Op-ed: Time to look beyond labour and consumption taxes

New Zealanders need public services, and healthy New Zealand communities need good public services. But it’s time to look beyond labour and consumption taxes to raise the revenue we need for them, PSA National Secretaries Glenn Barclay and Erin Polaczuk say.

Should our tax system be simple and efficient – or should it be fair and redistributive? Shouldn’t it be both? In the coming months, the Tax Working Group will consider these issues. There are some hard truths and difficult choices ahead, not least about the role tax plays in building strong, vibrant communities.

To hear some experts tell us, the elegant simplicity of our tax system should be the envy of the developed world. Three main streams of revenue – income tax, GST and company tax. Low rates with a broad base. One of the lowest top tax rates in the OECD, in fact. What’s not to like?

Well, quite a bit, as it turns out. A closer look at the figures reveals that nearly three quarters of all tax revenue (71.6%, to be exact) comes from two sources – PAYE and GST.

So most of the money spent by this government comes from taxes on labour and consumption. So far, so unremarkable. Except when we start looking at other OECD comparisons, things start looking a little murky.

As New Zealand’s largest union, and one that represents public and community service workers, the PSA has two particular interests. Firstly, does the system raise enough revenue to properly fund the services our communities need? And secondly, does our tax system act to reduce inequalities – or entrench them?

New Zealand has emerged from nine years of a National-led government which delivered austerity budgets in all but name. The consequences of that are clear: sewage seeping through the walls of Middlemore Hospital, endless “restructures” and “change processes”. Stagnant wages, a gender pay gap that persists. PSA members can tell dozens of stories about infrastructure that’s on the point of collapse, unfilled vacancies, workers constantly being called on to do more with less. Quite apart from funding all the things the government would like to do, it has to fund things it needs to do – and much of that involves fixing problems from the past.

PSA members have also seen the consequences of increasing inequality – both in the lives of the people to whom they deliver services, and in their own lives. Compared to other OECD nations, our income tax system is lamentably poor at addressing inequality – sixth-worst, in fact. Australia, the UK and the US all do better.

How does this happen? Firstly, there is no tax-free threshold, meaning that every dollar of income earned is taxed. Our top tax rate of 33% is one of the lowest, far lower than Australia (45%), the US (39.6%) or the UK (also 45%). We also top the OECD in revenue collected from GST. That’s not because we have the highest rate, but because nothing is exempt. Income from capital is not taxed, nor is individual wealth. We need to do better.

So what would the PSA like the Tax Working Group to do?

The government needs to be honest about the amount of money it takes to deliver quality public and community services – and that includes looking at how much it costs to provide decent pay and conditions for the people who deliver them. Through low wages and gender inequality, our members have subsidised the current system. That must stop.

The problem is that the Labour-led government has to fund all this within its self-imposed Budget Responsibility Rules. Decent pay rises, equal pay settlements – everything. After nine years of neo-liberal austerity politics, Labour’s response was to limit crown expenditure to 30% of GDP. We would argue this is not a progressive policy; rather, a knee-jerk reaction to a political climate where the elite knew the price of everything and the value of nothing.

The Budget Responsibility Rules must urgently be relaxed. If this insistence on fiscal conservatism continues, Jacinda Ardern’s government will struggle. We have the fifth-highest revenue from income tax, but below the OECD average on government spending. The centre cannot hold.

So, more revenue – but we also want to look carefully at where that comes from. The combined impact of GST, income tax and student loan repayments is heavy, and then for low-income workers there’s the problem of how quickly the government claws back tax breaks like Working for Families. Workers pay enough. We need to look at wealth taxes, improving progressive taxes, greater insistence that multinationals pay their share.

The PSA will submit to the Tax Working Group. We’d urge everyone who cares about public and community services to do the same. We have a great quality of life here in New Zealand, but that’s because our members have been propping it up. We owe it to them – and to future generations – to work out what this is really worth.

Glenn Barclay and Erin Polaczuk

PSA National Secretaries

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