11
2010
Aotearoa Tax Reform and the Maori Party
An article by 
On February 9th the Prime Minister of Aotearoa (NZ) delivered a speech in Parliament outlining the governments direction for the country. Alongside new proposals for mining in national parks and on conservation land, building new roads and granting easier access for firms to research and development money from Crown institutes, tax reform was a major focus. The proposed reforms around tax have been put forward as a possible increase in GST to 15%, lowering of the top rates on personal income, trusts and company tax to align at 30% and closing some of the loopholes that see people get around property taxes.
In the face of arguments that such a move will most impact the poorer end of our society while largely benefiting the wealthy, the government has talked of raising the rates of welfare benefits and Working for Families packages to compensate for the needed increase in household budget to cover the GST rise. This seems like a poor approach as it only increases dependency on the government for those at the lower end of the spectrum rather than enabling them to move away from government support. It necessitates the need for them to find higher paying jobs than they otherwise would have. Alongside that concern, many have voiced a skeptical approach around whether the government truly can compensate those on lower incomes to meet the shortfall.
It seems that what we have coming is a package that is significantly weighted in favour of the wealthy and those who control capital while increasing the need for those at the other end to turn to the government for help. Even if the government can offer adequate compensation, the very fact that it would need to do so indicates a poor proposal and does nothing to cool our heated housing bubble that blocks so many from gaining access to the capital market that controls the central elements of our nation’s wealth.
The plus side of raising GST is that it has the ability to curb consumption and redirect people towards saving and investing where they have the means to do so, but this only works when a household budget has some “fat” left over after the basics are covered, something that has reduced already for many households in the face of rising food prices over the last couple of years.
With that in mind, there is a way to support a GST rise while not affecting the most basic necessary element in every household budget.
On January 21st in a press release (before the Prime Minister’s speech), the Maori Party put forward two very basic ideas that need to be seriously looked at. They stated the following:
“The Maori Party’s policy is to remove GST from food, and to exempt the first $25,000 of personal income from tax, to protect the most disadvantaged and vulnerable members of society,”…
“The Maori Party is also interested in fundamentally different sources of revenue, such as a tax on financial transactions. This could generate enough revenue to replace income tax completely. Has the Tax Review Working Party considered this option, which is gaining credence around the world?
“At a wider level, the Maori Party says conventional accounting for the national economy is inadequate. We advocate a Genuine Progress Index, to gather and integrate data on our economic, social, environmental and cultural performance, and the heritage that we will be leaving for future generations,” said Dr Sharples.
Each of these ideas carries much merit. The removal of GST from food and exempting the first $25,000 earned eliminates any compensation the government would need to offer while still encouraging savings and investment because of the increased prices on everything but food items.
The proposed minor tax on financial transactions, which closely resembles the Robin Hood tax (that I fully endorse) proposed in the UK, would easily make up the shortfall between what the government would have gained in GST on food and the tax on the first $25,000 of income and enable it to still pursue everything else it was planning. It seems to make sense.
Because I think it makes sense, I personally support the Maori Party’s proposals in this area.
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About the Author: Frank Ritchie
Frank is the Education and Advocacy Manager for TEAR Fund NZ. Frank is a licensed Minister in the Wesleyan Methodist Church of New Zealand and has a keen interest in biblical perspectives of Justice and how this connects to service to, with and for the poor, disadvantaged and marginalized people of the world.
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This Government is not letting any of us forget that National = government by economists, compared to Labour = government by social workers. This has been the pattern for 20 years now, and it doesn’t look likely to end anytime soon. The lowering of progressive taxes and the raising of a regressive tax is a symptom of the supply-side economics that National has supported since the late 1980s.
I think that raising GST, then trying to compensate those who can’t afford the rise, is a pointless and inflationary money-go-round that may not achieve anything at all. OTOH, your point about higher GST discouraging consumption is a good one, but only if essential grocery items become exempt. Note that this would have to include a number of non-food essentials (e.g. cleaners, baby care products and possibly some nutritional supplements) but not all foods, or indeed everything that is sold in supermarkets. In many ways John Key made a good point when he said that once you start looking at what should be exempt, there is no end to the discussions around that.
I think there is a lot of good in Gareth Morgan’s proposals for every adult in NZ to receive a tax-free income equivalent to today’s invalids benefit rate, then be taxed at a flat rate (he suggested 20-25%) above that amount. This would provide for the needs of those unable to work, while rewarding effort and enterprise in a relatively fair way, provided that tax avoidance through personal and family trusts could be somehow minimized.
The simple way to negate tax avoidance when going with a flat tax rate is tax trusts at the same rate.
I agree, if you start going down the track of working out what is essential and what is not, the track gets endless – that’s why I support only taking it off food… now, of course, not all food is essential, but its a big enough chunk of the weekly income to make a difference and the saving on no GST on food would balance out the GST on other essential items – coupled with no tax on a percentage of income and it should all balance in theory, meaning low incomes aren’t hit at all by a wide GST increase.
Going down such a route if pursuing a GST increase is far better than compensation packages IMHO.
GST works well because it is a simple tax. Australia’s version, where food is exempt, led to confusing intricacies of what was a food and what had been processed sufficiently to attract the tax. Soup bones were GST free, dog bones not. Shrimp got taxed if served hot, not cold.
You might come to terms with paying 10% more because you prefer drinking yoghurt, but you won’t get back the billions spent converting all the invoicing systems in the country to track GST at a line item level. We’d probably even stimulate the Aussie economy, since there won’t be enough spare coders in NZ to get through the work, which won’t help our comparison.
It’s much better to give more benefits and take less income tax. Please save your energy for advocating that those measures are implemented sufficiently, rather than that food should be GST exempt.
Trust the Aussies to make it more complicated than it needs to be… surely a definition of “food” isn’t that difficult.
Taking less tax from income across the board would be brilliant if I honestly believed that it would be done to a level that would properly balance out the loss in the average household budget caused by the rise in GST… advocating for that at this point in time seems more useless than advocating for a removal of GST for food (food being the stuff we eat… there’s a good working definition
), at least the latter has one of the parties that helps form the government advocating for it.
I’ve got no problem stimulating the Australian economy, there are enough Kiwis there to benefit from it and I haven’t yet bought into the game of trying to get our income levels to exactly the same as theirs
TSM, do you see an issue with raising benefits to compensate for any increase in GST?
…in saying all that though, I’m actually more interested in the tax on financial transactions at the moment as proposed by the Robin Hood Tax http://www.robinhoodtax.org.uk Our figures would pale in comparison to theirs, but I still think it’s worthy of investigation.