Thirteen well-paid men favour tax cuts for the rich

“We believe the thirteen highly paid men on the group have prioritised and aligned the interests of business and the well paid over the interests of ordinary New Zealanders.”

This is the best summary I’ve seen of last week’s report from the government’s Tax Working Group. The savage criticism was delivered by the bank employees’ union spokesperson Andrew Campbell and it’s an accurate rundown because whichever way you look at it the TWG proposals would shift the tax burden further onto those least able to bear it.

Added credence is given to this view with the revelation that an Inland Revenue sampling of 100 of our wealthiest citizens found only about half paid the highest tax rate of 38%. What’s more, according to Mark Weldon from the New Zealand Stock Exchange Association who sits on the group, these wealthy tax avoiders include “some on the government’s own Tax Working Group”. He should have named and shamed them outright.

Surely tax abuse should have been a key focus for the TWG but instead the government appointed some tax cheats themselves to the group with the inevitable outcome.

Most income earners have no way of avoiding tax. Wage and Salary earners, the majority of workers, face PAYE tax on everything they earn and GST on everything they buy while the well off, including members of the TWG itself, can use trusts and other mechanisms to disguise their real income and then, for example, line up to collect the benefits of Working for Families.

Finance Minister Bill English has made it clear the overall tax changes in the budget will be neutral. If cuts are made in one place then tax must increase elsewhere so that if the government follows the TWG recipe and cuts the top personal and company tax rates then the rest of us must pay more. Increasing GST is the suggestion so that any small personal tax cuts for middle and low income earners would be swamped by a hike in GST to 15% to leave most of us worse off. It’s a shameful suggestion.

I’m not one to quote Roger Douglas favourably but even the Act MP says “We may get lower personal income taxes, but if those reductions are funded by increasing GST, then we are merely pushing more of the burden onto lower income New Zealanders.”  It’s a pity Douglas didn’t use the same reasoning when he introduced GST in the first place as Finance Minister back in the 1980s with precisely the outcome he now acknowledges.

Much has been made of how “broken” our tax system is to pave the way for public acceptance of reform. The TWG claims the current system is unfair, does not encourage economic growth and is not sustainable. But looking at the report it’s difficult to see the justification for any of the major recommendations.

For example the proposal to lower the top levels of personal and company tax is no less than a reward for wealthy individuals who manipulate the system to avoid paying tax. The evidence of this is clear from the IRD survey and in any case the TWG says our 38% top tax rate is not high by OECD standards. So there is no argument here for decreasing the top personal tax rate. A much better case could be made for an increase.

Similarly for the proposal to drop the company tax rate by 10%. We only have to look at the big Australian-owned banks to see companies which tried to diddle New Zealand taxpayers out of $2 billion through illegal tax avoidance in recent years.

As Andrew Campbell puts it “Australian banks, which make millions in profits, should not receive further tax cuts while their workers have to pay more on GST at the supermarket.”

In fact the major beneficiaries of lowering the top company tax rates will be foreign-owned companies which include most of our big corporations. The TWG’s pious hope is that this money will be reinvested but where is the evidence? The most likely outcome is more of our country’s wealth repatriated overseas in dividends to be invested elsewhere while our current accounts deficit soars.

The issue which should have been at the heart of TWG concern is our high level of income inequality and the escalating social problems which are a direct result. The tax system is one way of helping to level the opportunity field for all families and give everyone the chance to get ahead. Instead the TWG has played to a selfish corporate audience.

The 13 well-off men on the TWG should have been required to prepare a budget for a family living below the poverty line. That would have been a good starting point.


Keeping the lid on democracy in Haiti

It’s encouraging to see the big humanitarian response to the plight of the Haitian people following last week’s devastating earthquake. Here in New Zealand relief organisations have set up special appeals and wide coverage has been given on New Zealanders caught up in the disaster.

The international reaction included high profile comments from US President Barack Obama: “You will not be forsaken. You will not be forgotten. In this, your hour of greatest need, America stands with you.”

US Secretary of State Hillary Clinton abandoned her visit here on the strength of her desire to oversee the US relief effort. But there’s another reason for swift US action in Haiti supported by its Secretary of State.

The US is worried the power vacuum created by the devastation will give opportunity for political forces to develop which are hostile to US interests. Unfortunately the Haitian people have the disturbing habit of voting for politicians who put local needs ahead of the empire’s interests.

According to Wikipedia there have been no less than 32 coups in Haiti and from the outside one might think this is a country riven by factional fighting where there is no respect for democracy. A closer look however shows almost all these coups were instigated by imperial powers to exploit the wealth of the territory for their traders and merchants in earlier times and for today’s multi-national companies.

Early on the territory was overrun variously by the Spanish and French. African slaves were introduced and intermarried with the local people and Haiti today is the only country in the world to have emerged from a slave revolt.

But after independence is has never been left alone as the 32 coups testify.

In recent decades the United States has taken the lead in “overseeing” Haiti. From 1957 to 1986 the country was ruled by the brutal and corrupt Duvalier family backed by the military. Death squads were set up to eliminate any opposition. The US supported the regime and its suppression of opposition.

However huge demonstrations in 1986 made it impossible for the US to continue to support Duvalier family rule. They had outlived their usefulness and so the US arranged for the family to move into exile in France. Elections held in 1990 brought the popular leader John-Bertrand Aristide to power as President with 67% of the vote.

Aristide is a former Catholic priest who worked with the people in Haiti’s urban slums. He sided with the poor and the marginalised, the majority of the population, but was never given the chance to rule without overwhelming pressure and interference from the World Bank and International Monetary Fund who have a stranglehold over almost every developing country. They largely controlled the purse strings and insisted the country follow the “Washington Consensus” whereby public infrastructure and social services are privatised and the interests of the poor, the majority of the population, are abandoned.

Aristide played a cat and mouse game with the US on economic policy and has served three terms as President. However he was overthrown in a coup less than a year after he was first elected but was re-elected President with 91.8% of the vote in 2000 and 73 of the 83 parliamentary seats going to his political party.

The US has worked hard to destabilise and undermine his leadership and done its best to vilify Aristide. They accused him of all manner of corruption. In 2004 he was ousted in another US inspired coup (by kidnapping) and now lives in exile in South Africa. Today he remains the most popular political figure in Haiti but is unable to return, unlike Hillary Clinton who flew in a few days ago.

Following his ousting the United Nations sent in a widely criticised “stabilising force” after Aristide’s supporters began campaigning for the return of their democratically elected President.

An organisation called Harvard Law Student Advocates for Human Rights reported in 2005 that the UN stabilization force “effectively provided cover for the police to wage a campaign of terror in Port-au-Prince’s slums” which constitute “an unflinching bastion of support for Aristide and for Lavalas.” (Aristide’s political organisation)

With the UN building in the capital levelled in last week’s earthquake the US army is now sending 10,000 marines to keep up the stabilisation work.

So when Hillary Clinton abandoned New Zealand last week she had much more on her mind than helping the Haitian people devastated by earthquake. Keeping a lid on democracy on the Caribbean Island remains a key US priority.