Taxing wages, consumption before wealth
OPINION: It hardly seems accidental that those countries where higher taxes are the norm – think Scandinavia – also tend to be the most prosperous and peaceful.
It takes money to deliver an educated population that enjoys good health and longevity, that does relatively little harm to the environment, and where the rule of law that underpins property rights is funded appropriately.
Crucially though, the tax system needs to be seen to be fair.
Last week, Revenue Minister David Parker delivered a speech that touched on a glaring structural flaw in the New Zealand tax system.
While we vigorously tax the wages that people earn and the goods and services they consume, we don’t apply the same rigour to the wealth generated by speculative investment, and stashed away in trusts or havens.
In fact, as Parker conceded, the government doesn’t really know much at all about how extensive that wealth is, and who owns it. Therefore, Inland Revenue has been told to go forth and find out more about the sources, extent, and locations of wealth in this country.
If all goes well, Parker explained, a new Tax Principles Tax will enshrine some of the findings.
Not that Parker seemed to be overly interested in doing much with Inland Revenue’s eventual hoard of data.
For argument’s sake, let’s assume Inland Revenue would somehow be able to defeat the battalions of corporate tax lawyers and penetrate the forest of trusts and shell companies and offshore tax havens, and figure out an accurate estimate of the nation’s wealth that has been derived from speculative investment.
Oddly, none of the massive effort required to create this trove will be rewarded because – in the same breath – Parker confirmed that a Labour government would not be using such data to impose a capital gains tax, or a wealth tax, or any other kind of new tax.
The info will be nice to have, but – evidently – is thought to be too politically perilous to use.
Typical. In New Zealand, there has long been a bi-partisan reluctance to address what happens to a country with a low wage economy that relies heavily for its public revenues on taxing wages and consumption.
The result is not only socially regressive, but it tends to deliver insufficient funds to purchase a full range of quality public services.
Contrary to public myth, Parker pointed out, New Zealand is not a highly taxed country.
‘‘We sit in the middle of the OECD pack for total taxes,’’ he said.
As a percentage of GDP, he also claimed, the overall tax burden does not tend to change significantly when a Labour or a National government is in power.
Arguably, the political caution on taxation may be misplaced. For every voter who thinks taxation is theft, there are probably 10 voters who believe tax to be the essential trade-off for good public services.
Possibly, the electorate might even embrace a stronger tradeoff, if the argument for it was cogently put.
In the meantime, we continue to tax wages and consumption more strictly than we tax some other significant sources of wealth.
That situation seems to be neither progressive, nor fair.