Wednesday, June 25, 2014

On Labour's tax policy...

Labour has proposed increasing the top tax rate from 33% to 36% on income over $150,000/year. We all know that the National Govt. increased the GST to spread the tax burden disproportionately on those on low incomes. This policy will put the tax burden on those who earn a wage, albeit a relatively high wage. However, we all know that the real wealth is held by those whose earnings don’t come in the form of a fortnightly paycheck. We do not have a Capital Gains Tax (CGT) in this country which means those in the top most tier of the top bracket probably pay a much lower “effective tax rate”. But this post is not about CGT.

Yesterday, I had a look at the US tax tables out of interest and their top tax rate is 39.6%, which is higher than what I had expected. However, as I was having this discussion with my fellow policy peers, we all admitted that that is not the effective tax rate for a lot of people and those who are in the highest brackets often end up paying much less in taxes than those who are on a lower bracket.

Ideologically, the neoliberal argument is that those on the top tax brackets are “hard working” and “job creators”. In reality, people who work in low wage jobs are some of the hardest working people in our society. That obviously goes without saying. They usually work in jobs that require more physical exertion, longer hours, irregular hours and on top of that get paid some of the lowest wages. Not everyone has the opportunity to get an education to enable them to get the kind of “cushy jobs” with the high pay and shorter hours. It also goes without saying that we will always need a stream of workers to do the kind of jobs that are low skilled and extremely physically demanding.

So what should the top tax rate be? There is no right answer to that. What I do know is that for it to be effective it has to be relative to the bottom tax rate. It has to be relative to all the other taxes and payments that are around. For example – ACC levies we pay, student loans that are being paid back, GST, CGT (if there was CGT) etc. Talking about the top tax rate or the corporate tax rate independently of everything else does not get us anywhere.

Should it be at $150,000? According to Treasury figures, 83% of income taxpayers in New Zealand earned $70,000 or less. Only 2% of income taxpayers in New Zealand earn more than $150,000. We are clearly not a high wage economy. My hourly wage as an intern right now works out to be far more than what I earned in New Zealand as a fulltime working professional with 3 tertiary degrees. But people don’t live in New Zealand for the money. I certainly have every plan to come back knowing that I would most likely take a pay cut if and when I do. But I will be cognizant of its healthcare system, of the ACC scheme, of the lifestyle, of the culture, of the politics and everything else that makes up the sum total of a good life. In order for me and other Kiwis to have that good life – the interest free student loan or student allowance to pursue higher education, the beautiful outdoors maintained by DoC, the culture that looks after the vulnerable: be it our elderly or our children or those who cannot work, the lifestyle that would allow me to take time off work if I had kids, the healthcare system that would allow me to get free hospital treatment if I got into a car crash - that lifestyle costs money. If that means, I have to pay a slightly higher amount of taxes, I think I would find that the benefits far exceed the amount of taxes I would pay.

On a final slightly unrelated note, if you are in fact a job creator and your business plan does not support the tax rate set by the government and an acceptable wage rate for your employees, you need to work on your business plan.

[Disclosure: I have taken advantage of every one of those things I have mentioned above. I have gone camping in the Abel Tasman National Park and to the pristine Northland Beaches, I have been on the unemployment benefit when I was out of work, I have been in a serious car crash and got free hospital treatment instead of being in healthcare debt, I have run long distance races and then injured myself and then gotten low cost physio treatment, I have had a great education that has enabled me to be where I am today because of the student loan/allowance scheme. I am a happy, healthy, productive Kiwi because of the services that the Government provided.]

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