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On Why New Zealand Isn’t Heavily Taxed

Allegedly, New Zealand is a highly taxed country with a government prone to big spending. Supposedly, that’s why we need to scrap the top tax rate, in order to attract and retain top talent. National’s deputy leader Nicola Willis said exactly that last week, when trying to defend National’s plan to abolish the top tax rate of 39 per cent that currently kicks in on income over $180,000. “We are very committed to retaining skilled and talented people in New Zealand,” Willis told RNZ’s Morning Report. “We are conscious that our economy needs to remain competitive…”

In fact, this is totally misleading. Is New Zealand a highly taxed country, such that we need to cut taxes even further on our wealthiest citizens? Not at all. If you look at these charts of comparative global rates for income tax, sales tax and corporate tax, New Zealand’s top income tax rate of 39 per cent – ie. before Willis cuts it even further – put us in a tie for 39th on a table of the highest taxed countries in the world. It isn’t only the Scandinavian countries that have higher income tax rates. So do Germany, the United Kingdom, Ireland, France and South Africa, among others.

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If we’re talking about being competitive…. On income tax, we are already well below Australia’s 47 cents in the dollar for top earners. . In Oz, there is a 45 per cent headline top rate plus a compulsory 2% Medicare levy. Furthermore, Australia also has an effective 37 cents in the dollar rate (plus that 2% Medicare levy) on income above $120,000! Plainly, Kiwis fleeing across the Tasman allegedly because of our high income taxes are headed for a jurisdiction where income taxes are much higher. (More on that below.)

It’s a similar story with sales tax. Our 15% GST rate doesn’t even get us into the top 50 countries, and is just below the global sales tax average of 15.78%. On corporate tax, we are in a tie for 40th place. Again, developed economies like Australia, Japan and Germany all have higher headline corporate tax rates.

As for government spending… If we measure our government spending as a proportion of GDP (a rough measure of the country’s wealth) New Zealand’s rate of government spending was only the 56th highest in the world in 2020.

Basically… The genuine competitive problem that New Zealand faces in attracting and retaining skilled talent is not its high taxes, but its low wages. Those low wages co-exist with New Zealand’s relatively high prices for the trifecta of food, rent, and domestic transport. Our strong reluctance to grant residency to skilled people and their families also puts us at a significant disadvantage compared to Australia and Canada, when it comes to convincing top talent to come here, and stay here. Wages and immigration policy are our real problems.

Meaning: By cutting the top tax rate, National is not going to make a scrap of difference to our ability to attract and retain top talent. If anything, National’s promises to reduce labour protections will make it even harder for workers here to bargain collectively and effectively for higher wages. Meanwhile, National is proposing a handout to the wealthy. This gesture could be related to the party’s desire to attract large political donations.

Micro-targeting the masses

“A man hears what he wants to hear, and disregards the rest” – Paul Simon, “The Boxer.”

The fiction that centre-left governments are high taxing big spenders has served National very well, for generations. It has gone hand in hand with the centre-right’s claim to possess an innate higher competence at managing the economy. There is no evidence to support either of these claims, but they have become embedded in our political psyche.

As mentioned, New Zealand has relatively low ratios of government spending to GDP. Compared to other developed countries, it also has a spectacularly low level of government debt. One big reason for that outcome is because Michael Cullen was so notoriously tight -fisted. No spendthrift, he. Cullen paid off Crown debt, and invested in our future retirement needs by setting up the New Zealand Super Fund. The next National government by contrast, sold down state assets, ran down the health system and stopped paying into the Super Fund – mainly so that it could live for today with a sugar hit of tax cuts. If it wins Election 2023, National is poised to send the country down the same ruinous path once again.

Unfortunately… We also happen to be living in an era of right wing populism. Having an integrated persona and a coherent policy platform is not seen as much of a political priority. So long as the candidate can regularly land somewhere along the spectrum of existing grievances confirmed by focus group research, the inconsistency between those landing points won’t be much of a disqualifying factor.

This situation frees candidates to be all things to almost everyone. They can be in favour of boosting health and education spending while opposing the taxes and/or further borrowing needed to finance them. They can be pro-gun and anti-crime; pro freedom and pro wider police powers; against Winter Energy payments, in favour of lifting the retirement age, against minimum wage and benefit increases but allegedly also the feisty champion of people struggling to make ends meet. It is worth asking why there’s such a high tolerance level for these contradictions.

What really matters is that at some point, each voter gets to hear the candidate express support for their particular grievance, elevate it into an issue of social justice, and suggest that the solution will be passed into law, some day. Chances are, each prospective voter will have heard something they like. The rest of it will be treated as noise.

Plainly, it is difficult to rebut an approach to political campaigning. where consistency has low significance. This lack of consistency may enrage political opponents and the media. Yet by the time the contradictions have been pointed out, the message will have already landed. In fact, this algorithmically-driven micro-targeting of political grievances makes inconsistency not only inevitable, but desirable. Is the candidate being inconsistent, or inclusive?

Up to a certain point, this lack of detail – and the conflicts - in the policy positions being taken, doesn’t move the dial. Pointing them out can be a consolation to opponents, but the critics tend to be talking only to each other. Voters meanwhile, will be constructing a personalised image of the candidate as someone on side with their own annoyances and bugbears. All this is even before we get to the dog whistling we’ve seen this year from the centre-right to the anti-vaxx, anti-Maori and anti-LGBTI constituencies.

Footnote: No one actually enjoys paying tax. Maybe in the current climate though, it could be worth repeating the point that taxation is not theft. Taxes are essential to the building and maintenance of a modern society. Taxes and rates are used to fund all kinds of valuable services like public health and education, roads, parks and libraries, police and fire departments, and the social safety nets, including pensions.

In short, a progressive tax system delivers the services and equitable outcomes that are the hallmarks of a civilised society. So when National rails against government spending and public service bureaucrats, and promises to eliminate significant amounts of “wasteful” spending… It's worth pointing out that the “waste” it has so far identified amounts to barely 2% of annual government expenditure. Anything more would require significant cuts to public services.

The almost total lack of positive alternatives on offer has been equally striking. National says for instance, that it will “save” $3 billion by scrapping Three Waters – but then what? Our currently decaying, haphazardly administered and inequitable water infrastructure will presumably be left to further decay.

National also says it will scrap the new consolidated Health Authority. This would return the country to the haphazard, costly, inequitable system whereby the health needs of a country of only five million were being met by 19 separate District Health Boards, each with their own tiers of bureaucracy. The promised scrapping of the new Maori Health Authority would also return the health system to a previous delivery system known to systematically fail Maori and Pasifika communities.

The problem for the rest of us with the micro-targeting of grievances by National and ACT, is that this strategy to get elected does not include sustainable alternatives. That’s the problem with populism. It is all about pandering to grievances, not solutions. It fosters division, not unity.

Protecting free speech by rappers

Last week, California passed the Decriminalizing Artistic Expression Act, which will outlaw the use of rap lyrics as evidence by state prosecutors in criminal prosecutions. The bill is aimed at reducing racial biases in the criminal justice system. “For too long, prosecutors in California have used rap lyrics as a convenient way to inject racial bias and confusion into the criminal justice process,” said Dina LaPolt, a spokesperson for the Songwriters of North America association.

“This legislation,” LaPolt said,“sets up important guardrails that will help courts hold prosecutors accountable and prevent them from criminalizing black and brown artistic expression. Thank you, Governor Newsom, for setting the standard. We hope Congress will pass similar legislation, as this is a nationwide problem.”

Indeed it is. A few months ago, Werewolf reported on the use of rap lyrics by prosecutors in Georgia, in order to bolster its attempts to portray the major rap artist Young Thug as the leader of a criminal enterprise. This is like trying to jail Al Pacino for appearing in the Godfather films and Scarface.

Clearly, our proposed hate speech legislation needs to follow California’s example, and include protections for artistic expression. APRA, for instance, needs to take a stand on this issue. Otherwise, it is all too easy to imagine a gang prosecution in New Zealand citing rap lyrics as evidence to convince wavering jurors of the accused’s alleged anti-social tendencies.

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