Many of our country’s best and brightest minds have proposed ways to fix New Zealand’s tax system. Now Hayden Donnell has too.
Tax is one of the most depressing topics to debate in New Zealand. Our housing market is a marvel of economic engineering. Experts from around the globe are poking and prodding it, trying to figure out how something can be so overinflated and still not explode. The average Auckland house costs $1.4 million, and people are panicking about a price downturn. In the event of another upturn, property managers will herd young people into pits to fight for the right to live in a hollowed-out sheep carcass in the basement of a special character villa.
Even in these conditions, it’s inconceivable for our politicians to consider more comprehensive taxes on accumulated housing wealth. Jacinda Ardern has ruled out a more stringent capital gains tax for the duration of her political life. Both National and Labour are opposed to a wealth tax. A land tax, while sensible, looks unlikely, due to the fact that houses are often built on land.
Ruling out most of the actual solutions to our problems has left the government in a pickle. It recently tried to add GST to Kiwisaver fund fees, only to experience the political version of when that guy’s face melted off in Raiders Of The Lost Ark.
Thankfully one policy option is still available to Labour, and it may be the most sensible of them all: copy and pasting Australia’s income tax code.
Many New Zealanders think of Aotearoa as an egalitarian paradise where everyone gets a fair go. They may be surprised to learn it’s actually a nasty little goblin country with tax laws straight out of a Dickens novel.
These are our income tax rates:
The most important things to note are these bits:
We tax people on everything they earn, no matter how small the amount. Collecting shopping trolleys from the Countdown carpark one day a week? Doesn’t matter, David Parker is still snaking his fingers into your wallet pocket and collecting his share of your 62c pay packet.
This isn’t necessarily the norm. In the comparatively equitable and caring enclave of *checks notes* Conservative-ruled Britain, the first £12,570 of people’s earnings are tax-free.
Even in the US, where people have to sell a kidney to pay for surgery on their other kidney, the tax rates are in some cases more progressive. It has a 20% capital gains tax, along with a confusing federal tax system where you can pay between 10-12% on income up to US$54,200.
If Labour’s ministers aren’t brave enough to be as liberal on tax as a country lurching into fascism, they could at least aspire to the same levels of fairness as our closest neighbour.
These are Australia’s income tax rates:
This is the most important thing to note:
And this is what I am suggesting Parker and Grant Robertson should do to the picture above when they’re next proposing adjustments to our tax system.
Many people may look at this suggestion and splutter things like “unaffordable” or “why is the guy who spent 2018 trying to get a dildo into Te Papa telling me how to structure the country’s taxation system”. Thankfully The Spinoff has commissioned an economist to prove these objections baseless and wrong, and actually it was also the Big Fresh Animatronic Fruit & Veggies.
Sense Partners partner Shamubeel Eaqub has run the numbers on yoinking Australia’s income tax system, and found it would be a relatively affordable exercise. In fact, before Labour implemented the 39% top tax rate after the last election, the copy-and-paste manoeuvre would have been basically revenue neutral. Now his data suggests it would cost $3.3 billion per year.
Eaqub says some of that lost revenue could be made up automatically, as the new system would reduce poverty and its resulting welfare and healthcare costs. Tax consultant Terry Baucher says the government could account for some of the shortfall by stealing an element of the UK system, where the tax free threshold is reduced by £1 for every £2 someone earns above £100,000, or by stealing Australia’s 45% tax rate on trusts. The 12% tax increase would earn about $300 million, he says. My own suggestions include tweaking a bracket, laying down approximately 42 metres less motorway per year, or seizing Nick Mowbray’s ridiculous house under the Public Works Act.
It would be worth the hassle, because adopting Australia’s tax code would give every New Zealander earning less than $146,000 a tax cut, with those on lower incomes gaining the most. People earning $18,001 to $19,000 would pay $2200 less in tax per year, while someone taking in $40,000 a year would be $1,532 better off. Those earning more than $200,000 would pay an average of $22,314 extra per year (a figure distorted by those on ultra-high incomes), but that’s a sacrifice I’m willing to make.
Eaqub says New Zealand’s income tax system is unfair. Almost as importantly, it makes us look bad compared to our horrible cousins across the Tasman. “Australia has a more progressive income tax regime than New Zealand. And their rich people still turn up to work,” he says.
New Zealanders are doing it tough right now. Tomatoes are approximately $400 per gram. Petrol is too. Our big corporations are making record profits while workers get warned that asking for a decent pay rise will cause a “wage price spiral”. Te Papa won’t take my calls anymore. Ian Foster.
Labour flirted with making most people’s lives better in real, noticeable ways when it introduced half-price public transport fares and took some tax off petrol. This would be a more meaningful step that, as a bonus, wouldn’t directly subsidise the companies that brought us climate change. It would also help the economy, delivering more money to people who will spend it in shops, and less to those who will plant it in tax havens like the Cayman Islands or the housing market.
It’s probably too late for Labour to match the borderline Marxism of Boris Johnson, who oversaw a system that offers free dental care and GP visits alongside its tax-free threshold. But we can still hold out hope that it will find a way to be as progressive as John Howard, Tony Abbott, or Scott Morrison.
Politicians like to talk about raising our wages and productivity to match Australia’s. They want to stop the “brain drain”. Maybe they could start by allowing our low and middle-income workers to keep as much of their own hard-earned cash as Australia does.
Follow Bernard Hickey’s When the Facts Change on Apple Podcasts, Spotify or your favourite podcast provider.
