The New Zealand Minister of Finance is canvassing new avenues to increase government tax revenue. He has asked you to
advise him on the introduction of 2 new taxes:
1. An annual wealth tax, which would impose a levy of 1% on every taxpayer’s net wealth (i.e. assets minus liabilities) measured at the end of each year;
2. A capital gains tax, which would impose tax on the capital gain derived from the sale of any asset where the sale price exceeds $10,000.
Required: Write a report to the Minister evaluating the 2 taxes separately in terms of their:
(i) effectiveness in providing the government with revenue; and
(ii) conformity with the following generally accepted principles of a “good” tax:
Economic efficiency (tax neutrality)
Ease of compliance.
Conclude your report with a recommendation on which (if either) of the 2 taxes you prefer and summarise the reasons for your choice. NOTE: NZ has no wealth tax and capital gain tax. This can be a proposal.