Friday, December 4, 2009

Taxes & Wars

One defining event of the present government will be Bill English’s 2010 Budget, It seems clear it will attempt to bed in certain tax changes. I dislike the words ‘tax reform’. Reform suggests improvement. The form of taxation changes, it doesn’t improve. At various times windows and lavatories have been taxed. The only constant is that taxation continues. Our present parliament has its origins in the fact that in the Middle Ages the kings of England needed money to pay for their invasions in Scotland and France. To get that money they needed consent to raise taxes.

There are two approaches in the modern world to tax changes. One is the bold cut through all the red tape. That tends to produce many casualties. The other is the slow increment of changes refining the system and attempting to make it more efficient. Of course, the balancing factor is the effectiveness of the systems dispersing tax income.

I had an email from a friend yesterday asking why I haven’t commented upon the tax taskforces and their comments about the Cullen Fund and Kiwisaver. The Brash report was so predictable it hardly warrants mention. Roger Douglas and Ruth Richardson applied that prescription. It didn’t work. So, let’s move on. Though in passing I mention that in my understanding Australians pay more taxes than we do.

I always saw Brash’s appointment as a stalking horse for the National led-government to launch later its own initiatives. To switch cliches its purpose was to serve as a smokescreen. Time will tell. But like all administrations the government has less room to maneuver than ministers would like. Mr Cullen made sure of that.

I was saddened at the earlier tinkering with the Cullen Fund. Further cuts could damage the whole scheme. I hoped we could get inter-party agreement on super but that’s probably an idealistic pipe-dream. Which means lurches in the form of policy changes. That effects the livelihood and morale of thousands.

Kiwisaver is basically below my radar. Friends with more economic savvy than I have were not enthusiastic but it seemed to me a scheme which encouraged saving was a step in the right direction. It would be a shame to see it turned into an unworkable one, or even destroyed. Probably Labour should have started it earlier but that is the nature of politics. The gaining and retention of power takes precedence over policy consistency. There are also electoral shibboleths – tinker with these at your peril. There are also questions of leadership – can a government switch direction by selling a vision.

Obama sold the vision in a campaign based upon one word, ‘hope’. Now, he is learning as his predecessors had he has less room for change than he anticipated. Thompson in his book about the Cold War outlines how each president in turn was hamstrung by previous commitments, decisions and lobbyists. And their own decisions. Kennedy’s disastrous Bay of Pigs invasion convinced the Russians of his weakness. So they started to put missiles on Cuba. For a while it seemed the planet hovered on the brink of an all-out nuclear war. The Russians blinked and withdrew. I hadn’t realised until I read Thompson how far the Russians had gone. It was not just missiles, it was smaller nuclear weapons. Kennedy exhibited courage.

As I believe Obama has over Afghanistan. It’s a gamble. By putting an exit date into the mix he has given a hostage to the future. But Thompson provides a chilling account of America stumbling further and further into the Viet Nam quagmire.

But wars require money. The American taxpayer is like any taxpayer any where. The exit strategy softens the financial implications of the president’s decision. Politicians are interested in power. They are usually reluctant to do things that will alienate the electoral majority. Key and English have strategically been at pains to keep to the political centre. Next year’s budget should give a real glimpse of their long-term aims.

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