Financial Transactions Tax
A key tool that will be used to establish a reformed economy is the Financial Transactions Tax (FTT). FTT is simple and inexpensive to administer, has no loopholes available for tax evasion, and gathers revenue across the entire economy. Currently GST is not charged on financial services, which involve huge sums and correspondingly huge economic damage. Those transactions will not be exempt under FTT.
We will put in place the following measures:
• Replace GST with a financial transactions tax
• Set the level of transactions tax at a very low percentage
• Relieve businesses of compliance costs when GST is phased out
• Collect the tax through data bank facilities on every bank transaction at point of withdrawal
• Make the total amount of revenue raised available for Government spending as there will be no collection costs, just bank transfers
• Automatically increase everyone's spending power as the GST level is far higher than any transactions tax need be
The banking mechanism by which FTT may be gathered is already in use, thanks to modern technology. Banks already withdraw their own account fees as well as Resident Withholding Tax from interest on deposits through an automated function of account management. It will be very simple for the banking system to implement FTT, and very difficult to avoid payment.
Although there are some examples of FTT functioning in other countries, the full impact on the economy of FTT replacing all other forms of taxation remains largely an unknown. As FTT is intended to not only gather revenue for Government spending, but also to affect economic behaviour by discouraging speculation, it is thought advisable to introduce FTT progressively, beginning with replacing GST.
Many monetary reformers consider GST to be a ‘poor tax’. People on the lowest incomes, with little or no ownership of the real economy, are taxed far out of proportion to their incomes compared with those with investment incomes and business ownership. GST also carries a cost to administer for both Inland Revenue and businesses. Therefore GST is an obvious place to begin tax reform, by replacing it outright with FTT at a very low rate. Because FTT is a ‘cascade’ tax, accumulating in the prices of goods and services, a low rate will ensure that those prices will still drop compared to current GST level prices.
Research reveals that currently some $50 billion dollars a day are involved in financial transactions within New Zealand. Just 0.1% of that figure (i.e. a tenth of a percent), a level so small that ordinary consumers and SME will barely notice the loss from each transaction, is $50 million a day or more than $18 billion a year in potential revenue. Add to that the money saved on the administration and compliance costs of GST, and the economic advantages of FTT are readily apparent.
However, FTT will have an intentional effect on speculative transaction behaviour, and it is difficult to accurately predict the scope of that effect. It is therefore deemed necessary that the implementation FTT be done in stages, adjusting the levels and accompanying regulations at each stage to maintain economic integrity.
Chris Leitch, Leader & Finance Spokesman