Taxation in 2020: my thoughts on a socially taxing matter

Tax. A three letter word of a thing whose collection was the job of someone Jesus apparently had sympathy for when nobody would. A thing loathed by libertarian and right wing parties, but seen as essential by many on the left. So, about this interestingly controversial thing called tax, that gets peoples hackles up for different reasons without fail at every election. I believe New Zealand needs to revisit that Tax Working Group report and make some serious decisions.

But before then, we have an election campaign approaching and I think in light of the Green Party tax announcement on Sunday, it is time to state my thoughts.

Goods and Services Tax (G.S.T.) is one tax that people from all parts of the political spectrum seem to agree is a hindrance. For the low income earner the few extra dollars that is paid as a result of G.S.T. is possibly the difference between being able to afford an essential item and having to scrounge around for a couple of extra dollars. Lower income earners also as a result find it much more difficult to invest and/or save. I personally believe G.S.T. should be cut to 10%. I will explain later where I believe the other components of the tax system can make up for the subsequent loss of revenue.

Every election, National and A.C.T. have campaigned on doing something about lowering income tax. One can be fairly confident that the 2020 election will be no different. Not surprisingly they will target the upper income tax brackets – shown below – and say that the tax cuts will benefit all New Zealanders. The current brackets are:

  • $70,001+ = 33%
  • $48,000-$70,000 = 30%
  • $14,001-$48,000 = 17.5%
  • <$14,000 = 10.5%

Instead of further cutting the top tax bracket and giving higher income earners an even bigger slice of their incomes, I propose broadening the income range across which the tax brackets are applied. I would support something similar to the brackets below:

  • $150,000+ = 37.5%
  • $67,001-$150,000 = 30%
  • $33,001-$67,000 = 20%
  • <$33,000 = 10%

But simply fiddling around with the income and goods and services taxes is not imaginative and ignores other potential tax instruments that may assist this country. At this point, I give New Zealanders four options from which one needs to be chosen:

  • A Capital Gains Tax. Prime Minister Jacinda Ardern has already ruled it out under her watch, but would she have second thoughts if Labour found themselves reliant on the Green Party for support or in the improbable position of governing alone? And this is certainly not to say there are no supporters for a C.G.T. The New Zealand Herald explored some of the arguments they were putting forward.
  • A Wealth Tax. Graeme McCormack of the Human Rights Commission wrote an article for Noted last year in which he explored how a wealth tax might work in New Zealand – his suggestion was for a 1% tax on citizens net assets (excess of assets over liabilities), exceeding say N.Z.$10 million
  • A Land Tax. Bernard Hickey wrote a column for Newsroom which looked at how a land tax could work in New Zealand. He envisaged a low level broad-based one as being the fairest method. Mr Hickey thought that it would cause an immediate 10-20% drop in land prices. Thus if a section were worth $200,000 land only before applying a land tax it might now be worth $160,000-$180,000.
  • A Luxury Goods Tax. I would assume luxury goods to include vehicles worth over say $150,000; boats worth more than $100,000; any privately owned helicopter, aircraft that is used for non-work related; jewellery worth more than $100,000.

I acknowledge a C.G.T. is a double-edged sword and even if one did get introduced, if it was poorly planned then the wrong parts of the tax payer spectrum might be unfairly targeted. Having a politician no encumbered by coalition partners might be a prerequisite as well. Whilst for reasons of levelling the playing field enough that low income players enter drive a C.G.T., its complexity may be its undoing. The McCormack article article examines a wealth tax, which could be set on net citizen assets exceeding $10 million. This along with the potential land tax explored by the Bernard Hickey article seem to me like the most promising ways in which tax reform could contribute to a fairer society. A luxury goods tax is perhaps the most vulnerable tax to critics who claim it is about envy since the chattels involved will be specifically items that the lower and middle class can only dream about, never mind trying to save enough for one.


Pre-election wind down of Government imminent

There is a date looming large on the horizon for the Government of Prime Minister Jacinda Ardern. The sort that every Government sees three months before an election. The unavoidable last Cabinet meeting before politicians start thinking about their election campaigns.

The date is 15 June, when the Government will have its last Cabinet meeting, before an even more important date comes up: the official entry into the pre-election period. In 2020 it is 19 June.

In just over a week, the Government will begin a potentially little known but important phase that happens in the run up to each election.

Many New Zealanders might not realize it but three months before an election date, the Government winds down some of its major functions. It means that major appointments and big campaigns are delayed. As Thomas Coughlan notes there are several important reasons for this:

  • It makes little point to launch a long lasting campaign that is potentially going to turn into an election issue
  • There is a matter of fairness involved in that arguably partisan advantage might be given to the incumbent Government by running a major campaign during election time
  • One Government should not deliberately set out to hinder the following duly elected Government, which means appointing people who are sympathetic to a particular Government might be a hindrance to the new one

Not surprisingly there are critics. National Member of Parliament Gerry Brownlee believes that the Government’s COVID19 ads are questionable. In his case he is arguing that COVID19 ads are very much a part of the Prime Minister’s strategy. In particular the “Unite Against COVID19” advert, which is now being followed by a “Unite for the Recovery” advert.

What Mr Brownlee seems to be missing is that the Government has recognized a need for New Zealanders to continue working as part of a “team of 5 million”, for the economic recovery from COVID19. We cannot afford to return to old partisan economic ideals . New Zealand is in a tricky time at the moment with the closure of the border being a catch 22 situation that no one really knows how long it will go on for.

On one hand we need it to open so that tourists from overseas can start coming back to our attractions. We need to be able to resume regular freight flights into and out of New Zealand. On the other we need to be sure that we are ready for them. New Zealand needs to have a Plan B ready to go in case reopening the borders brings a second wave of COVID cases into the country. The tourism industry also need to have had some sort of reconciliation with the local market, which has made it clear that it felt unwelcome by virtue of being priced out.

Mr Brownlee probably knows all of this. But at the same time, the criticism is a reminder that bipartisanship goodwill will only go so far before critics start to push back against the Government. It might have survived COVID19 with a resounding pass, and the polls might currently be in favour, but the growing sound of partisan politics reviving, is a reminder that we have an election campaign coming and that the start of the pre-election period is only a bit more than a week away.



New Zealand Fiscal Budget 2020

New Zealand Treasurer Grant Robertson must have been a tangle of emotions on the night before the 2020 Fiscal Budget which was delivered on 14 May at 1400 hours. So much riding on probably the single most important budget in a generation: the one that gets New Zealand out of the COVID19 mud pit.

New Zealand’s economy has taken a battering. Of that, there is no doubt. Unemployment may reach nearly double digit percentage figures, with Air New Zealand shedding 3750 jobs; 150+ at the Hermitage Hotel in Mount Cook Village; 300 at Ngai Tahu; and another 240 when Bauer collapsed the New Zealand magazine industry. Thousands more are going in the hospitality sector where the forced closure as a result of COVID19 has sent many restaurants, bars and cafes to the wall.

On one hand he had an unprecedented licence to spend on measures to get the economy going again. On the other Mr Robertson would have been nervous about whether he got the balance right between a big spend up and having enough in the bank for 2021, in case COVID19 did not clear out as fast as hoped for and to cover unforeseen emergency expenditure. And then some how dancing between the two hands, the knowledge that no matter which way he sliced and diced the pie, someone would not get enough support and might have valid reasons to be grumpy.

So, what did Mr Robertson’s Fiscal Budget 2020 do:

  • For people like me finding out that the Government has thrown another $3.2 billion in wage subsidies to businesses was very welcome news – most budgets do little for me, but this one honestly has
  • Kainga Ora has been allocated funding to build another 8,000 houses
  • 11,000 additional jobs will be created with a $1.1 billion fund to support environmental projects’
  • $1.6 billion for vocational training for those out of work and school leavers

Notably the Government had $50 billion it could have spent on New Zealand yesterday. It appears to have allocated around $30 billion of that money, leaving $20 billion in reserve. If I had to guess, Mr Robertson is wanting to make sure that there is enough in the Treasury in case COVID19 is not as finished as we think and a second wave – God forbid! – hits, in which case that is very sensible thinking.

Whilst no Fiscal Budget ever pleases EVERYONE, that was more so the case today. So many people and industrial sectors needing significant help and simply not enough money to help them all, whilst still having enough in the Treasury for a rainy day situation in 2021. Also New Zealand is very vulnerable at the moment. We are busy trying to deal with a damaging economic hit caused by a pandemic that has already taken nearly 5% off the economy, so should we have a major disaster like an earthquake or large volcanic eruption, it would be catastrophic.

Whilst not on the Government’s agenda, there are other ways we could help grow the fiscal pie, which the Government needs to consider in the near future:

  • Increase investment in research, science and technology to 2% of G.D.P. – with money being prioritized for medicine, renewable energy, alternatives to finite resources
  • Bringing back a permanent nation wide apprenticeship scheme
  • Legalize cannabis and establish the industry in poorer regions such as Gisborne, Northland and the West Coast
  • Redefine infrastructure as energy, railways, merchant marine, and invest accordingly instead of just building roads

So whilst the Government has played a largely welcome Budget in 2020, as always there are things that it could have improved on or been willing to give a try. Many New Zealanders want to see meaningful socio-economic change and are sick of the neoliberal model that only supports the very wealthy, and those with greater means than others. This cannot happen if the Government is not prepared to make changes.


N.Z. in lock down: DAYS 47 and 48

On Monday afternoon at 1600 hours, the Government of Prime Minister Jacinda Ardern announced that New Zealand was moving to Level 2 at 0000 hours on Thursday.

Across DAYS 47 and 48, I have been thinking about the impact of the Government’s decision and the wisdom of it.

Whilst I generally support the move to LEVEL 2 I have wondered at times, in flashes of doubt brought on by a mixture of local goings on and international goings on, if perhaps New Zealand should have decided to wait another 10-14 days at LEVEL 3 and skip LEVEL 2 completely. Those pangs of doubt have been quickly silenced each time just by looking at  the number of people starting to raise credible concerns about our time at LEVEL 3

If we had decided to stay at LEVEL 3, whilst that would be very hard on a lot of people, I think the reward would have been COVID19 for the time being effectively eradicated in New Zealand. The country would have been able to effectively return to normal business. The Government restrictions would be all but gone and the Police would be able to fully focus on crime; hospitals and medical centres on the normal problems.

A part of me also worries that New Zealanders in their rush to get back to “normal” will completely forget the lessons of COVID19, which I will discuss later this week. And so for those reasons, my happiness at going to LEVEL 2 is tinged with wariness.

But the real worry is about a number of issues that people might perceive to be on the side, but which actually have had tangible impact on aspects of COVID19:

  • The legalese of the State of Emergency
  • The need for a hygiene revolution in New Zealand
  • How we approach health dealing with our elderly and more vulnerable people
  • The interconnected state of the world and the next pandemic

These issues are going to impact on how New Zealand recovers. But most probably few people have thought about them or their potential impacts.

Whilst I have laid down the case for the State of Emergency in previous posts. I believe that New Zealand needs to revisit as soon as this one is lifted the procedural steps that had to be taken to reach it. Each State of Emergency when it is lifted is immediately reviewed by its controller/s and senior staff so that before people forget what their roles and actions in it were, they are on a paper record in case question arise later about their legality.

New Zealand needs a hygiene revolution. And I can see it happening if we are serious about making sure we never have to do what has gone on in the country in the last seven weeks again. In some respects it will be simple things like requiring diners at a restaurant to sanitize their hands on arrival also patients arriving at any medical centre or hospital; in other respects, law changes might need to require people with the common cold/flu to stay home – is this enforceable? Don’t know.

Vulnerable people with serious long term conditions might now need to be marked as such on their files if this is not already happening. When emergencies are declared a community health worker might need to be sent around on a regular basis to make sure their needs are being met.

The pandemic made it around the world via cruise ships and long haul flights. There is no polite way of saying so. I see a necessary step in the future being to require anyone who has cold symptoms or worse to present a medical certificate at the border before being allowed to fly; require anyone entering the country with such conditions to present a certificate and agree to isolate until a Dr can see them. No agreement, no entry. Tough, but very probably necessary.

This is what I believe to be a common sense approach to the post-COVID19 future.

Urgent reform of Work and Income New Zealand needed

For decades it was rumours that the department of Work and Income New Zealand were underpaying clients on a systemic basis. Just rumours to most people. But they were persistent rumours. It was like looking for smoke with no obvious source – a lot of it about and stubbornly refusing to disperse. There had to be something burning somewhere, and there was. But where? And why could no one find it, never mind put it out?

But now, thanks to a leak on Friday, the rumours have become something much more serious.

In my estimate the entire Work and Income senior management need to be sacked. If an organization has lied for the decades it is alleged that Work and Income have done so, then most probably the senior management are not only aware of it, they are also complicit in enabling this.

I also believe that there should be a class action taken against them. I do not know how many clients of theirs were underpaid or not paid at all, who have eligible claims, but it could be in the tens of thousands of potential claimants and some of them might be eligible for thousands of dollars in compensation.

I would not want to be the Chief Executive of W.I.N.Z. right now. This would be a potentially public servant career ending blow to suffer. I would not be waiting for the Minister to ring and tell me my game is up. If this happened under watch, I’d be clearing my desk immediately. This kind of systemic failure is simply not acceptable under any Minister’s watch.

I know little about Minister for Social Development Carmel Sepuloni. For all I know she might be a brilliant Minister whose time has come and she intends to make the most of it. Or she might be spectacularly inept, like fellow Minister, Phil Twyford. Whatever the case, she need to stamp her authority on W.I.N.Z. and any other umbrella agency of the Ministry of Social Destruction, that might be behaving like W.I.N.Z. has behind her back.

A bold Minister would not have waited for something like this to happen. There is no shortage of evidence to indicate that problems have existed at W.I.N.Z. for some time, both from the tempestuous relationship between client and servant that anyone who has been to an appointment with this agency, and from some of the more overt problems that have surfaced in the media from time to time.

A bold Minister would be overhauling the legislative framework that governs the M.S.D., W.I.N.Z. Studylink, Child Youth and Family Services (C.Y.F.S.). They would be looking at why such a toxic and dangerous culture has been allowed to form and the aggravating factors possible; the interactions between the agencies. To enable the necessary changes, they would then be bringing legislation before Parliament that takes on board all of these issues and the numerous other ones lurking just beneath the surface.

And if the Minister refuses to ACT on the feedback, she should consider whether she is fit to hold the Ministerial Warrant for Minister of Social Development. Because at the time of scheduling this to publish, there was a warning of potential legal action hanging over W.I.N.Z.

Watch this space.