Tapu Misa on current affairs

Tapu Misa is a Herald columnist focussing on Pacific affairs

Tapu Misa: Shared sacrifice falls unevenly

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Will this week's Budget  affect hand-outs on Queen St ? Photo / Chris Skelton
Will this week's Budget affect hand-outs on Queen St ? Photo / Chris Skelton

The kitty is empty and times are tough. So, no doubt, there will be a stirring speech to make us feel better about the shrinkage in our public services. Something about shared sacrifice, perhaps, and having to make "adjustments".

Except the sacrifice won't be shared at all. Some of us will barely feel the sting of prescription cost increases, for example, while for others it will be just one more thing among many to bear.

The increases will do wonders for those Maori and Pacific people who researchers say are already skimping on medicine because of the cost. Someone wrote that the new charges would amount to a mere 80c a week, so what's the problem. I just filled a prescription: four items amounting to $32 (not everything is subsidised). If I were on a low income, even now, before the extra $8 is added, I'd be wondering which items to do without.

I'd be making trade-offs, as the Government is fond of saying.

Remember when we traded off community education for private school funding? Now we're trading "quantity", according to Education Minister Hekia Parata - thousands of teachers, it's claimed by teacher groups - for the more nebulous "quality".

Somehow research showing that smaller classes (among a myriad other factors) are less important than quality teaching morphed into policy to increase class sizes, which no one seriously thinks is an improvement - especially for new entrants, and those poorer students the Government is supposed to be concerned about.

The Government's reductionist approach seems fragmented and unco-ordinated to say the least. The evidence showing that "teachers matter" is indisputable but it isn't specific about the magic formula for success; feedback is important, for example, but how much harder will that be in a larger class? And if all teachers are now required to have a post-graduate degree, why make it harder by limiting student allowances?

Of course, some people can afford not to care. They can send their children to private schools (where lower student-teacher ratios are a big selling point), or pay for private tutoring (thereby contributing to the performance credit of another teacher). Public services are being cut, and money is being shuffled around, with old money being presented as "new", as was the case with that so-called new suicide-prevention funding Key announced not long ago.

The justification that silences most critics is the global financial crisis and the Christchurch earthquakes, but that's getting a little past its use-by date.

No one has forgotten the tax cuts announced in the 2010 Budget. Green Party co-leader Russel Norman says the current fiscal crisis is largely of National's making. He blames National's "irresponsible" tax cuts, the lion's share of which went to high-income earners, and it's hard to disagree with him. Norman claims the tax cuts have cost us around $2 billion so far. Without them, and the arbitrary goal of eliminating the deficit in 2014/15, we wouldn't need to cut vital public services. Finance Minister Bill English disputes Norman's figures, but there's no getting away from the lower-than-expected tax take.

So why aren't we talking about raising taxes?

Rob Salmond, in his book The new New Zealand Tax System, looks at one argument - that higher taxes are bad for growth - and concludes that while that seems true in the short-term, the long-term picture is more complicated. "There is a vibrant strand of research looking at the government's role in promoting long-term economic growth that comes to very different conclusions."

That case is strengthened by the prosperous high-taxing welfare states of Northern Europe.

Salmond is an expatriate Kiwi working at the University of Michigan as an assistant professor of political science, and the book is his exploration of the 2010 tax reforms which saw the top tax rate cut from 39 to 33 per cent, and GST raised from 12.5 to 15 per cent.

He wanted to know: how did New Zealand compare to other similar countries? Where did we stand?

His research reveals that New Zealand is an outlier - and not because we're over-taxed either, contrary to popular belief.

"Judged by the yardstick of international norms," he writes, "New Zealand under-taxes high income earners and over-taxes low income earners." Using the preferred OECD "tax wedge" measure, for example, New Zealand's tax rate among the 28 high-income OECD countries at the $100,000 salary level is 15 percentage points lower than the average, "representing over US$26,000 in tax that the average high income OECD country collects from these workers and their employers [that] New Zealand does not".

New Zealand is also a comparatively heavy taxer of consumption through the wide-ranging GST, which most affects those on low incomes. Most other countries have exemptions for food, and even for newspapers and transport; New Zealand has none.

"Some people have suggested that New Zealand's top income tax rate was unusually and punishingly high under the previous government ... In fact, it is unusually low. In a similar vein, the data also reveal that New Zealand is an unusually light taxer of both corporate dividends and capital gains, two other significant sources of revenue for high-income New Zealanders."

The idea of shared sacrifices is a noble one, but who, really, is making the sacrifices?

Tapu.Misa@gmail.com

- NZ Herald

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