My complaint was about giving people food vouchers as part of their benefit – as I said earlier in the comments I was a touch unclear and clarified it.

I haven’t been convinced to vote for anyone by anyone – does no-one really want my vote 🙁

They may constrain choice compared to giving parents cash, but even I’d be worried about giving every parent the cash and letting them choose whether to spend it on educating their kids.

Vouchers are better than what we have at the moment.

Suck it up and vote ACT. Actually, if you want some changes, come and help us out campaigning!

But there is no reason to generate income once you are dead – so over a long enough life-cycle (which can include your children if we wish to make intertemporal comparisons – or can be taxed as a bequest, then we only need to look at the individual) all income should be used.

Note I am talking about “lifetime consumption” not just single period spending.

“The question would be: What proportion of bequests gets spent and which remains in savings/investment?”

That question looks at a multi-period flow of resources, but not the whole lifetime of the resource – it is in that sense that all savings will become consumption. I can’t really give evidence as I am suggesting a way of looking at savings and investment and consumption.

“I must admit that I was thinking more along the lines of replacing GST with the FTT as they aren’t too dissimilar.”

I was thinking the same thing when I answer the question (except for the dissimilar part). The FTT is on products as well as savings (though its impact on chain value) – which is why I was talking about it in that way.

“I was more pointing out that it did have a couple of possible benefits (Devil’s Advocate).”

And I appreciate you doing this – sometimes I try to do the same thing while posting (at least trying to take an extreme point of view).

No it is a tautology – the point of savings is deferred consumption, that is what it is. As a result it is not false. (I see bequests as consumption – ergo this view).

The point of savings isn’t always “deferred consumption” though. In fact it could be argued that to save for something isn’t saving at all. Savings generally tend to stay in the bank (investment portfolio) and generate an income.
Bequests couldn’t be considered consumption unless the receiver spent the whole lot. This would be true of some of them but, IMO, it shouldn’t be considered the rule. Some facts and figures here would be nice. The question would be: What proportion of bequests gets spent and which remains in savings/investment?

However, the financial transactions tax will lift the price of goods in the same way a GST rate will. If the “effective” tax rate is set to be the same, then a financial transaction tax will charge us 5% to withdraw our money and then 12.5% on buying the good!

I must admit that I was thinking more along the lines of replacing GST with the FTT as they aren’t too dissimilar.

I wasn’t really arguing for it (although a couple of years ago I would have) as logic tells me that it would be a PITA to actually administer (what about cash? Would you ban it outright or put on a punitive tax? and what then would you do with people who started bartering? (people always find a way to trade (scroll down to the bit about gold supply)) and that it wouldn’t collect the amount that proponents say it would. I was more pointing out that it did have a couple of possible benefits (Devil’s Advocate).

However, I do think that the exemptions in GST do produce a market distortion. I’m not sure how to apply GST to those exemptions though.

Perhaps the most inummerate attempt at describing the effect of an FTT was from Direct Democracy Party (also known as Kelvyn Alp) apparently a 1% FTT could replace all taxes and produce massive surpluses! (http://www.dekode.co.nz/ddp31/ – detail tucked away in the policy snapshots).

Firstly, we are looking at a revenue gathering device – not an externality tax, so the efficiency argument does not hold.

Secondly, the tax is different than in the case of GST, as GST is on the “value-added” component of the production process, when a financial transaction tax is applied to the whole price at each level of the value chain. As a result, a process that creates value at the beginning of a long value chain will get taxed at a rate many times higher than the financial transactions tax.

“If they weren’t then the product would cease to exist”

Relative prices are to do with the allocation of resources and therefore allocative efficiency. Taxes causes inefficiency (in a technical sense) by screwing up the allocation of resources. People will still make the goods – but the price signal which is supposed to be used to trade them no longer works as well.

In the case of a financial transaction tax, the tax will be higher on goods with a short value chain than goods with a long value chain, implying that they become more expensive then they were without the tax. In the case without a tax people are trading goods based on their true valuation of the good and so the allocation of resources is such that welfare is maximised. When the tax comes in it artificially changes the price of one good relative to another, changing the allocation of societies limited resources. As we know the previous allocation was optimal (so in the absense of externalities – given that they have hopefully been solved by coase bargaining or externality taxes), this new allocation is not as good.

“These things happen already and I doubt if changing the collection of taxes to a transaction tax would have a significant change on how often they happen”

Saying that they happen already does not change the argument that they would become more prevalent.

“You assume that everything that somebody saves will be spent and this is a false assumption”

No it is a tautology – the point of savings is deferred consumption, that is what it is. As a result it is not false. (I see bequests as consumption – ergo this view).

“You also assume that people don’t pay tax when they withdraw money from the bank which is, again, false as they pay 12.5% when they spend it”

No I didn’t actually say that – you are right that they pay 12.5%, as we care about real buying power, not nominal values.

However, the financial transactions tax will lift the price of goods in the same way a GST rate will. If the “effective” tax rate is set to be the same, then a financial transaction tax will charge us 5% to withdraw our money and then 12.5% on buying the good!

Also think about the sort of goods we save money for. They tend to be large durable goods. If they are goods that we add value on in NZ (stemming from the buy NZ goods campaign), then they will be facing an “effective” tax rate greater than the GST rate now (as goods with a longer value chain will get taxed at a higher rate). This is actually another reason why the tax will discourage savings.

“I see a couple of possible advantages with a transaction tax.”

“These will stabilize the NZ$ at a lower value making our exports more competitive.”

This is the same argument as the Tobin tax argument right. As a result, why don’t we just introduce a Tobin tax – that would give us these benefits (assuming they exist – this would make a good topic for another thread 🙂 ) without the costs associated with a financial transactions tax.

Also an important thing to remember is that a lower New Zealand dollar implies that our imports are more expensive. We have to show that the increase in income associated with higher exports would compensate us for the high prices on imports (and also that the distribution of these gains would be appropriate) in order to associate a lower dollar with higher levels of welfare.