I’ve often thought that our tax legislation should allow people to make voluntary payments to the Inland Revenue Department. In other words, it should allow IRD to accept payments in excess of the taxpayer’s statutory obligation to pay tax computed in accordance with the tax law.
At present if you overpay tax the system will generally refund it automatically.
I was reminded of this issue when reading this 5 April New Zealand Herald editorial which continued the paper’s campaign for increasing tax to pay for the Canterbury earthquake.
The government has resisted this idea on the grounds that it would hit an already weak economy. A far better approach would be to cut wasteful and poorly targeted government spending. A huge amount of government spending falls into these categories.
The Herald reports a poll that found 40% of respondents favour a temporary tax.
Whenever I see people saying they would be happy to pay more tax, I think they should be able to go ahead and do so voluntarily. In fact I would go one step further and allow voluntary payers to indicate the broad area to which they want their money applied, eg police, welfare.
It would be fascinating to see how much additional revenue IRD would receive. I suspect not a lot.
First, my guess is that if people want to donate money for welfare purposes, most would give it to private charitable organisations in the belief that they are often more effective than the government in such roles.
Second, I suspect that many people who tell pollsters that they favour raising taxes want them raised on other people, not themselves.
Anyway, if the law was changed to allow voluntary payments to IRD in excess of tax assessments we would soon find out how many people (like the Herald’s editorial writer) put their money where their mouth is. The IRD could report aggregate payments in the same way that it reports other tax revenue. What could be the objection to such a law change?