Poverty and inequality won’t be challenged by Tax working group

By   /   December 5, 2017  /   9 Comments

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Last week Statistics NZ released the National Accounts for the year to March 2017, which revealed that working people are receiving only 48.7% of the national pie compared to a peak of 58.7% in 1981.

Last week Statistics NZ released the National Accounts for the year to March 2017, which revealed that working people are receiving only 48.7% of the national pie compared to a peak of 58.7% in 1981.

The value of this decline in today’s dollars is $11,500 a year for every one of the two-million wage and salaried workers in the country.

Most of this decline happened in the late 1980s and early 1990s under both Labour and National-led governments.

During this period, for the first time since the 1930s depression, unemployment re-emerged as a social scourge. Official rates went from almost nothing to hit 10% in the early 1990s and then have rarely ever again fallen below 4%.

Real wages were driven down by around a quarter and have also not recovered fully since. Union membership went from two-thirds of the workforce to 20%. Private sector membership dropped from around half to less than 10%. Workforce protections like overtime rates after 40 hours a week disappeared for most workers. Zero-hour contracts and other forms of precarious labour conditions became endemic.

The real value of benefits was slashed by up to 25% and has continued to decline as a percentage of the average wage because the level has only ever been increased by the consumer price index over the last 30 years which has been less than the average wage movement. This has seen basic benefit levels fall from around 40% of the average wage to 25%. The poverty produced by this cut is real and felt and can’t be discounted as simply a “relative” decline.

National superannuation was cut from 80% of the average wage to 72% but kept at that level since, unlike other beneficiaries since the superannuation rate is linked to the average wage. Raising the age of eligibility from 60 to 65 also radically reduced its overall cost to the government, however.

Official rates of child poverty doubled to 20% and have stayed at that level ever since.

The inequality statistics also grew rapidly in the late 1980s and early 1990 and have not improved since.

At that time, the top rate of income tax was cut from 66% to 33% and the massively unfair flat tax GST was introduced and then progressively increased to its current level of 15%. Inheritance tax, which targetted the very wealthy was abolished. Most forms of capital gains tax were eliminated. Corporate taxes were cut. Taxes on dividends were cut.

Working people on an average wage or less in New Zealand pay around a third of their income in tax of one sort or another. The wealthier you are the less tax you pay. The top one percent treat tax as a voluntary activity.  Official IRD data show that less than half of the people with $50 million in wealth pay the top marginal tax rate for declared income.

The whole tax system is radically unfair. It has been designed to shift wealth from working people to the rich and entrench that inequality.

The widespread poverty amongst working people in and out of employment and the associated and growing homelessness was barely touched during the period of the last Labour-led government. Unions were weaker after nine years not stronger. We cannot allow that to happen again.

One of the worst things that was done by the last Labour government was to maintain the unequal position for parents in work or those not in work in terms of child support payments. This was simply a vindictive creation of an artificial difference between the “deserving” and “undeserving” poor. Associated with this was the introduction of a brutal regime at WINZ to make access to even legal entitlements as difficult as possible which achieved a huge drop in the number of people on a benefit that was out of all proportion to the actual drop in unemployment during that period. I am convinced the big growth in homelessness since 2008 is directly related to that policy of excluding people from even their minimal entitlements.

That is why it is extraordinarily disappointing to find out that the tax working group parameters include – no discussion of GST rates, no discussion of an inheritance tax, no discussion of increased income taxes for the rich, no discussion of taxes on wealth. It seems the only thing it can do is look at forms of capital gains or land taxes. This can and should be part of a progressive tax reform but it will not be enough to tackle the accumulated problems associated with the entrenched poverty and inequality in this society.

We need wealth taxes including an inheritance tax. We could at least be looking at Financial Transaction Taxes rather than GST. One proposal I read recently that is worth considering is a tax rate of 70% on income over $200,000 and no tax on the first $20,000. All forms of income should be treated the same as wage income for tax purposes – including capital gains and dividends.

Multinationals operating in this country should have a tax assessed by IRD and imposed on them. If they think the assessed rate is unfair they can open their books to inspection if they want to appeal. Accountancy firms that facilitate tax avoidance like that revealed in the Panama Papers and most recently the Paradise Papers should be made criminally liable as well and prosecuted.

There are many ways of making the rich pay if there is a will to do so. The tax working group could have looked at the whole tax system and proposed a tax policy for the next election that would have significantly increased taxes on the rich and reduced taxes on the big majority. That tax policy would have been a winner in 2021.

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About the author

Mike Treen

National Director of Unite Union

9 Comments

  1. Grant Insley says:

    “The tax working group could have looked at the whole tax system and proposed a tax policy for the next election that would have significantly increased taxes on the rich and reduced taxes on the big majority.”

    Really? “Could have?”
    They haven’t sat yet! They could not have possibly done what is suggested!

  2. Priss says:

    “One proposal I read recently that is worth considering is a tax rate of 70% on income over $200,000 and no tax on the first $20,000”

    Sounds eminently reasonable. Who could possible oppose such a fair, progressive tax rate?

    Oh, wait…..

  3. Zack Brando says:

    New Zealand had the opportunity to vote for TOP, unfortunately not enough availed themselves of this obvious vehicle for change.

  4. Marc says:

    Most of the above criticism is of course correct, and a tax working group should have a wider scope. Income taxes need to be reviewed, as we need to return to a more progressive tax system (high earners to be taxed higher again).

    But while we have such considerations and discussions, it will not happen, certainly not under the stitched up Labour – NZ First – Greens government we now have, as the lesser evil (still pro capitalism, a softer version of neoliberalism).

    Bear in mind also, as long as we have the existing global economic order, relative free trade, free movement of goods and especially capital, and only limited free movement of labour, but nevertheless free to some degree, we have competition on all fronts.

    And as long as we trade with countries that expect us to allow their more cheaply made goods and services to enter our economic zone and country, and sell them in return our commodities and some value added goods in return, the wage and salary pressures remain, to keep them low (for some at least).

    We cannot compare the situation with 1981, as the world and its order have changed substantially.

    Of course we can become more self reliant, but as long as we need some medicines, some sophisticated machinery and resources we do not have easily available here, we must trade to some degree.

    Goods must be paid for, and even if we choose to run a different currency, not traded, we may end up having to pay exorbitant amounts for some things we need, and earn too little to pay for it.

    Change can ONLY come on a global scale, going it alone will not solve anything much.

    And therein lies the challenge or problem, others will try to underbid us, cut corners and do whatever may give them the edge, leaving us with the only option to play the game with them, or to shut borders and live without some things.

    The latter will eventually happen anyway, as the import of endless mass produced consumer goods is totally unsustainable, for environmental and eventually economical reasons. I-phones, modern cars, computers, cosmetics and much else may be seen as not really essential, but as most are now firmly addicted to consumerism, they will not want to give such things offering convenience up.

    As long as that is the case, and as long as most put up with the neoliberal and neoliberal light governments we have, NO significant change will come, none whatsoever. Only tweaks here and there are on the offer. For the rest:

    Keep dreaming.

  5. Nick says:

    All Government intervention, especially taxation, is social engineering. You advantage one person or group and you place barriers in the path of others.

    Obviously, in establishing taxation structures, the Working Party should not be unduly constrained by political expediency. They should demand the opportunity to consider the regime in it’s totality.

    However, before they attempt to weigh in on that, there is a conversation to be had: what are the characteristics of a good, or at least better, society. And a good or better economy, for that matter.

    Simplistic appeals to “Fairness” become rapidly unhelpful the moment you consider individual cases. It is necessary to make choices about how poor a person should be allowed to become, and how rich. How much personal freedom is desirable and how much constraint. How much responsibility people need to take for outcomes, and how much responsibility the state must assume. How much freedom a start-up business should be allowed to let a poorer person onto the ladder to a better life, against how much protection we owe to their customers or employees.

    In all this, we also need to think about what kinds of incentives and obligations will move the country in the direction we believe desirable.

    If this sounds like Big Brother, that is exactly what it is, what it ALWAYS is, no matter who is in power, and how aware they are or aren’t of the consequences of their choices.

    We also need to be honest on the Left. A simple choice to better advantage people who suffer under what appears an elitist regime, is by no means enough, if we know nothing of psychology or the results of social change.

    Every intervention has unforeseen outcomes.

    To see ill and want to improve it, is natural and praiseworthy. But to fail to understand that the “worm is in the rose” in most interventions is not only dumb, it is also a crime, because we get so few chances to make a real difference.

  6. Susan says:

    “One of the worst things that was done by the last Labour government was to maintain the unequal position for parents in work or those not in work in terms of child support payments.” Thanks for this Mike. We were told the IWTC was to be considered by the TWG- what became of that?
    Lets hope they don’t just do a complex patch-up on Working for Families

  7. Marc says:

    I have NO more faith in this corrupt NZ society, I call for Jihad:
    https://www.youtube.com/watch?v=Q2eAkkzf2lc

  8. Andrea says:

    Are we still ‘paying for someone to keep a look-out for a French invasion’? In other words – paying taxes that fill the government coffers yet have no clear destination or measurable function.

    Oh, but we have to pay taxes for schools and roads and hospitals and stuff that benefits the few. Not to mention upgrading the basic infrastructure and capacity to support people with power and water and sewerage systems. Just gotta!

    Let us pause.
    We’ve been paying taxes to keep us current with technology since Then and the state of the nation is dismal indeed. We, the tax payers of this country (and that’s most of us, from near-cradle to beyond the grave) are getting a really poor return on our investment. More. Ever and always more. For less and less and far too many shocks in the ‘system’. (Think rail and water and electricity at the least.)

    And we’re not turning up at the public shareholders’ meetings, and asking our servants ‘How can this be, oh faithless, useless and self-serving hirelings?’ while the tar bubbles and the feathers are fluffed.

    Some people believe the charlatans in blue and fail to actually notice the emperor in his undies. Yet Labour is not as it used to be. Kinda supine too often.

    The whole rank patchwork of overt and covert taxes, the perks for some, the loopholes, the advantages and disadvantages, the quality of public education on tax matters and obligatory reporting in Very Plain English (not Bill)to the nation is urgently required. Not prissy little tinkerings.

    Make it plain. simple, fair. Make it worthwhile becoming ‘rich’ without exploiting or ripping off, privatising profit and putting debt on the taxed. That’s anyone in this country: tradie, service provider, public servant, investor, saver, business maker.

    Instead of hiking taxes the moment the reward for hard work is at hand remove the endless game of snakes and ladders where hell is being the bottom of the top instead of the top of the bottom. (Think tax bands and lifestyle.)

    And make it a matter of law that the tax bands are reviewed at the start of every new term of government, and there is a cold-eyed review of the taxes, charges, levies, royalties. Too many programmes are going underfunded, or being cut to shift money to something more glittery. Take that power away from the mob in Parliament and into a different structure entirely. And measure the outcomes. Always.

    And little at the various pockets available to Parliament. They are definitely overdue for a tune up. Too many pork barrels, it seems. We don’t need that at all. Clean it out. Plain, transparent and simple, and above all, fair.

  9. theresa says:

    You are so right.
    Work and Income policies are the driven factor behind the homelessness.
    People with high rent are not given there rightful calculation according to how work and income measures the accommodation supplement.

    1. they only look at the rent to what you are earning gross per week. they don’t take your living costs into consideration of which I thought was so wrong.

    Because of this way of calculation the person is left short of rent payment then told they can not exceed the accommodation supplement and will do the calculation on whether they are qualified for Temporary Additional support of which half the time they will not qualify or maybe but still short of the rent payments. A lot of the working people who lose the jobs falls into this category, and ended up having to borrow the money from work and income and had to pay it back if they do not move or take up the offer of accommodation in one of the so called MOTELS.
    I believe this needs to investigated as they played a big part in creating homelessness. When questioned the manager supported the case worker by saying it is law. So a review was sent away and were told that it had to go to wellington where the law was set, Now we have a new government I hope these things will be looked at as work and income offices are still operating with the old regime.

    we need people that look at people as people not numbers.