Revenue Minister David Parker says he wants a conversation about whether our taxation regime is fair. Photo / Mark Mitchell, File
Revenue Minister David Parker says he wants a conversation about whether our taxation regime is fair. Photo / Mark Mitchell, File
Opinion by Kushlan Sugathapala
OPINION
It’s not envy.
It’s not even about having a very fair tax system, as you find in the Scandinavian countries. Or even the second tier of fairness, as in Western European countries like Germany and France.
It’s about whether we should have a tax system at the extreme endsuch as the US or something closer to countries like the UK and Australia.
IRD’s report found that our rich pay 9 per cent tax, while it’s estimated to be 8.2 per cent in the US (higher if state taxes such as sales tax are included). Even the US has a capital gains tax, and their sales taxes tend to be lower than our GST.
I don’t envy the rich; some have worked hard. I don’t even envy those lucky enough to inherit wealth, although I wish they wouldn’t mind paying an inheritance tax. (If I won the lottery of life, I would be as happy with $48m as $50m.)
I have no gripe with wealthy businesses – as long as they got there paying fair wages and looking after their employees; didn’t gouge their customers or destroy the environment; and paid their fair share of taxes.
However, it goes against my innate desire for fairness that – as Marcus Rashford put it – they pay a lower tax rate than a supermarket cashier. This shortfall must be made up by the low and middle class; ordinary mums and dads, the nurses, the teachers.
It means we have less to invest in infrastructure. Less to spend on health and education. Less to spend on adults and children going hungry, going without the basics essential for a dignified life.
Our tax system was upended in Rogernomics. It’s astounding that our politicians have made the tax system even more extreme over the past 38 years. The top income tax rate, which was reduced from 66 per cent to 40 per cent by Roger Douglas, went down to 33 per cent, although it’s now 39 per cent for a few high earners.
GST started at 10 per cent and is now 50 per cent higher at 15 per cent.
The corporate tax rate reduced from 48 per cent to 33 per cent in 1990, and is now 28 per cent.
However, this kindness on tax doesn’t reach the average mums and dads. Their tax brackets last changed 15 years ago; the average weekly wage has increased by 66 per cent since then.
Income tax rates were last reduced in 2010 but offset by increased GST, primarily benefiting high earners with the top tax rate falling from 38 per cent to 33 per cent.
In 2017, the IRD reported how New Zealand compares internationally.
In 2016, New Zealand’s tax revenue was 1 per cent lower than the OECD average of 34 per cent; it’s increased slightly since then to almost the OECD average.
Forty per cent of the tax revenues came from individual income tax, 32 per cent from GST, and 15 per cent from corporate income tax.
The top tax rate, 33 per cent until last year, starts at almost our average wage and is one of the lowest in the OECD. It’s 45 per cent in the UK and Australia. We are among the very few countries to tax incomes from the first dollar; almost every country has a bottom tax-free slab to ease the burden on low-income earners.
We can deduct very few items from taxes; many countries allow significant exemptions to incentivise retirement savings, etc. Our GST take, 10 per cent of GDP, is the highest in the OECD as our government collects GST on almost everything.
Most countries, including the high-tax Scandinavian countries, have at least a concessionary rate for food. Both the UK and Australia have zero GST on food.
Kushlan Sugathapala. Photo / Supplied
Multinational corporations pay almost no tax using various ruses. It’s not just the tech companies; it’s virtually everyone.
A NZ Herald investigation in 2016 found 20 large multinationals paid no tax on $10b in annual revenues, conservatively calculating the loss of tax revenues for 2016 at $500m.
While we have small steps to improve the situation, it’s nowhere near enough.
It’s unclear whether the proposed global tax changes will benefit New Zealand much.
Many arguments against a capital gains tax are misleading, to say the least. It is implausible that it will lead to an exodus of the wealthy, because every developed country has one.
The argument that design is challenging doesn’t hold water either. If every country can do it, there’s absolutely no reason that New Zealand can’t.
This is the same facile argument that excluding food from GST is too complex.
A tax system is supposed to be progressive and reduce inequality.
Ours made one of the smallest contributions to reducing inequality, ranking 27th out of 34 OECD countries in 2013 (the last published figures).
There is little doubt that our highly unfair tax system hits low- and middle-income earners harder than almost every country.
This is not about envy; it’s to lighten the tax burden on the low and middle-income earners and make the system a little fairer.
John Key made our taxes even more regressive by increasing GST with a stroke of his pen.
Why is Labour so diffident about taxing those who can most afford to pay and lightening the burden on those deserving a break - and who are more likely to vote for them?
- Kushlan Sugathapala is a researcher and writer on social justice issues.
