Let’s talk about tax!
On May 25th, the Government released their ninth Budget, which included tax cuts in the form of shifted income brackets and tax credit adjustments.
The PSA was watching with interest: earlier that week, ‘Progressive Thinking: ten perspectives on tax’ was launched.
The book makes the case that Budget tax talk should be about more than just tax cuts, and that our public services are significantly underfunded – so we should all be talking about tax right now. Working Life attended the launch and considered some of the arguments on offer.
At least 100 people are here just after midday at PSA House on the Monday of Budget week, and there’s standing room only for the crowd, which is filing in through the lifts and stairwells with an enthusiasm usually reserved for political rallies and staff parties with lunch provided.
It’s a surprising scene, especially given that we’re here to talk about tax, one of the great conversational no-nos in both politics and wider society. And sure enough, when the symposium begins, one guest immediately falls asleep in their seat during the introductions, and Working Life is reminded why it’s so difficult to talk about tax in New Zealand without either boring people to sleep or annoying them. It doesn’t have to be this way: let’s talk about how we talk about tax.
In the PSA’s Progressive Thinking, Wellington-based writer and trade unionist Morgan Godfery makes the case that we talk about the economy as “a living, breathing person… it gets jittery, confident and it rewards risk-takers and punishes scroungers.”
In talking tax cuts, politicians are prone to talk about relief and burdens, and assure us that they alone can fix our woes through a few creative tweaks to tax brackets, and suddenly – voila! – we’re freer from the shackles of tax thanks to those who impose them on us.
In reality, argues Godfery, the economy “cannot feel… it certainly isn’t bestowed with intention or consciousness… in fact, tax is what makes the economy possible in the first place, not the thing ‘hurting’ it.”
Far from personal income tax being the problem in economic policy, Council of Trade Unions economist Bill Rosenberg argues that wealth taxes are all but absent in New Zealand, and that is hurting our ability to pay for high-quality, timely public services that are reliable and can keep up with growing demand.
Rosenberg’s article in Progressive Thinking highlights the lack of a full capital gains tax – something that is common in other countries, including Australia – and the relatively simple steps that could be taken to prevent “extremes of wealth” forming to the detriment of society and the wider economy.
He considers examples like reinstating estate and gift duties, and looking to prevent non-resident purchases of existing housing stock so that residents have a better chance of buying, especially with better assistance from Government to low and middle-income first-home buyers.
Consensus in the room
Back at PSA House, several of Progressive Thinking’s authors are on stage and discussing the most pressing issues in tax policy. While all of the authors come from different backgrounds and varying schools of thought, an agreement seems to be reached under questioning from moderator Michael Macauley: the absence of a real capital gains tax in New Zealand is an anomaly in international terms, and should be a policy priority for any government. The sleeping guest is now awake, seemingly in agreement.
Dr Lisa Marriott, Associate Professor from VUW and expert in the behavioural impacts of taxation, also notes this in her article on the history of tax policy in New Zealand. “This provides a tax advantage to those who have capital assets and has the potential to distort decision-making towards in investment in capital assets due to their tax-preferred status,” she says.
It hasn’t always been the case, either. Death duties and gift duties were active policies until 1992 and 2011 respectively, and she believes this lack of a comprehensive CGT undermines our “broad-base, low-rate” philosophy, which also includes regressive taxes like Goods and Services Tax – this is in opposition to progressive taxes like income taxes, which factor in an individual’s ability to pay.
Later, there’s some lively discussion in the room about foreign trust law and multinational tax avoidance. These have to be two of the most uncontroversial and widely-held beliefs about tax policy among ordinary New Zealanders – it isn’t fair that the richest individuals and companies are able to hide their assets in New Zealand to pay lower taxes overseas (and vice versa), and it’s seen as a scam that multinational companies like Google can get away with paying very little tax in New Zealand by registering in overseas jurisdictions.
Sense Partners economist Shamubeel Eaqub tackles these issues in his article on foreign trust regulation and tax avoidance. “The Panama Papers exposed how our light touch regulation of foreign trusts can be abused,” he says. “There is a lethargy in improving the tax system in New Zealand. Like many policy issues – tax, housing or poverty, for example – political leaders are entranced by the tranquilising drug of gradualism.”
Strong words, but relevant ones. According to Eaqub, “a thorough review of the foreign trust regime by John Shewan highlighted the need for greater regulation. This has not happened. Even when the problems are clearly highlighted and solutions proposed, policy change is slow.”
The crowd’s trickling back into the lifts again, colourful copies of Progressive Thinking in hand, conversations coming to life at the end of the symposium. Two of the authors are debating the merits of a carbon tax versus an improved Emissions Trading Scheme, and all of the biscuits are gone.
It may be difficult to get people talking about tax, but once the political spin is removed from the equation, it becomes much clearer what people care about – they want public services that work well when they need them to, a fair tax system that doesn’t just benefit the rich, and to feel like their taxes truly are being put to good use.
If they keep talking about it, maybe they can convince their politicians to talk about tax like this, too.
The PSA’s “Progressive Thinking: ten perspectives on tax” is available online for free here.
It features ten authors – those mentioned above as well as Max Rashbrooke, Keith Ng, Terry Baucher, Bob Stephens, Susan St John and Paul Young. Physical copies are available to order from Unity Books in Auckland and Wellington, with all sales revenue donated to UnionAID.