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.

ENDS

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