TAXATION REALITIES

Over my half century as a newspaper columnist, beginning back in the mid 1960s, whenever my topic was an economic one I took pains to stress that economics is emphatically not a hard science of absolute rules.

Initially, that was scorned and to some extent, some commentators still treat it that way. Instead, I stressed it’s a social science about human behaviour and as we all know, and endure, human behaviour is rarely rational.

The tale I’m about to recount is a fascinating illustration about the economic damage of direct (income) taxations.

I’m not the first by a long shot to argue that but convincing Joe Blow often elicits the same response, namely I as a wealthy individual would say that and I’m simply talking my own book.

However, consider this.

I imagine most readers of this Blog outside of Wellington will have heard of Petone, the suburb at the northern end of Wellington Harbour. They certainly should have for it was there in 1840 where Wakefield’s first organised settlement to New Zealand from England landed.

My memory of Petone goes back to my childhood in the 2^nd World War days.

Over the subsequent 80 years I’ve watched it go through several phases, from being a low income backwash, until this century, when for whatever reason it suddenly became a highly desirable residential location.

Existing large homes were restored while numerous attractive blocks of own-your-own apartments were built and readily snapped up.

It’s a quick 10 minute trip whether by car, cycle or train into Wellington.

It has a lengthy sandy and very safe swimming beach and on numerous counts, has much to commend it.

Anyway, for no known reason, its lengthy main thoroughfare, Jackson Street took off as the capital’s principal dining location, about a decade or so back. There was nothing to match it in New Zealand.

To illustrate that, during Covid, a mate and I bowled down there, and he walking up one side and I the other, counted a total of 83 restaurants.

Post Covid they all boomed. There was every conceivable type of restaurant.

And as they thrived so too did other activities, be they fashion sporting goods, bookshops or whatever.

If we were going out to dinner then as with most Wellingtonians, Petone was always the first choice.

This would usually mean driving around the streets on each side of Jackson Street to find a park, which one always did, even if it meant a five or more minutes walk back to Jackson Street.

Only once did I ever find a park in Jackson Street, which was outside a Vietnamese restaurant.

I was with an old mate, Neil Quigley, Waikato’s University’s Vice-Chancellor, but more salient, Chairman of the Reserve Bank Board, down for his monthly Board meeting and as always, staying with us.

So what the hell, we went in. Our waitress was a shy little Vietnamese student working part time, who today, post-graduation, now works in our Wellington office.

Up until a year or so back Jackson Street boomed. Today it’s a wasteland.

Only about a tenth of the restaurants are still going, but most have closed. And with their demise, one by one other retailers have folded, thus empty shops now abound.

So what event caused this abrupt transformation from a boom town to an economic wasteland? Brace yourself.

The Lower Hutt City Council suddenly decided to put in parking meters along Jackson Street, doubtless at considerable cost.

I don’t knock them as logic would suggest that decision to be a sure-fire revenue winner.

But in the event not so. Drive down there now and you can park anywhere only why would you want to with 80% of the shops and restaurants vacant.

Numerous small family businesses have folded and thus are no longer taxable entities.

So too for the hundreds of building owners who have gone from being taxpayers on their own rental income, to filing deductible losses in their accounts, and so it goes.

Now a hypothetical Martian may consider the public’s reaction to the parking meters extreme, in which case he or it would need to have explained that human behaviour is rarely rational.

All of which brings me full circle to my starting point, namely that direct taxes have a negative economic impact and ultimately result in a lesser take than if they didn’t exist.

I’m hardly the first to note that. The Emirates for example are booming and a salient reason is their no income tax policy.

Ireland has gone from being a poor nation to one of Europe’s wealthiest inside two decades by applying this philosophy with company taxes, which has resulted in numerous large corporations shifting their head offices there.

There are many other examples I could quote but the extreme reaction in Petone is one of the most dramatic I’m aware of.

Our government currently talks of attracting foreign investment. Should they apply this proven formula as with Ireland and other nations, they will succeed in this mission.

That said, I doubt they will be bold enough for fear of an envy-driven backlash.

By National Government historic standards, in some respects they have been quite revolutionary, but that is a direct response to ACT’s presence, ACT and not Labour being their main political opponent chasing the same votes.

Income taxes are costly to administer compared with say sales taxes. But far more important, as I’ve outlined, they’re actually destructive as a Government revenue mechanism.