Tax cuts or change the system?

We will have an election by January 13, 2024 and one of the major discussions is going to be tax cuts, so is it a good idea or not? Right-wing governments around the world have a common theme of cutting taxes but they tend to be funded by big business and so a million-dollar donation to a political party could save them $10 million in saved tax payments so it makes good economic sense for businesses and the wealthy, but is it good for the economy and, more importantly, the people?

In New Zealand, the tax system seems a bit out of balance in that taxes start with the first dollar earned and even though it is only 10.5 per cent on the first $14,000, it reduces the income of the low-paid and it must cost more to collect it than the revenue it generates.

On top of this, we have GST on food which pushes up living costs for the lower-paid and this has to be made good with a higher living wage and government payments such as pensions, sickness and unemployment benefits. So the Government ends up taking money from the low-income earner and then paying it out in bigger benefits and pensions to compensate for the loss of purchasing power.

It is common, at election time, for the incumbent Government to use its power to hand money back to the people with some form of benefit and tax cuts are fairly common. The problem is that at the moment the world is grappling with inflation and is on the brink of a recession and big tax cuts would be bad for the economy as a whole.

Tax cuts for the wealthy are often portrayed as good for the economy as the rich supposedly spend more money and the lower paid are supposed to benefit but, in reality, it does not work and as the Pope said, “the poor have been waiting a long time for the trickle-down effect to bring benefits”.

In the US Trump gave big tax cuts to the well-off which depleted the US Government’s income but, at the same time, he started a trade war and slapped huge taxes on imports to replace the lost revenue. The UK tried big tax cuts for the rich and this led to a collapse of the pound. The policy had to be scrapped, so the solutions are not easy.

To avoid paying people benefits and then taking some of the money back in taxes, why not eliminate the first level of tax altogether and give everyone tax-free earnings up to $14,000, which would help the lower paid hugely and in fact give every income level an equal benefit?

The lower-paid put the money straight back into the economy with spending on food, clothes and the necessities of life and so it really would stimulate the economy whereas at the moment the Government has found it necessary to pay out heating allowances to compensate for higher costs and inflation.