Reply #10: NZ had no choice

[TO Kid]

I saw an interview of the Finance minister at the time they begain the reforms. They initiated the process in a Cabinet meeting when the minister pointed out that a very large bond issue (close to $1 billion IIRC) was set to mature the following week and they had no money at all to pay it.

Aside from that, in many countries the phenomenon of the "tax wall" has been encountered wherein increases in tax rates where accompanied by immediate, substantial decreases in revenue. For example, in Ontario the income tax rates were increased several times between 1990 and 1995 and revenues plummeted- there is a strong sentiment that the tax rates prolonged our recession by at least a year. The tax cuts implemented after 1996 were accompanied by rising employment and strong revenue growth. An even more interesting example was the tobacco tax- the federal and provincial governments cut tobacco taxes in half but saw no substantial change in revenue- smoking rates remained constant but the black market for cigarettes collapsed overnight.