In the lead-up to Election 2023, we’re posting a series of blogs written by our members and kaimahi. The aim of this series is to highlight present challenges and suggest innovative solutions for change as we look toward the future with optimism.
In this blog Hamish Jarvie (Kaitātari Kaupapa | Policy Analyst) explores how changes to our tax system could address inequities experienced across Aotearoa New Zealand. Given our ageing population (a quarter of Kiwis will be over 65 by 2038), he also looks at how these tax changes could ensure that all older people continue to receive superannuation in the future.
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In his best-selling and influential book “Capital in the 21st Century”, Thomas Piketty found that inequality in modern society could be solved by changes to tax systems. He knows what he’s talking about. As a professor of economics and economic adviser, Monsieur Piketty (he’s French) analysed decades of data before coming to the conclusions outlined in the book, later adapted into a documentary.
David Parker (Revenue Minister / responsible for Inland Revenue under the 2020-2023 Labour Government) clearly agrees with Piketty but was unable to action many (if any) of the recommendations Piketty makes. His main success was to gather information about the top earners in Aotearoa, released in a key report found here. When pushed on the inevitable finding of untaxed wealth by these individuals and what would happen, Parker’s response was “Maybe nothing[1].”
That maybe nothing evolved into a definitely nothing prior to this election, with Chris Hipkins ruling out a “tax switch”. Parker’s proposal was a $10,000 tax free threshold paid for by a wealth tax on the extremely wealthy. The proposal itself was supported by the Finance Minister, Grant Robertson, but not by the then recently appointed Prime Minister Chris Hipkins.
If Piketty had his way, the exploration of the incomes of our wealthiest residents would be followed with actions to ensure our taxation system recognises and accounts for inequities. Knowing exactly who and where income and assets are held is the first step towards the introduction of taxes which can benefit our society as a whole. And I must confess that I share this ambition, with the added local context that the commitments of Te Tiriti o Waitangi must apply to any such decision made in Aotearoa.
As we become more aware of trends in inequality within the economy, it is important that taxation keeps up. One piece of heartening legislation is the Taxation Principles Reporting Bill[2], which, if not repealed by an incoming government, will require the Inland Revenue to report annually on the state of the taxation system – including on its fairness. Take for example our ageing population; with nearly 25% of our population being over 65 by 2038, we need a good clear plan to pay for the superannuation that kicks in at that age. We will need to increase Government revenue to afford this, or trade off other Government costs, or raise the age of retirement, or consider who should receive the pension altogether (a costly solution unlikely to work). These will be key policy questions for the next Government. My ask is that we move into a political landscape of doing the right thing, no matter the political expedience.
As Thomas Piketty’s homeland France experienced[3], raising the retirement age is destined to be unpopular. And if we are aspirational in our goals of fairness, it isn’t necessary or moral. Fairness to me looks like those who can, providing for those who cannot. The reality of a more streamlined, more accessible, and higher paying superannuation system is that it benefits society as a whole. Our ageing population requires and deserves a supported, dignified life – and we have the means to give it to them!
Alternatively, to support the growing numbers of people reaching retirement age there is no option but to increase the money available to pay for it. It’s not a tough decision to make, or at least it shouldn’t be. Despite this, at least one party has decided that even contributing to the New Zealand Superannuation Fund is just… too much.[4] This echoes choices made during the Global Financial Crisis – but every time our decisionmakers do this, they increase the costs for future generations. One argument is that we would need to borrow to maintain contributions, causing a bigger headache. But clearly more tax could also be another solution.
Throughout the 2023 campaign, the Better Taxes for a Better Future coalition (which NZCCSS is part of) has pushed for and demonstrated the public’s willingness to discuss taxes in more depth. Recent polling[5] has shown support – across the political spectrum – for a capital gains tax, an excess profits or “windfall” tax, as well as an overall feeling that taxation should become fairer.. And while we may not be looking at tax reform within the next parliamentary term, it’s my hope that at the very least it illuminates the need to tax evenly and equitably across the board.
We care, as a country we have always cared. Ever since Richard Seddon introduced the Old-age Pensions Act in 1898, in times of strife public funds have been what drew people out of desperate situations. Worthiness has never been a deciding factor of successful welfare policy, as participation in society is what makes people feel worthy. When more effort is made to make people feel valued, loved and included, we can expect more positive outcomes across the board.