Taxing issue of wasteful spending
In general, environmental problems arise because those who impose a cost on others are not confronted with those costs. They seek a benefit they do not have to pay for. The Resource Management Act is a major example. It fails to confront those who object to a development with the cost to the community of forgoing it. High Auckland house prices are the result of forgone development opportunities.
Turning from the specific to the general, there is a more fundamental way of looking at the tax issue. It lies outside the Tax Working Group’s terms of reference.
The only principled justification for general taxation is the need to fund wellbeing-enhancing spending that cannot be funded by non-coercive means.
To tax people to fund wasteful or ineffectual spending is a dereliction of the duty of care. The prior question for taxpayers when assessing tax decisions is the quality of the proposed spending. To force them to fund wasteful and ineffectual spending must reduce trust in government and corrode social cohesion.
The point is relevant because a report from the NZ Initiative this week cited overseas research calculating that perhaps 13 per cent of GDP, representing about $20,000 per household annually, was being spent ineffectually.
Is this plausible? It is certainly possible. It is easier to spend someone else’s money poorly than well. If no-one is measuring value for money in spending, it is even easier.
Sadly, successive Productivity Commission reports have documented an entrenched lack of focus on value for money in government spending. Here is one quote: ‘‘There is little regular and systematic review of the value for money from existing expenditure.’’
Of course, the loss of trust in government is lesser the greater the degree to which taxpayers are unaware of the extent of wasteful and ineffectual spending. Governments are not going to tell them about its extent, because then they would have to make cuts that were unpopular with the unworthy but vocal and focused recipients.
Her Majesty’s loyal opposition should expose waste, and indeed does to some extent. But if it is a major party, its position is likely to be compromised by its earlier record in government. Smaller parties such as ACT try to, but lack the information about value for money that the incumbent government is choosing not to generate.
A stronger Treasury would help, but the establishment can hardly hope to reform itself from within.
When governments in New Zealand are spending 40 per cent of gross domestic product annually, the quality of that spending really matters.