“Higher taxes for super rich gets voter tic” – Closing The Gap

“Taxes, taxes, taxes, and all the rest is b******t.” That was the message that went viral at the Davos Economic Forum last month, and it’s the message our Government needs to hear if it wants to tackle inequality in New Zealand.

The “Taxes, taxes, taxes” challenge came from Rutger Bregman, a Dutch historian, who told the rich and famous at Davos that amid all the talk of justice and equality, no one was raising the real problem, which was the rich not paying their fare share.

Bregman’s views have been widely applauded, and they offer a lesson for New Zealand as the Government considers the soon-to-be released Tax Working Group Report. It’s clear there’s going to be a lot of noise from all sides about the merits of taxation on capital gains. But what we really need is a debate on the much larger question of what is the most appropriate level of taxation for New Zealand.

Government spending in New Zealand is currently limited to 30 percent of GDP, most of which comes from taxation. Somehow we have both a Government and an opposition wedded to this figure as if it were the holy grail of running a modern economy. It’s not, and sticking to such an arbitrary cap is a mistake. It is among the lowest level of government spending in the OECD, with governments in most developed countries spending over 40% percent of GDP.

Our low level of government spending is why New Zealanders are dying of cancer while they’re on hospital waiting lists, it is why we spend too little on mental health. It means well-off parents pay additional ‘voluntary’ school levies while schools in poorer areas cannot even begin to get that sort of assistance from their community. It is why we have disgracefully high levels of child poverty.

Taxation is the cost we pay for living in a fair and functioning modern society, and we need to start the tax debate with a dose of realism, by looking not just at capital gains tax, but at overall levels of taxation and spending.

There are two arguments we will hear opposing higher levels of tax. The first is that increasing tax levels will limit economic progress. In fact, one of the periods of strongest growth was in the post-war period when tax rates were much higher than at present. The post-war boom in the USA saw tax rates as high as 90 percent on the wealthy. But we are not advocating those tax levels. We must pay more, and somewhere over 40 percent is absolutely affordable.

The second argument will be that the private sector and individuals can make better decisions on spending than the government can. While that may be true in some parts of the economy, when it comes to things like health, education and social safety nets, a strong public sector is the only way to run a fair society.

We must broaden the discussion, and talk about paying more tax. Our tax system certainly needs to include a tax on capital gains, and higher taxes for the wealthy and those in high-paying jobs. But it will also mean less inequality and fairer access to health, education and social supports. We need to focus on the benefits rather than the costs and stop pretending we can have a fair society with current low levels of taxation.