Muriel Newman: Oh, How Times Have Changed
Oh How Times Have Changed
During the early Spring those rare, stunningly beautiful, days serve to remind us just how lucky we are to live in this great little country. It’s such a shame, however, that our living standards do not match the calibre of our environment.
Many of us still remember the heady days of the 1950s and ’60s, when New Zealand enjoyed the third highest standard of living in the OECD. Even poor families – like my own – could get ahead. Sure, it meant Mum and Dad held down two or three jobs with my brother and I helping but, if you worked hard and saved hard back then, you could afford to buy a house, own a car and go on the occasional holiday.
It’s much harder these days. Back in those days the average working family, with all the available reimbursements and benefits – including the personal, married man and child exemptions, as well as social security rebates and child benefits – effectively paid no income tax at all.
However, as a result of today’s progressive personal income tax regime, those same families now pay 19.5 cents in the dollar on income up to $38,000, 33 cents on income up to $60,000, and 39 cents above that.
While higher income taxes lower our living standards, that’s not the end of the story: around $2 billion of the $9 billion in additional taxes raised by the “no increase in taxes for anyone earning under $60,000” Labour Government comes from stealth taxes. These include increases in – to name but a few – fringe benefit taxes, tobacco, alcohol and petrol taxes, ACC and fire service levies, drivers’ licence renewal fees, import and fishing licence fees, birth, death and marriage certificate charges.
Further, by adding GST at 12.5 percent, the take-home pay of many families struggling with high mortgages and growing families – not to mention student loans – is effectively less than 50 cents in the dollar. Add local body taxes – some of which have increased more than 300 percent this year – to the equation, and you have a situation where New Zealand working families would answer Ronald Reagan’s famous question “Are you better off today than you were four years ago?”, with a resounding “No!”
The question crying out to be answered is what do we need to do to turn the situation around?
The answer, of course, would be to prevent Labour reneging on it’s promise – when it first came to office – to lift New Zealand’s living standards to the top half of the OECD. Since a thriving business sector is at the heart of a growing economy, the key to improving national productivity is to maximise business output by minimising barriers to progress.
Since being elected, Labour has talked long and hard about reducing compliance costs. Yet, according to a report in last month’s Business Herald, “Three years after the Government trumpeted a campaign to cut business red tape, the business community has ruled it a flop. Probably the most extensive survey of business compliance costs – conducted by Business New Zealand and accountants KPMG – has found red tape to be a bigger problem than ever”.
Across the board, the survey found annual compliance costs – a dead weight drain on productivity – averaged $52,724 a firm, or $812 per employee. However, the burden for small businesses with five or fewer employees was much higher, at $3,405 an employee. The chief compliance cost culprits were health and safety regulations, employment relations laws, ACC and taxation.
If the Government were really serious about reducing barriers to progress, it would introduce business-friendly changes – such as lowering company tax rates, opening ACC up to competitive tender, and repealing excessive health and safety regulations that could fine an employer whose employee suffers from stress half a million dollars.
It is also imperative that compliance costs associated with the Employment Relations Act are reduced. At the moment, they are increasing relentlessly, with further changes now on the cards, including four weeks paid holiday a year, compulsory unionism, and – under the guise of a better work-life balance – the requirement for employers to pay staff for time off to attend to family or cultural commitments.
Apart from business compliance costs, another significant growth impediment is the problem of gridlocked traffic in many of our major cities. Investing all the petrol tax and road user charges collected from motorists back into the roading infrastructure – rather than channelling it into the consolidated fund – would help fast-track those essential roading projects that, through delays, are costing the country dearly in lost productivity.
While there is a multitude of avenues to improve national productivity, including tax relief for working families – lower taxes helped propel Ireland from 20th in the OECD in 1994, to 4th in 2001 – we must not forget welfare reform.
Just this week, in Australia, the Centre for Independent Studies called on the Government to introduce six-month time limits on unemployment benefits, followed by transfers onto full-time work for the dole programmes. It claims such changes would reduce the number of long-term unemployed by 50 per cent and save the country around $2 billion.
Using their calculations here in New Zealand, such programmes would result in 60,000 fewer unemployed – saving taxpayers $650 million. Since time limits and full-time work for the dole are initiatives that have long been championed by ACT, making welfare reform a national priority would significantly reduce one of the biggest impediments to growth this country faces – the $7 billion a year cost of welfare.