Let’s Tax the Rich and Damn the Consequences

So per the stories in today's press, the Council of Trade Unions ("CTU) thinks the “rich” should pay more taxes. In other breaking news it is reported that the Pope is Catholic and bears do in the woods what they have always done.

In support of this position the CTU has released the outcome of a poll it commissioned that apparently shows a 66% level of support for the introduction of a higher marginal tax rate, taking effect at some amount above $70,000. The trouble with polls is that they all depend on the exact wording of the questions and how they are asked. I’m sure that armed with some well phrased questions I could commission a poll that evidenced a 90% level of support for cutting personal income taxes.

It is of course Budget time, when opinions from all across the political spectrum are aired. What this analysis blatantly forgets to mention is how much the so called “wealthy” in New Zealand pay in personal income taxes already. As detailed in Budget 2017, the top 9% of salary and wages earners pay 42% of the personal income tax in New Zealand. This is before factoring in the effect of Working For Families and the Government’s new Families Package. In fact the top 3% earners pay 25% of the personal income tax in New Zealand. Those 3% are people earning more than $150,000 a year, which is the level often suggested as the right point to introduce another higher tax bracket.

I wonder whether armed with these facts, 66% of the New Zealand population would really agree that the 3% of people paying 25% of the personal tax take are shirking their responsibilities as good citizens of New Zealand and that they deserve to pay more.

There is clearly a groundswell of support for increased infrastructure and social spending in New Zealand. It is hard to disagree with this. As someone who drives the length of the Northwestern Motorway in Auckland every day, I look longingly at the side of the road and wonder why on earth no busway was built when the motorway has widened. Auckland is choking with traffic and the need for more public transport is undeniable. It is also clear that there has been underinvestment in healthcare and other areas of social spending.

The problem with any public utility is that as individuals we’d really like someone else to pay for it. So when there’s a big spending need, the usual catch cries are to tax the rich, tax corporates, tax foreigners etc, without much thought to the consequences. The risk with any such approach is that these target groups are also the most geographically mobile and/or the most able to find a way to be able to reduce their tax bill. For a few years now we have given ourselves a congratulatory slap on the back as net emigration to Australia has stopped and people have been coming here in droves. This has of course been during a period when the Australian economy has been in the doldrums. As is evident from Tuesday’s Australian 2018 Budget, their economy is well back on track and they have a Government with a long term commitment to reducing taxes. If we don’t want a return to the days of tens of thousands of Kiwis leaving for Australia each year, we need an environment where talented, hard-working and successful New Zealanders are valued and not treated as an ATM for heavy spending Governments.

The recently established Tax Working Group is undertaking a full review of the New Zealand tax system and the CTU is represented on this group. I’d recommend that the TWG be left to do its job, within the Government’s frame of reference (which mandates that tax increases are not to be considered) and that the politics be left until after they have released their recommendations. We need a broad-based, future proofed taxation system that is fair to all taxpayers. As Winston Churchill famously said “for a nation to try and tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”. A good reminder of the need for our upcoming 2018 Budget to focus on growing the New Zealand economy rather than seeking to wring extra tax dollars out of those already paying their fair share.

Bruce Bernacchi

10 May 2018