Wednesday, 30 April 2008

bad ideas

seems like a week of not so bright ideas. with all the pressure around the food and petrol price rises and high mortgage rates, the pressure is building to do something, anything.

so mr dunne has put forth the income-splitting proposal again. which is a bad idea because it doesn't help genuinely poor families. families with children that have a family income of around $40,000 to $50,000 are already paying zero tax (through working for family tax credits) so won't benefit. families with incomes less than $38,000 will get very little benefit, as they are already on the lowest tax rate anyway. income-splitting won't help families where both partners are earning between $38,000 and $60,000 or where both partners are earning more than $60,000. so who does that leave? very few families, but especially single high-income families. these are not the people that need the most relief from high food and petrol prices. there is no point in reducing the tax base to help those on higher incomes, while providing little or no relief for those on low incomes. at least it doesn't make sense if you actually care about reducing poverty and helping those most in need.

the other bad idea put out this week was the proposal to make food items gst exempt. the reasons why this is a bad idea are pretty well covered on the standard, and this discussion on public address is pretty useful. i can speak from my own experience as a chartered accountant. it would be a very bad idea. it would be so bad that i would seriously consider leaving my profession rather than having to deal with the administrative nightmares involved. more than that, it doesn't solve the underlying problems, which are largely international in nature and not likely to be solved by domestic policy settings.

across the board tax cuts tend to have the same problems as income-splitting - they benefit those on higher incomes most, so do nothing to reduce poverty for those at the bottom end.

so those are the bad ideas. now it's time to think up some good ones! the basic ones are generally the best: reduce household debt, particularly debt used to fuel consumption (ok, difficult for those on lower incomes, but possible for higher income earners). stop investing in property and start investing in productive assets. and targetted tax relief for those most in need.

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