Stuff: NZ's problem is it doesn't tax enough, or fairly enough

Read the original article on Stuff

A few years ago, dining out in Wellington, I spied a discreet card on the restaurant table, asking if I would top up our bill by a small percentage to help fund a new children’s hospital. I’m not against private charity, but this seemed bizarre, requiring sick children to rely on the whims of Wellington diners in order to get the care they needed.

It was emblematic, too, of the desperate underfunding of our public services. New Zealanders sense the problem: they see the schools unable to afford the computers on which learning now relies, the state housing waiting lists that grow ever-longer, the delays for people seeking hip replacements or the latest cancer drugs. And those lucky enough to have lived overseas, especially in Europe, will have a sense of how good – how modern, how responsive, how well-equipped – public services can be.

But few people understand the full scale of the problem: namely, that New Zealand’s public services are trying to get by on roughly $30 billion a year less than they would have if we funded them like the Europeans do.

The tax gathered by the New Zealand government, which funds our public services, comes to roughly 32 per cent of our annual income or GDP – just below the OECD average. But that average is dragged down by poorer nations – Mexico, Colombia and others – whose public services we probably wouldn’t seek to emulate.

Countries whose services we do envy fund theirs much more generously. Even leaving aside the tax-loving Scandinavians, the Austrian authorities take in 42 per cent of their GDP in tax, the Dutch 40 per cent, and the Germans 38 per cent. Such countries get greater tax contributions from those who earn very high incomes, make capital gains, or receive large inheritances.

New Zealand’s annual income or GDP is $345 billion​ a year, so our 32 per cent tax take yields roughly $110b for our public services. But if we taxed at Austrian levels, we’d have another $34b a year; at Dutch levels $26b, and German $21b.

Think what we could buy with that money! Computers in schools, thousands more state houses, reduced surgery waiting times. Electric vehicle charging stations and extra buses. The protection of our native birds against predators. Better support for pensioners and people with disabilities.

New Zealanders want those things; they just don’t currently stump up the requisite tax. They try, as the saying goes, to satisfy champagne tastes on a beer budget.

National Party leader Christopher Luxon wants to repeal every extra tax hike or added levy the Labour Government had imposed since 2017.

That’s understandable: a greater tax take, after all, implies less personal spending. But it’s a trade-off most European citizens make. And I think many middle-class New Zealanders would happily consume less if it meant they could rely on a better healthcare system when they fall ill, and if they knew the welfare system was doing more to help those down on their luck. Tax may or may not be love – as per Shamubeel Eaqub’s famous phrase – but it certainly is how we pay for civilisation, for all the thousands of things government does to underpin our way of life.

The counter-argument is that our public services could just squeeze more from the money they already have. Now, I’m all for efficiency, and have ideas about how government could be better run.

But on most measures, we already have a fairly effective public sector, ranking anywhere between second and sixteenth worldwide. (In other words, if you think ours is bad, you should see the others.) And most of the nations placed above us are also high spenders. If you really want superb public services, you have to pay for them.

As well as taxing more, though, we need to tax more fairly. Low-income New Zealanders already contribute a lot, partly because GST weighs heavily on them. Conversely, given the way the housing market has generated enormous, unearned capital gains, which Boomers convert into inheritances that perpetuate intergenerational inequity, the case for some kind of capital gains, inheritance or wealth tax looks ever stronger.

All this lends context to the current stoush over low earners being dragged into higher tax brackets via inflation. Yes, the brackets may need adjusting, but unless we add a new top rate to compensate, much of the benefit will go to the best-off. National leader Christopher Luxon’s plan would, by lifting tax thresholds and removing the current top rate, give him an extra $8000 a year – but someone on the minimum wage just $110. He’d also give property investors a tax break.

But even Labour’s tax strategy, which largely maintains the status quo, is like fiddling at the margins, when we should be imagining new ways to properly fund public services. We must invest more in our collective wealth. That way sick children can know they’ll get the care they deserve as of right, rather than having to constantly extend the begging bowl.