Other Objectives
3.27. Equity, simplicity and efficiency seem to the Committee the three dominant tests of merit for individual taxes and for the tax system as a whole. There are others, however. In particular, flexibility in the taxation system is a characteristic of obvious importance to economic management. Economic management or ‘stabilisation’ requires, firstly, that there be at least some taxes in the total package the rates of which can be easily raised or lowered in the light of short-run fluctuations in the level of economic activity. Secondly, it requires that these taxes be such as to operate very quickly in altering revenue yields and influencing individuals’ and firms' behaviour. Thirdly, in so far as smaller rate changes are politically more acceptable than larger ones (particularly when rate increases are called for), the taxes available should have as large an impact as possible on the level of economic activity per dollar of revenue change.
3.28. Economic growth is another objective that, in the view of some, should be deliberately and distinctly pursued in taxation policy. As a general purpose of public economic policy it has, of course, been long accepted as important, though its interpretation can be the subject of much controversy. In the context of taxation its encouragement is often taken as implying that the overall level of taxation should be kept lower than it would be otherwise—a prescription upon which its terms of reference make the Committee unable to comment. It is also however taken to indicate that, in the interests of greater investment, savings should certainly not be discouraged under the tax system and perhaps even be taxed less than considerations of equity and neutrality alone would suggest. This is an argument that will need mention in the next chapter in connection with the general question of progressivity.