Tuesday, 26 January 2010
By David A report by the Tax Working Group has ignored the popular campaign for GST to be removed from food, calling instead for an across-the-board increase in GST to fund tax cuts for the wealthy. National, various business groups and much of the media have embraced this idea, although they appear less keen on the report’s proposal to tax rental properties. The Tax Working Group was one of several economic “taskforces” established by the National Government soon after the last election. It’s report has been contrasted with the free market fantasy produced by Don Brash’s 2025 Taskforce – which claimed cutting the minimum wage would somehow help wages increase to Australian levels. But praising the tax report as free from “ideological rhetoric” misses the point that many of its proposals are straight out of a neo-liberal economics text book. Cutting taxes on the rich and introducing GST was a core part of Labour and National’s free market reforms in the ’80s and ’90s. In the classic reverse Robin Hood free market style, they made the rich richer, by taxing them less and making everybody else pay more. This time round, the Dominion Post calculates that cutting the top personal tax rate from 38 percent to 33 percent would “put about $20 a week in the pockets of workers on $90,000 a year but give those earning less than $70,000 nothing.” And of course we’d also get hit with a 2.5 percent rise in the cost of everything else, thanks to the rise in GST. Rich rort tax system On top of the worn-out claims that making the rich richer will help us all, a new and bizarre argument is being deployed. The rich aren’t paying their fair share, wage and salary earners are paying too much, therefore (and this is the bizarre bit) we should cut the top tax rate and increase GST. According to the Dominion Post, “an Inland Revenue sample of 100 of the richest New Zealanders showed only about half were paying the highest marginal tax rate on their income.” The solution to this “tax rort”? Close the loopholes and go after the dodgers? No way, just cut the top tax rate. The economic theory behind this approach is that if the rich didn’t have to pay so much tax then they (or their accountants) wouldn’t work so hard to avoid it. In other words change the law to make the problem disappear. I’d love to see this logic applied to the crime. Instead of the new “three strikes” law we’d have something like this ... “In a bold new move to tackle rising violent crime figures the Government has announced they will stop counting assaults.” The funniest thing about the report may well be the claim by Finance Minister Bill English that he found “startling” the reports revelations that many rich people were “able to restructure their affairs” using a “company, trust or special savings vehicle” to avoid tax. Hang on. Wasn’t that pretty much what English himself did in the housing allowance scandal? The next sentence in the the Dominion Post report might be closer to the truth: “That only half of New Zealand’s wealthiest individuals were able to avoid paying the top rate of tax would be ‘astounding to the layman’, he [English] said.” This looks like English is saying that it’s surprising that only half were avoiding tax (surely this is a typo?). We can shift the tax debate In the run up to the last election, National was able to tap into discontent about low wages and rising prices with calls to close the wage gap between New Zealand and Australia. Of course they weren’t talking about a 25 percent increase in wages, instead they managed to focus the debate on tax cuts. Labour made things easy for them, because they opposed big wage rises too. Instead they cut taxes before the election, which not only looked like a pathetic election bribe attempt, but also backed up National’s argument that tax cuts are the solution to poor pay. Both parties were also united in their opposition to calls for GST to be removed from food. Nevertheless, the campaign to make food GST free – initiated by RAM and supported by the Maori Party, Grey Power and others – gained significant public support, with one pre-election poll showing 73 percent in favour. In power, National postponed its tax cuts, because of the recession. Now they are back on the agenda. But with such dodgy arguments being deployed in favour of tax cuts for the wealthy, paid for by a GST rise that will hit low and modest income people hardest, there’s wide open political space for a revival of the GST off food campaign. Another progressive tax reform supported by RAM as a way of funding GST cuts is a transaction tax on the movement of large sums of money. Ten years ago, this idea, some times known as a Tobin Tax, was a major spur to the European mass movement ATTAC, which played a key role in launching the World Social Forums. More recently, this idea has been raised by the Maori Party, Jim Anderton’s Progressives Party and Socialist Worker’s Bad Banks campaign. No doubt there are many other tax reforms that the Left could rally around, and that many people would support. With the next Budget four months away, there is plenty of time to campaign around this issue. But perhaps not enough time to build a campaign big enough to stop National’s reverse Robin Hood reforms. Nonetheless, if we can make a bit of a fuss, we can shift the tax and income debate away from the idea that income tax cuts, rather than wage rises are the way to boost take home pay. We may also be able to pressure Labour and the Greens into supporting taking GST off food, setting this up as a central issue at the next election.