine with that recent factoid showing how unequal is the contribution made by ‘the rich’ to New Zealand's welfare state:

Treasury estimates the top 12 per cent of households earning more than $150,000 a year will pay just under half of total income tax. This increases to 76 per cent when government support such as working for families, benefit payments, the accommodation supplement and paid parental leave are taken into account.

Conversely, households earning less than $60,000 a year (half of households) are expected to pay 11 per cent of total income tax.

According to English, this group collectively will pay no net income tax because of income support they receive.

But then we see the agenda, (or is it merely blind assumption now?), in his echoing the bankrupt ethos sounding out of the Labour Party conference this weekend; an ethos that demands ever more from this twelve percent, as they are forced to bankroll the imprudent life choices incentivised by welfare. David sees this tax fact as desirable as it contributes toward improved income equality. I’ve written before on what I think of that. Worse, for the first time I can remember seeing in print, this ethos no longer stops at income tax. Continues David:

While this should contribute to improved income equality with direct income tax, the level of indirect tax on low income earners represents a significant burden.

[Sadly, by this point in the piece, I knew what was coming – my highlights.]

Vertical equity in tax policy design dictates those more able to pay tax should contribute more.

Tobacco excise, in particular, offends this principle as smoking is most prevalent among those of modest means.

Horizontal equity in tax policy design dictates people with similar income should pay similar tax, irrespective of how they spend their money. Again this principle is offended by excise and gaming duty.

Maintaining high (and increasing) excises places a significant tax burden on people of limited means …

The first question has to be why is smoking more prevalent amongst those of modest means? The second how should that affect the tax I pay?

Regardless, the inference is clear: the tax system must be organised in such a way that those taxpayers with immodest means - rich pricks, as that former Finance Minister called them - be forced to pay the excise of those with modest means. Not overlooking the ironic nonsense that Mrs H and I gave up smoking eighteen and seventeen years ago, respectively, because we could not afford to smoke while saving for our future goals, yet are now to be forced, if David has his way, to pay the excise for those too irresponsible to plan their own lives and who apparently have an entitlement to, of all things, tobacco; this premise is wrong on every level, most certainly philosophy. It’s mum of eight, ninth coming, and her Sky remote all over again; a piece, you might remember, which started with Mrs H and I yet still this year prudently restraining our current spending.

Here’s my contribution to David’s contribution to the fair society – noting no politician has taken up my challenge to define fair properly.

Once a taxpayer hits a certain income level what say they are forcibly micro-chipped. New technology could then be developed to work in two ways:

A bio-scanner installed at supermarket counters could pick up the chip and that taxpayer would then have an excise tax that would recover the current excise on alcohol and tobacco - even if the taxpayer was buying neither of same – by adding the tax to their – and just their - general grocery purchase. Similar scanners at bottle stores, garages, et al.

Secondly, as we already have the technology by which you can shake your phone at another to throw a payment across, or merely tap your credit card on an appropriate terminal, we can’t be far away from technology that would allow people of modest means to simply touch the sleeve of a chipped person with immodest means and directly transfer to them their ciggy money. Of course for this to work, people of immodest means would have to be publicly identified. Perhaps they be forced to wear a yellow symbol of a dollar sign on their suit or blazer chest pockets? There’s a great logic in this to proponents of the envy politick: why should such people only be exposed to the censure of IRD officers? Shouldn't they be exposed to the great unwashed also?

To some few of us this latter scenario is the worst sort of dystopia, however, according to the ethic that has destroyed the West, it would still be fairer than expecting people of modest means to control their recreational expenditure. What rot this is. Cigarette smoking is not compulsory, nor, incidentally, given I’ve brought up mum of nine, is having babies. I see on Q&A this Sunday morning another mum of nine trundled out to show the need of fixing poverty and the concomitant problem of over-crowded housing in New Zealand.

I simply suggest in passing, that in the fact house over-crowding is one of the chief characteristics of poverty, is also, therefore, the answer. Family size. You have the number of children you can afford to bring up; no more than that. I have a good income, but I couldn’t afford a family of eight and nine. Decisions like this are simple, until responsibility for one’s decisions is taken away by the fog of welfare that muddies the thinking.

The patronising assumption that people of modest means are less able to control their addiction than, say, I am, or can’t rationalise a prudent family size, is initially as ignorant as it is arrogant. The evil of this is that when you set up a welfare state to fund such arrogant assumptions, then you create an underclass sadly prescribed by, and subscribing to it.

That’s my Monday morning spiel, though to David Haywood, stick to tax, mate, leave the philosophising to yours truly.  You made a complete hash of that one, building from your vertical and horizontal equity only the bars of the prison you would have my freedom locked away to. Albeit prison is where many of the products of our welfare system go to break their addiction to tobacco: it’s banned there now. Regarding excise taxes proper: the rationale flowing from this blog has been made over and over - there should be no excise taxes, period. A tax on choice is a tax on freedom.

[Footnote: Is Haywood's article some type of distorted mirror image of the wowserism of the state health lobby?]