The Spinoff: The Two Poverties

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Iosua, a 41-year-old Wellingtonian, lives in a boarding house because no better accommodation is on offer. After the rent is paid, he has $130 a week for food, clothing and other costs. Paul, a 50-year-old with multiple health conditions, applauds the government’s recent benefit increases and the less punitive attitude among agencies. These men both experience hardship, to varying degrees, and together they start to shape an answer to a pressing question: how much has been done, in truth, to alleviate poverty in this country, ever since that day in October 2017 when Labour came to power promising to transform the lives of the disadvantaged?

From the outset, Labour has looked at this issue through the lens of child poverty, in part for tactical reasons: people are less likely to blame children for their situation. The Child Poverty Reduction Act, passed in 2018, made the government accountable for the first time for reducing hardship, on three main measures. 

1. How many children are in families with less than half the current typical (median) income; this is a level where, budgeting research shows, it becomes hard for families to afford the basics. For a sole parent with one child, the poverty line in 2021 was $600 a week; for a couple with two kids, $965.

2. Whether families have more than half the income a typical household had in 2018. This tests whether living standards are rising over time – and takes housing costs into account.

3. How many families report being unable to afford basic things like going to the doctor, buying fresh food, and providing their children with decent clothes and shoes. (This is called material hardship.)

All three measures have fallen under Labour (that is, since 2017-18), by between 29,000 and 77,000 children. “This isn’t [yet] the structural change we need to see,” says Paul Barber, a Salvation Army policy analyst, “but we are going in the right direction, at least.” The payoff is clear in the government’s measures of child wellbeing, most of which have improved. Just 13% of children say food runs out “sometimes or often”, compared with 20% in 2019, and rates of avoidable hospitalisations have decreased. (Some measures, such as mental distress and truancy, have worsened, owing in part to the pandemic.) 

The National Party sees the hardship data differently, claiming Labour should be held responsible for the 2017-18 figures, when poverty was higher than usual. But that data actually covers the period from July 2016 to July 2018: most of it was gathered when National was in government, and virtually all of it reflects National’s policies. It is, in fact, the party’s last gift to the nation, as far as poverty is concerned.

National also claims Labour has just continued a prior trend of decreasing deprivation. And John Key’s record here was better than some on the left would admit: material hardship, for instance, was falling from 2011 onwards. But income poverty – the gap between poor families and contemporary middle-class households – wasn’t. And, crucially, Labour has continued to drive poverty down, or at least hold it steady, through a pandemic. When National was faced with its own pandemic equivalent, the global financial crisis, it allowed poverty to rise, before bringing it down some years later. 

Central to Labour’s strategy has been the welfare system, partly because it can be tweaked with relative ease and partly because beneficiaries are especially poor. The Families Package, passed in 2018, has given households an extra $1.1bn a year in Working for Families and other payments. The unemployment benefit, known as Jobseeker Support, has risen from $215 to $340 a week. The Accommodation Supplement has been boosted, the Best Start payment for newborns introduced, and the rate of the unemployment benefit linked to the average wage (so that the two increase in step). In total the government has injected an extra $16.5 billion into the welfare system. Even after accounting for inflation and higher rents, the average beneficiary’s income has risen 43% since 2018, and around 350,000 households are on average $113 a week better off.

To understand the scale of the task Labour has tackled, it helps to consider what welfare payments are worth compared to the average wage. Benefits were not only cut brutally in 1991 by National’s Ruth Richardson but were allowed to fall further and further behind wages under Helen Clark and John Key. Since 2018, they have headed back up towards their past peak. Only partway, of course, and some beneficiaries remain $100 or $200 a week below the poverty line.

Outside the welfare system, Labour has tried to ensure work pays. (As half of poor children live in households whose main income is from paid work, a job is not, by itself, a sure route out of hardship.) Since 2017, the minimum wage has risen rapidly, from $16.50 to $22.70. But other changes have been slow to arrive: none of the government’s much-touted Fair Pay Agreements, for instance, have been signed yet. Nonetheless, overall hardship has fallen: since Labour came to power, some 115,000 people have been lifted out of poverty.

Not that everything is rosy, of course. Material hardship rates, for instance, remain far higher for Māori and Pacific children (23% and 28%, respectively) compared to European and Asian children (10% and 6%). People with disabilities also face elevated rates of poverty.

And Labour faces a stiff challenge trying to maintain progress. Its targets for child poverty in 2024 and 2028, are demanding: income poverty, for instance, would have to fall by two-thirds in a decade – from 16.5%, a worse-than-average record in the developed world, to just 5%, among the very best performers. Why, then, does it not feel as if New Zealand is embarked on an epochal combat against the scourge of poverty?

An anecdote is telling here. According to government sources, Jacinda Ardern was known to go away and read papers on subjects like the indexation of benefits – an important but strikingly dull topic – and return them covered in red ink. Which is to say: the former prime minister was a policy wonk, and her child poverty agenda deeply technocratic. The measures employed – for instance, how many children are in families living on less than 50% of equivalised median disposable household income, after housing costs – may be beloved by experts, but are, in their raw form, unintelligible to voters. 

A government so often accused of being “all spin” turns out, ironically, to have implemented a deeply serious agenda that it is largely unable to explain to the public. And rather than wage war on exploitation – by tackling outrageous rents, for instance, or requiring all employers to pay significantly better wages – Ardern’s government has relied on more bureaucratic means, things that can be changed at the flick of a switch, like benefits and winter energy payments. There has been no real rallying cry, no sense that the state’s full resources are being mobilised to fight the evil of poverty, no crusade that would resonate deeply with the public. 

There is another sense in which the apparent reduction in poverty seems implausible. How, some will ask, can it be reconciled with the stories of record foodbank use and of families still sleeping in cars; how is it consistent with our sense that, at the bottom, life is as bad as ever, or even worse?

Leo Tolstoy would have known how to resolve the paradox. In the famous first line of his novel Anna Karenina, he wrote that although all happy families are alike, “Every unhappy family is unhappy in its own way.” So it is with poverty: each person’s experience of it is subtly different. And although it is impossible to fully capture this complexity, it is still useful to understand that there are, at a minimum, two kinds of poverty.

The families whom Labour have lifted out of hardship are, for the most part, what might be called the ordinarily poor: households that, although largely holding things together, were desperately short of cash and struggling to pay their bills. Numbering in the tens and hundreds of thousands, they have, thanks to Labour’s wage and benefit increases, often been lifted from just below the poverty line to just above it.

Under this government, some people genuinely feel better off. Paul Clutterbuck, the 50-year-old Wellingtonian living with multiple rare health conditions, says that until the recent benefit increases, his disposable income had “stagnated terribly” over several decades on what is now called the Supported Living Payment. “I have definitely been better off over the last three years [compared to] my previous 30 years on the Invalids Benefit,” he says. “Obviously there’s a long way to go, and it’s nothing like the income of working people, but I’m grateful for the improvement since Labour came into office.” Clutterbuck has also detected “a huge culture shift at Work and Income, moving away from beneficiary bashing and towards an environment of trusting the client to do the right thing. It’s obviously not perfect either, but it’s a huge leap forward.”

For some people in extreme poverty, though, nothing much has changed in recent years. Stephen Turnock, the director of Wellington social agency DCM, says the number of people his organisation works with, around 1,000 a year, has stayed static under Labour: “We are back to pretty much where we were [pre-Covid].” Sitting in his office on Lukes Lane in central Wellington, Turnock describes the agency’s whānau as “incredibly alienated” people battling multiple issues, often including physical and mental health problems, homelessness and addiction, and possessing “limited capacity to support themselves out of poverty”. 

Right at the bottom of the ladder, these people, numbering perhaps 5,000 or 10,000 across the country, “are all overlooked or lost in the rest of that much bigger picture”, Turnock says. Many do not have young children, so have gained nothing from the focus on child poverty. Briefly, during the pandemic, they were all housed, but – famously – not in permanent or suitable accommodation, and the urgency of action dissipated post-pandemic, the Covid lessons left unlearned. 

Iosua Clarke is one of those struggling to gain a foothold. Released from prison last year, he has spent 12 months in emergency accommodation, most recently the Halswell Lodge boarding house in central Wellington. Work and Income (WINZ) has been “pretty good”, he says, providing a $350 “steps to freedom” payment and food grants. WINZ and DCM have both tried to help locate more suitable housing. “But it’s hard finding accommodation, especially for [ex] inmates and fullas in the struggle. No-one will really take us – just the Lodge and places like that.” 

Staying at Halswell costs something like $300 a week, split between Clarke and WINZ, leaving just $130 a week for food and everything else. “And everything’s expensive here in Wellington – so expensive, eh? Far, you got to be rich.” Clarke is also fighting long-term alcoholism; DCM helps but there is not, he says, much state support. And he feels life has got harder recently. “I can see it in people’s faces. Ever since Covid happened, things have changed … The homelessness is getting worse, with all the drugs coming through now, not just P, different types of drugs.” For the last year, he has been trying to secure better housing and a building apprenticeship, but nothing feels certain. “I’m not happy. I’m definitely not happy. I try to do things to make myself feel better, but … I just feel lost, sort of thing. Not ‘lost’ lost, but, ‘Where do I go now?’ lost.” 

What would it take to fix these kinds of situations – and indeed the social problems that have, Turnock argues, been building up for decades? Above all, he says, government agencies need to co-ordinate their policies (a recurring request that somehow never gets answered) and, in collaboration with NGOs, revamp the services targeted to the poorest. Currently, alcohol addictions may bar whānau from accessing mental health services, or vice versa. Or there may not be a health clinic in their area that will let them in the door. This is a community that needs dedicated, flexible, whānau-friendly health services.

And – no surprises here – it needs more homes. DCM is a provider under the government’s Housing First scheme, which finds people accommodation and then wraps services around them. But of the homes DCM has used to house nearly 300 people, the vast majority have been rented – often temporarily – from the private sector; only 12 were provided by Kāinga Ora. “Everyone is in the same sandpit … just moving things around,” Turnock says ruefully.  

Several large social housing developments will shortly open in Wellington, easing the pressure somewhat. But, in an awful irony, the organisation’s housing woes are not limited to those it serves. “Our own staff are struggling,” Turnock says. “We are talking about housing [our service users], yet our own staff can’t afford the rent.”

Housing is, of course, another flashpoint for Labour. The debacle of Rotorua’s motels aside, what matters most for the poorest New Zealanders, long-term, is the supply of social housing: dwellings available at less than market rates. Superficially, this story also looks bad for the government: the social housing waitlist has spiralled upwards from 8,000 in March 2018 to 24,000 today.

Ministry of Housing and Urban Development data shows, however, that nearly 12,000 places were added to the social housing stock between July 2017 and March 2023. Of these, just over 4,000 are Kāinga Ora net new builds (7,900 built, minus 3,300 demolished and 300-odd sold), and 1,900 built by NGOs like Dwell Housing Trust. A little more than half the 12,000 “places” are new homes (once demolitions are factored in). The remainder have been bought or leased from the private sector, or “redirected” from other parts of government. (Transitional and Housing First places have also been greatly increased.)

This approach has its defenders, though. Repurposing private homes has been a quick way to prioritise housing for the very poorest, even if it adds nothing to the overall stock. And whether one takes the 6,000 or the 12,000 figure, the contrast with National’s record is a favourable one. Exact figures from that period are surprisingly hard to come by, but a 2018 stocktake found the number of state houses fell from 69,717 in 2011 to 62,917 in 2017, a drop of nearly 7,000. In many cases the homes were transferred to NGOs, with no change in rent, rather than sold to private landlords. But Labour claims that, across both the state and NGO portfolios, there were 1,500 fewer social houses in 2017 than in 2008. Leading National figures like Nicola Willis and Chris Bishop have admitted their party did not do enough last time round. And as the current housing minister, Megan Woods, likes to point out, if National had added places at the same rate in its nine years as Labour has in its six, the housing crisis would be greatly diminished.

The social housing waitlist is also biased by something that affects many such statistics: the extent to which they reflect not greater need but greater access. Across the welfare system, the consensus among experts is that help is now much easier to get. Under National there was, for instance, a lengthy social-housing triaging process, in which people hoping to go on the register had to phone the Ministry of Social Development and undergo a “screening” assessment before being allowed to make an application. As those hurdles are removed, the apparent increase in the waitlist partly reflects greater ease of access. Labour has also invested in services like Community Connectors, paying NGOs to help struggling families better understand the support available. 

Just how much this affects the figures, no one can say. One government staffer, interviewed for this article, said they had spent years trying to ascertain how much lower the waitlist would be if National’s processes had been retained, but to no avail. In any case, the scale of the recorded increases surely dwarfs such effects. The number of special needs grants, for instance, has risen from 182,187 in the December 2017 quarter to 382,707 in December 2019 and 396,909 late last year. No one outside government, and perhaps no one inside it either, believes that can be explained solely by increased ease of access.

All of these issues are, of course, exacerbated by the current cost-of-living crisis. The government’s response has been to lift benefits and minimum wages in line with inflation. But the poorest New Zealanders have long experienced a higher rate of inflation than others, as prices rise fastest in the basic goods that consume much of their budget. 

Growing social stress is evident in media reports of pensioners sitting in the dark to save energy, of households poleaxed by rising grocery prices, of widespread truancy among poor families. In early May, a survey of foodbanks found they were twice as busy as they had been pre-pandemic. The combined weight of covid and the cost of living has badly strained people who were barely coping in the first place. 

But because there are, at a minimum, two poverties, that picture is entirely compatible with a world in which benefit and minimum-wage increases have also lifted tens of thousands of people out of deprivation. So where does that leave the whole poverty debate? For analysts like Paul Barber, this is a decisive year. “Many [previous] initiatives have stopped, or need to be renewed,” he says. “The benefit increases of past years [for instance] have been paid out. My big question is, ‘What next?’ We are really going to need to move if we are going to meet the goals we have set as a nation.” For some groups, genuine progress has been made – but not to an extent that it couldn’t be unwound. “It all feels fragile, and not bedded in yet.”

The Post: Whisper it, but could KiwiBuild have finally found its mojo?

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Death, taxes and the construction industry’s boom and bust cycle: the three eternal verities of New Zealand life. Building consents are down by a quarter from last year’s peak; new liquidations are announced every week.

Some sympathy for construction firms is in order: they have been hammered by ever-rising material costs and interest rates designed to engineer a recession. But, like a socially irresponsible roller-coaster, they keep performing this rise and fall, over and over.

In 2004, New Zealand was consenting 30,000 dwellings every 12 months. Five years and a global financial crisis later, that figure had halved. A decade then passed before the peak of 50,000 consents was attained last year, just before the latest slowdown. As the veteran finance writer David Hargreaves has observed, “Once our building industry contracts, it takes a long time to get it cranked up again.”

But we can’t afford this delay. Despite the recent boom, we still have a housing shortage, even if estimates of its size vary. And a return to rising immigration brings tens of thousands of newcomers to accommodate. More people, fewer homes built: the seeds of the next housing crisis are already being sown.

The government can’t, of course, solve the construction industry’s internal problems. But for over a century, it has been understood that the state can act as a counterweight to economic cycles, propping up demand when private investment stalls and flattening out downturns.

Obviously it shouldn’t try to rescue every failing firm: some creative destruction is inevitable, necessary even. But liquidations are also immensely wasteful. Teams are dispersed, institutional memories lost; firms are slow to re-form. Ideally this damage would be minimised. How, then, might our political parties ward off another housing crisis?

National’s plan, launched earlier this week, abandons the bipartisan accord on infill townhouses, substituting a classic carrot-and-stick combination, albeit in reverse order. Councils would be forced to zone enough land for 30 years of construction, and rewarded with $25,000 for every house built above the long-term average.

That has a certain logic, and the plan thankfully does uphold one piece of the higher-density consensus: more six-storey buildings along transport routes. But quite apart from probably encouraging urban sprawl, which drives up emissions and infrastructure costs, the plan as a whole wouldn’t necessarily help builders immediately. Analysts at Greater Auckland fear it might actually slow things down, as councils rip up current plans for infill housing and start afresh.

By contrast, Labour, already in government, can point to work under way. More than 5000 state and transitional homes are in construction, and the Budget funded at least 3000 more. That work could – if run smoothly – provide certainty to stressed house-builders.

The Government’s Build Ready Development scheme also aims to stop planned developments falling over, either buying them up for state housing or underwriting open-market sales. Ministers say this has guaranteed 144 homes already; a second round of applications will close this month.

Labour will no doubt campaign on further state-driven house construction, and in doing so lay down a challenge to National, which admits it built too few social homes under John Key but hasn’t said what it would do next time round.

This week’s plan would actually remove the $200m-plus Affordable Housing Fund that supports community-sector construction, though National’s social housing policy, yet to be launched, may well suggest an alternative.

There is, of course, another state scheme designed to provide private builders with certainty by guaranteeing the purchase of homes at a discount.

Its name is KiwiBuild; you may recall some discussion of it in the press.

It launched amid a housing boom, when no developer needed to deal with it – a key reason it flopped first up. But it has plugged away, delivering 1700 homes (albeit somewhat short of its original 100,000 target). A further 1000 are under construction, as are 1700 conventional private-market homes in developments that are – the Government argues – enabled by those KiwiBuild guarantees.

And after all the scheme’s negative publicity, developers are turning to it in their hour of need: more than twice as many KiwiBuild contracts will be approved this financial year than in 2021-22, the Government forecasts.

That doesn’t guarantee plain sailing. One house-builder recently told me the price cut they have to take, to get the KiwiBuild guarantee, has risen from 2.5% to a scarcely believable 17.5% – driven, apparently, by the Treasury pricing in the risk of developments failing but not the full social benefit of maintaining construction rates. Certainly it’s plausible that the Treasury, like a cynic, would know the cost of everything and the value of nothing.

It would nonetheless be a delicious irony if KiwiBuild finally found its mojo – just as Labour enters an election campaign with an Opposition determined to scrap it. The parties agree we need more houses; the state’s role in delivering them remains as contested as ever.

The New Zealand tax system – facts, figures and global comparisons

 This post contains some basic information about tax in New Zealand, and is intended as a general resource for debates on the subject.

Life is tough at the bottom

Between 1985 and 2005, New Zealand had the biggest increase in income inequality in the OECD (OECD, Growing Unequal, 2008). Whereas someone in the richest 10% had typically earned 5-6 times as much as someone in the poorest 10%, they now earn closer to 9 times as much (MSD, Household Incomes in New Zealand, 2019).

With income (and wealth) more concentrated at the top, there is less to go around for others. In the core OECD, New Zealand has the seventh highest rate of child poverty, defined as children living in households with less than half the typical income. On that measure, one child in seven lives in poverty. In the best-performing countries, like the Czech Republic and Denmark, that figure is just one in 20 (https://data.oecd.org/inequality/poverty-rate.htm).

Among adults, 60% of New Zealanders are ‘economically vulnerable’, defined as lacking sufficient liquid assets to sustain oneself at the poverty line for three months (OECD, Inequalities in Household Wealth, 2018). This is one of the worst rates in the developed world.

This poverty and insecurity creates terrible social problems: poor physical and mental health, homelessness, struggles at school, loss of trust in society, wasted talent, and so on.

An upside-down tax system

Tax is one tool governments can use to reduce poverty and inequality, and enhance fairness. It can fund income support and retraining programmes for those down on their luck, as well as housing, health services and schooling that are especially important to those on low incomes.

But the New Zealand tax system doesn’t do a very good job of this. For a start, it requires poorer New Zealanders to pay an unusually large amount of tax. GST is levied on virtually everything they buy, and overall makes up an exceptionally large proportion of the country’s tax take: 30%, as opposed to 20% in the typical OECD nation.

New Zealand also levies tax on every dollar people earn. Many other countries have a tax-free band at the bottom. In Australia, you don’t pay tax till you earn over A$18,200; in the UK, the figure is £12,570.

At the other end of the scale, New Zealand’s tax system does not require a very large contribution from its wealthiest citizens – at least compared to what would be asked of them in other developed countries. This results partly from the ‘Rogernomics’ tax-cutting drive in the 1980s and 1990s, and can be seen in at least three areas.

1. Income taxes on wages and salaries

New Zealand’s top marginal tax rate, 39%, is low by developed-world standards. The top rate is over 50% in many Scandinavian countries (Sweden, Denmark, Finland) and Japan; over 45% in many European countries (Netherlands, Belgium, France, Ireland); and over 40% in Anglophone countries like the UK and Australia. The top rate in New Zealand was over 60% for the half-century between the mid-1930s and the mid-1980s (TJA, ‘Reforming Income Tax’, 2020).

2. Gaps in the income tax system

New Zealand does not levy taxes on income taken as capital gains (except in a few cases e.g. via the bright-line test). In 2019, New Zealand was the only one of 35 OECD countries without a capital gains tax (RNZ, ‘New Zealand is Joining the Modern World – Academic’, 2019). As 70% of capital gains go to the wealthiest 20%, the latter often pay very low tax rates.

For instance, if someone earns $1m in salary and pays $300,000 in taxes, that’s a 30% tax rate. But if they also earn $2m in untaxed capital gains, their income is $3m and their taxes are still $300,000, so they are only paying 10% tax overall. In fact, if (accrued) capital gains are counted as income, New Zealand’s wealthiest adults (those worth over $50m) pay on average just 9% of their income in tax, less than a minimum-wage worker (10.5%) or the average person (22%) (Inland Revenue, High-Wealth Individuals Research Project, 2023). Multi-millionaires, in other words, pay a lower tax rate than people working on supermarket checkouts.

In addition, many countries levy taxes on gifts or inheritances, recognising that they are an irregular form of income (on the economic definition that income is any increase in savings plus consumption, over a given period of time). The US and the UK both have estate taxes, albeit they only affect the wealthiest few percent. Ireland has a lifetime capital acquisition tax, in which the first €300,000 of gifts received in a lifetime are tax-free, but gifts over that amount are taxed. New Zealand had an estate tax for a century or so, but abolished it in 1991.

3. Wealth taxes

In addition to taxing income more thoroughly, most countries also tax wealth in some form. Some levy annual net worth taxes (Switzerland, Norway, Spain, Argentina, Colombia) on the wealthiest individuals. These taxes are usually levied at something like 1% of net worth. Switzerland’s generates revenue of c.1% of GDP (OECD, The Role and Design of Net Worth Taxes, 2018). Nearly all developed countries tax some more specific form of wealth, whether it be land, residential property or property in general. In the late nineteenth century, New Zealand had taxes on both property and land; today, local body rates are the nearest equivalent.

An insufficient tax take

The problem is not just that New Zealand’s tax system asks too much of the poor and not enough of the rich. It is also just insufficient across the board. New Zealand’s total tax take is around 32% of GDP, below the OECD average. Even setting aside Scandinavian societies with exceptionally large tax takes (over 45% of GDP in some cases), many European countries generate high revenues. Austria raises 42% of GDP in tax, the Netherlands 40%, and Germany 38%. Such countries get greater tax contributions from those who earn very high incomes, receive capital gains, or enjoy substantial property and other forms of wealth. Those revenues are then used to fund high-quality public services.

As New Zealand’s GDP is $345bn​ a year, its 32% tax take yields roughly $110bn annually for its public services (see below for details). If, however, it taxed at Austrian levels, its government would have another $34bn a year to spend; at Dutch levels $26bn, and German $21bn (https://data.oecd.org/tax/tax-revenue.htm).

Innovation economies are not low spenders

The countries often cited as innovation economies include Finland (tax take: 42% of GDP) and Sweden (43%). Both have capital gains taxes and Finland also has an inheritance tax. Overall their tax takes are far higher than New Zealand’s 32%.

It is true that Israel, another high-innovation economy, has a tax take of just 30%. However, Israel does have a capital gains tax. And across the public, not-for-profit and private sectors, it spends 5% of GDP on R&D (https://www.csis.org/blogs/perspectives-innovation/sustaining-israels-innovation-economy). Lifting New Zealand’s R&D spending (currently 1.4% of GDP) is unlikely to happen without substantial government investment. So New Zealand either has to raise taxes to match Scandinavian levels or cut quite a bit from other areas of spending – something that is hard to do without harming the poorest or eating into core services.

Where tax goes

Tax spending is sometimes portrayed as being dominated by low-value projects of interest largely to a Wellington-based bureaucracy. But although there is always room to improve how government works, New Zealand’s taxes are mostly spent in core areas like health and education, and spending is widely distributed across the country.

Of core government spending in 2020 of $108bn, just under three-quarters (74%) went on social security ($44bn), health ($20bn) and education ($16bn). In the former category, New Zealand Super was easily the largest spending item, at $15.5bn (Treasury, Financial Statements of the Government of New Zealand, 2020).

In geographic terms, research in 2013 showed that every region of New Zealand benefited from central government tax-funded services. Each Northlander, for instance, received $19,000 worth of public services delivered in their region. This $3bn total spending was equivalent to 4% of all central government expenditure, the same as Northland’s share of the population. Wellington’s $8.7bn ($17,700 per person or 11% of all spending) was similarly in line with their population share (NZIER, Regional Government Expenditure, 2013).

Opinions on tax

There is relatively little data on New Zealanders’ opinions on tax. However, data from the New Zealand module of the International Social Survey Programme shows a renewed interest in ensuring the tax system is progressive.

Q. Should the rich pay a larger share of their income in tax than others do?

                             1992    1999    2009    2019

Yes                      71%      60%      50%      68%

Neutral             27%      N/D      44%      31%

No                       1%        N/D      2%        1%

Source: International Social Survey Programme, multiple waves.

N/D = no data

The Post: Labour needs to be prepared to say the n-word

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If I asked you to think of a lightbulb, what would you picture? Probably an old-style incandescent number – a twisted wire in a thin glass orb – even though most newspaper readers have, I suspect, long since switched to LEDs. The latter are highly efficient, whereas incandescent bulbs are a study in waste: a lot of energy for not much light – but plenty of excess heat.

Thursday’s Budget recognised this truth in one limited way: its extension of the Warmer Kiwi Homes programme to include subsidies for LEDs, as well as home insulation. But it missed a far deeper point about waste.

Ever since the pro-market revolution of the 1980s, New Zealand politicians have become warier of the state delivering services itself, which is supposed to be terribly inefficient, and have often sought to subsidise the private sector to do the job instead. Because, in theory, firms will compete to offer top value, this will be a wonderful use of public money. And sometimes it is.

More often, though, it is terribly wasteful, in part because markets never work as well in practice as they do in theory, and it is hard to ensure a firm’s profit motive actually lines up with the public interest. So state funds get poured into semi-privatised services, for meagre returns: lots of heat, little light.

KiwiSaver is one classic case. When Michael Cullen was setting it up in 2007, some experts argued it should be run by a government investment agency. But Labour wanted to support local financial services firms, and gave them the job instead.

The result, as shown by research by my father Geoff Rashbrooke, a former government actuary, is colossal waste. There are of course some good KiwiSaver providers. But overall their investment managers get returns 2-4 percentage points lower than do the bureaucrats managing the New Zealand Superannuation Fund and the ACC Fund. (This is true even after accounting for the different kinds of assets they manage.)

A typical 25-year-old KiwiSaver member will likely hit 65 with about half – yes, that’s right, half – the savings they’d have if the public sector had managed their investment. And the administrative costs of the Super Fund and ACC, as a percentage of the funds invested, are less than half those of KiwiSaver managers.

As Rashbrooke senior concluded: “Well-governed public sector entities, with a focus on service rather than their owners’ bottom lines, are quite capable of doing a better job for us than the private sector.”

All this suggests we should be thinking about the politically toxic n-word. No, not that one. I mean nationalisation – the taking back of public services into the public sector.

No government, of course, is going to nationalise KiwiSaver providers wholesale, and nor should it. But a sensible government would consider part-nationalisation. It would, for instance, recognise that a lot of KiwiSaver members are in a default scheme, doing nothing intelligent with their savings while incurring large administration fees from their private providers.

Instead, everyone could be placed initially in a no-frills, low-fees government-run scheme that invests like the Super Fund. That way the disengaged aren’t ripped off, but everyone has the choice of switching to a snazzier, more sophisticated private scheme if they so desire.

Where else would a little light nationalisation be useful? Housing is an obvious contender. Between the accommodation supplement and emergency housing grants, the Government will soon be spending $2.5 billion a year subsidising people in private homes.

While it is untrue to claim that any accommodation supplement increase just goes straight into your landlord’s back pocket, clearly a decent amount is captured this way. And for what? Damp, cold, unhealthy, actively dangerous homes, in too many cases. It would be far more efficient – not to mention humane – to build more social housing, as we did pre-1990. (The current stock also needs to be upgraded, as this Government is now doing.)

Early childhood education (ECE) – the recipient of a massive Budget boost – is another sector ripe for incremental change. Some centres are small NGOs or private outfits delivering good services and making minimal profits. But other centres, like the Best Start empire owned by the rich-lister Wright family, have been structured so that $200m a year of state funding goes into a foundation that doesn’t even pay tax.

Again, an incremental return to public provision would make sense: the Government should at least open state-run ECE centres in the desperately under-serviced, low-decile areas where no-one else will set up shop.

Beyond that, who knows? Each sector will need a slightly different approach. But we’ll only find the right answers if we’re willing to ask the right question. Which is this: how much, in the interests of spending public money wisely, should we be taking back into state control?

RNZ: Smart moves in Budget 2023 but no transformation for poorer families

Read the original article on RNZ

It is, as has often been observed, very expensive to be poor. It is expensive for the country: the cost of wasted talent and worse health is immense. But it is also expensive for the families themselves: they often face higher prices than others do, because - for instance - they cannot afford to buy in bulk. And even small, basic costs take a big chunk out of their budgets. Low income, high costs.

Whereas Labour's previous capital-B Budgets have focused on the first part of that equation, increasing benefits and Working for Families payments by billions of dollars, the Budget announced on Thursday emphasises the second part. All its meaningful initiatives are about bringing down the costs faced by poorer - and middle-income - families.

Front and centre is the extension of 20 hours free early childhood education (ECE) to cover two year olds, in addition to the three to five-year-olds already covered. (Although many parents will question whether the existing deal really constitutes 'free' care.) Saving families up to $130 a week from next year onwards, this initiative will cost the government $1.2 billion over four years, and will make the biggest difference to those on the lowest incomes.

Even more relevant to struggling families is the removal of the $5 prescription fee, which health researchers have shown is a major barrier to care for families where every cent is already budgeted. Social media users have been sharing their joy at the removal of a fee that served little apparent purpose, and which the government estimates led to 130,000 or so people a year not picking up medicines they needed.

Such moves, though costly (about $619 million over four years), should be seen as investments in our future wellbeing: If they lead to more people getting the treatment they need, the country - and our public finances - will benefit in the long run. Free public transport for the under-13s, and action to reduce home heating bills through insulation, both fall into the same category.

All this makes sense, and is hardly radical. Indeed by helping families access services, these policies could be seen as less left-wing than giving them cash in the hand, which conservatives can claim (mostly unjustly) is "wasted" on luxuries.

The big problem for Labour is that, with no further action to directly boost family incomes, it risks falling further and further behind on its mission to slash poverty. It has, admittedly, poured something like $14b into the welfare system, and is seeing the results: Material poverty, as measured by the number of households with children saying they cannot afford basic things, has fallen from 13 percent of the population in 2018 to 10 percent last year, despite the pandemic.

But under Labour's self-imposed targets, that rate needs to fall to 6 percent by 2028. Overall, according to Budget projections, the government will miss some of its targets by a country mile.

To get back on track, it would need to not just keep pumping money into the benefit system - at least another $1b a year - but also further lift wages for the lowest-paid workers, turbo-charge social house building, and do something about poorer families' appalling debt levels. It could also go beyond free prescriptions and create a fully free healthcare system - though that would cost about $3b a year. For all its rhetoric, this is an incrementalist not a transformational government.

On the wages front, much hinges on Fair Pay Agreements, but the government has been so slow to get them going that, at best, it appears only one might be signed before the election. On social housing, the Budget promises another 3000. But Gareth Kiernan, of economics consultancy Infometrics, estimates we need another 38,000 state houses if we are to restore the proportion of the total housing stock - 5.3 percent - that state houses made up in 1991. The government's ambitions are out by a factor of 10.

Of course, there are not enough builders in the country to erect 38,000 state houses in short order, owing to this country's extraordinary failure to do anything resembling long-term workforce planning or properly value vocational education.

But it is also not clear where the government would find the money even if it did have more tradies on hand. While it is raising more in taxes than National did, its spending is trending down to the long-term New Zealand average of 30 percent of GDP, and much of the spending increases to date are simply about making up for previous under-funding, raising New Zealand Super in line with wages, and dealing with inflationary cost pressures.

The only notable revenue-raising measure in the Budget is the raising of the tax rate for trustees taking income from trusts, currently 33 percent, to 39 percent, in line with the rate on other income. As people were dodging the 39 percent rate by funnelling income through trusts. Although that is useful, it is hardly enough to fund a meaningful anti-poverty drive.

Guardian: Why does it take a deadly fire for New Zealand to pay attention to how its most vulnerable live?

Read the original article on the Guardian

It shouldn’t take a fire and yet so often it does. In the wake of tragedy, questions will be asked about the living conditions of the six people who died in the Loafers Lodge boarding-house, but as ever, too late.

Loafers Lodge is just one of several hundred similar boarding houses scattered across New Zealand. Once predominantly a rough but functional form of accommodation for single working men, such places have long since catered to a wider range of people, most of them down on their luck.

The tenants of Loafers Lodge included nurses working shifts at the nearby Wellington hospital, but also cash-strapped retirees, people on community sentences and other members of the marginalised and vulnerable poor.

I first came across boarding houses a decade ago, when I spent three weeks as an undercover reporter in one in central Wellington. The rooms were foul-smelling, dirty and damp. Some windows didn’t close properly, so the rain just came “hosing through”, as one resident observed. The place provided just one working shower for 14 people, and even that had a cracked concrete floor. There was no hot water in the hand-basins, no toilet paper in the toilets. The kitchen, such as it was, boasted neither fridge nor washing machine.

The people living there tolerated these appalling conditions because they had, as another resident put it, “nowhere else to go”. Whether it was alcoholism, poverty, difficult behaviour or other assorted conditions, no conventional private landlord would have them as a tenant. Social housing was in short supply.

The tenants, some of whom had lived there for decades, enjoyed few legal protections. Boarding house tenants can be evicted with 48 hours’ notice on various grounds, including where the landlord claims they will cause “serious damage” to the property.

Needless to say, such provisions are open to abuse, and help create a climate in which tenants feel frightened to speak up. Not that it would necessarily help if they did: when I tried I discovered the local council had virtually no legal powers to force improvements.

Firefighters survey the roof after a fire at Loafers Lodge in Wellington Photograph: Hagen Hopkins/Getty Images

No one yet knows how the fire started at Loafers Lodge and it could be unrelated to its status as a boarding house. But there were, reportedly, warning signs. A nearby business owner, florist Laura Newcombe, told media she wasn’t surprised by the tragedy: “It’s just a maze in there.”

One hospital worker said they “often used to think when I used to visit: God, if there’s a fire it’s like a rabbit warren.” Conflicting reports have also emerged from residents over whether alarms went off when the fire broke out. Fire and emergency said on Tuesday that they could not confirm whether alarms had gone off.

Either way, Loafers Lodge shouldn’t bear all the blame. Wellington City Council has said that the lodge was issued with a Building Warrant of Fitness in March this year, indicating that it met minimum safety standards at the time.

It has been widely reported that the building had no sprinkler system, but there is no legal requirement to retrofit older buildings with sprinklers – even when the presence of large numbers of vulnerable people, some of them cooking in their own rooms, creates a frightening fire hazard. For over a decade politicians have known the risks posed by such places and done nothing.

Boarding-house owners are, in a peculiar sense, victims of a wider failure. It shouldn’t be their responsibility to care for such troubled people. The state should provide safe, secure accommodation, with wraparound public services available on-site. It is starting to do so, through initiatives like Housing First, but not yet at the required scale.

And as long as vulnerable people live in private accommodation, tougher rules may be needed. It’s not yet clear exactly what could have saved those who died in the fire, but it’s not hard to imagine how closer regulatory attention – mandatory sprinklers, licensing regimes, a legal framework that ensures tenants feel safe speaking out – might have at least alleviated the tragedy.

As it stands, all we have is grief, and a growing pile of unanswered questions.

Speaking in parliament on Tuesday, Green Party co-leader James Shaw made clear his anger: “What kind of country are we, where those people have so few options in life but to live in substandard accommodation with a reasonable chance of lethality?”

It’s a good question. It’s just a shame that only now, after people have died, will there be anything like sufficient investigation into the conditions in which they lived and whether those conditions contributed to their deaths.

The Post: Is degrowth the planet's saviour or a left-wing menace?

Read the original article in The Post

On the fringes of environmental debate lurks an apparently radical idea: degrowth. Some see it as the only solution to the climate crisis; others, as a threat to human prosperity.

Where the truth lies is hard to know, because like many new movements, degrowth is intellectually chaotic. As the name suggests, its origins lie in a forthright rejection of the necessity of economic growth. Superficially, though, its modern proponents have jettisoned this stance.

One recent summary of “degrowth” proposals for reforming production and consumption finds none that actually mention reducing growth. Anthropologist Jason Hickel, a key proponent, insists the aim is to cut not GDP but “excess resource and energy throughput”.

Why, then, give the movement such an unhelpful name? Because the line that it’s “not about reducing GDP” may be mostly rhetoric. Hickel, for one, largely dismisses the value of economic growth, and believes developed nations could thrive on just US$10,000 per person, one-fifth of what New Zealanders enjoy.

Alongside this desired (if disavowed) downscaling of rich economies, degrowth is also an excuse to promote various left-wing causes – co-operatives, shorter work weeks, wealth redistribution – that may be worthwhile, but are only loosely connected to the core theme. Indeed, one of the books currently on the radical-left reading list, Japanese economist Kohei Saito’s Marx in the Anthropocene, is subtitled “towards the idea of degrowth communism”.

Are these ideas useful? To answer that question, we must first ask another: what, ultimately, is GDP? It is, at the risk of oversimplifying, the annual value of the goods and services bought and sold in markets: things exchanged for money. (Accounting for government and other services complicates this picture somewhat.)

This is, famously, an incomplete measure of progress. It values some destructive things, such as the cost of cleaning up oil spills, while ignoring positive ones, such as raising children. Degrowthers love to claim politicians have become “addicted” to raising GDP, pursuing it without cause. But most leaders have privileged it for a perfectly good reason: it marks a lifting of living standards.

There are many things we cannot achieve without conventional economic exchanges. Think about complex medical items like dialysis machines or cancer drugs. These cannot be created efficiently by people in their own homes, or voluntarily in small communities, or by the state’s commands alone.

The hugely complex web of interactions required – thousands of people being organised and motivated to produce output – can only be brought into being through markets.

Economic growth can, on its own terms, be a good thing. Up to a point, it is associated with higher wellbeing, increased happiness and longer lives. Developing countries need more of it. But it is not an end in itself. And of course it can – and has – come at the expense of the environment.

The answer is not to abandon economic growth, then, but to subordinate it. We must insist on rock-hard bottom lines for the planet, reversing the degradation of recent decades. We must stick strictly to the timetable for cutting carbon emissions roughly in half by 2030, and to net zero by 2050. Rich countries, in particular, must curb their pollution.

If, while respecting those bottom lines, we can have greater economic growth, that will often be a good thing; but if not, too bad. Rather than degrowth, this philosophy might be described as a-growth: just as a-tonal musicians are largely uninterested in conventional tonality, a-growthers are relatively agnostic about GDP, not obsessed with increasing or reducing it.

Once degrowth’s attention-grabbing label and false simplicity are set aside, many of its arguments actually amount to a-growth. And that’s a more fruitful concept. It encourages us, for instance, to better use the growth we do have, redistributing income so more people can live better within the current economic envelope, and prioritising the growth needed for medical equipment over that which serves pointless over-consumption.

What remains, though, is Hickel’s point about cutting energy and resource use. It is an open question whether we can, as “green growth” proponents hope, achieve our climate targets while bolstering the economy.

Hickel and others claim that, because even renewable energy has environmental impacts, we cannot attain this utopia: there is no way to slash emissions without massively reducing energy and resource use and, by extension, economic growth.

Certainly we are using the earth’s resources at a wildly unsustainable rate. But remember that the doom-mongers said for decades we couldn’t reduce carbon emissions while growing the economy, and were dead wrong: dozens of countries are now doing so. (This holds even when their imported emissions are counted.)

If it can be done for carbon, it’s not impossible it could be done for all resources. That, though, is a question of facts and sober assessments, not a sweeping philosophical rejection of a concept – economic growth – that lies some way from the heart of the matter.

Guardian: New Zealand’s millionaires pay lower tax rates than cashiers – it’s time to fix the system

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It was a conclusion that many had suspected but until now couldn’t prove: New Zealand’s multimillionaires, according to a bombshell Inland Revenue report released this week, pay a lower rate of tax than supermarket cashiers.

The report shows that New Zealand’s 311 wealthiest families pay just 8.9% of their income in tax – less than the rate paid by a minimum wage worker (10.5%) and less than half the rate paid by the average Kiwi (19.7%).

These wealthy individuals have such a low tax rate because so much of their income (about 80%) is capital gains – money made from selling assets – and that is barely taxed. Only 17% of their income is conventionally taxable income like wages and salaries. So despite being worth an average of NZ$276m ($168m; £135m) each, and typically earning $8m a year, these families pay an average of about $640,000 each in tax – less than 10% of their income.

One of the most striking findings from the report is that the 8.9% tax rate paid by New Zealand’s richest is almost identical to the 8.2% paid by the 400 wealthiest American families, according to research carried out by the US Council of Economic Advisers.

Those wealthy Americans are notorious for paying very low tax rates, and indeed for avoiding playing by the same rules as their fellow citizens. What the Inland Revenue report suggests is that New Zealand’s wealthy, though far less ostentatiously plutocratic than their American counterparts, are equally adept at working the system to their advantage.

Meanwhile, a companion report by Treasury analysts shows that New Zealand’s well-off are even wealthier than previously thought. The 0.01%, roughly 400 taxpayers, own something like 2.4% of all wealth – more than the entire bottom half of the population.

For anyone who believes that fairness matters, and that those who can most afford it should contribute more to the collective pot of taxes, these are outrageous findings. They are also a reminder of the profoundly unbalanced nature of a New Zealand tax system that asks a lot from its poorest citizens but relatively little from the best-off.

Low-income workers pay a flat-rate GST that takes a bigger chunk out of their incomes than it does for richer families, while also paying tax on every cent they earn. Conversely, as the Inland Revenue report demonstrates, the well-off pay a relatively low rate, in the absence of any meaningful tax on capital gains or wealth. New Zealand does have a “brightline” test but it captures only the gains made by selling investment properties within 10 years – a fraction of all capital gains.

Tax advisers and right wing lobby groups have, unsurprisingly, attacked the report. But it holds up to scrutiny.

One objection is that the income of the 311 wealthiest families includes unrealised capital gains: that is, increases in the value of assets that have not yet been sold. For some, this is not “income”.

However, it is an increase in wealth that can be borrowed against, and will eventually turn into conventional income once sold. If the research – which covered the six years from 2015 to 2021 – had counted only the sales made during that time, it would have underestimated the accumulated capital gains of the wealthy.

Critics have also seized on the super-large house-price rises of 2020 and 2021 to argue that the report chose an artificially bloated period. But the results are largely the same even looking at longer time horizons.

It is, in short, an impressive report, one that lifts the veil of secrecy surrounding the tax affairs of the rich. It also hints at the huge amount of tax – undoubtedly in the billions of dollars during that six-year period – that was lost by not taxing capital gains.

Whether the Labour government wants to go down that road again, having lost a battle to introduce a capital gains tax in 2019, is far from clear. But the arguments for doing so have only got stronger.

Spinoff: Our unfair tax system has been exposed – will Labour do something about it?

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Although the outcome of the forthcoming battle over taxes is no clearer now than it was last week, the territory on which that battle is fought has changed forever.

Wednesday’s landmark report from Inland Revenue shows that the 311 of the wealthiest New Zealand families are paying a lower rate of tax than minimum-wage workers. They only pay 8.9% of their income as tax (or 9.4% if you include GST), largely because most of their income is taken as capital gains, which we don’t tax in any systematic fashion.

Many have long harboured suspicions that this is the case. But it’s one thing to suspect a given situation exists, another thing entirely to be able to prove it. 

The wealthy’s veil of secrecy has been pulled aside and we now have, as revenue minister David Parker put it in a speech yesterday, proof of “a fundamental unfairness” in the New Zealand tax system. Virtually every developed country in the world, except us, taxes capital gains. They also tend to tax land, property, house sales or wealth as a whole.

The Inland Revenue report, and the appalling inequity it reveals, has permanently changed the debate on these issues. The knowledge that multi-millionaires pay a lower tax rate than aged-care workers will tilt all future discussions towards greater fairness and towards trying to ensure that those with the deepest pockets pay their fair share. The report will provoke outrage from ordinary people who pay tax on every cent of their income, and expect others to do the same.

The report will also make people think about the revenue lost by not taxing capital gains. The lost revenue from the 311 families in the report – roughly 0.01% of taxpayers – is clearly in the billions of dollars over several years. If we extrapolate out from there to include the rest of the top 1%, some 40,000 people, the sums will be even more enormous.

But as Parker asked rhetorically in his speech, “What, if anything, do we do [in response]?” Here is where things are less clear. The territory has shifted, but tax remains a very hard battle to win, in New Zealand at least.

Having got the data he long desired, Parker’s next move is to introduce a Tax Principles Act, which will enshrine a statement of the values underpinning the tax system – fairness, efficiency and so on – and require reporting against related measures, including the tax rate paid by the wealthiest.

Whether this will have any lasting effect is unclear. Right-wing groups have already made it clear they dislike including something called unrealised capital gains in the definition of income the Inland Revenue uses. That is, increases in the value of assets that have not yet been sold.

Parker can argue, correctly, that this is income. Not only is it an increase in wealth that its holders can borrow against, it will also eventually turn into conventional income when sold. And if such unrealised gains aren’t counted, the true incomes at the top end will be understated.

But it wouldn’t be hard for a future National government to change this definition. So beyond reporting measures, the real question is whether Labour wants to introduce anything that will deal with the problem their own agencies have identified. 

In particular, do they want to revisit the capital gains tax (CGT) debate? Although there are other options out there – including the Land Value Tax that TOP and others propose – a CGT is something Labour has extensively researched, is probably more politically palatable than the alternatives (though there is little specific polling on these issues) and would directly address the unfairness that’s just been revealed.

Contrary to much political commentary, a CGT was not universally unpopular: polls in both 2014 and 2018 showed around 40% of people in support (more than outright opposed it), despite the lack of a consistent campaign by either Labour or civil society. This suggests that a concerted and coherent push could get it across the line.

On the other hand, Labour remains scarred by the debacle of 2018-19 when it put the issue to a working group, was unable to defend its own policy for the duration, and saw the argument become lost as opposition and misinformation poured into the breach. It’s also unclear that now is the right time for tax rises. 

In the midst of a cost-of-living crisis and a probable recession, the public seems more in the mood for tax cuts than tax increases. Another option, of course, would be a tax “switch”: cutting the bottom rates of tax (or introducing a tax-free threshold) while bringing in a CGT.

Parker obviously favours something along these lines: in his speech yesterday, he said, suggestively, “If you do have a tax switch…” and, later, “There’s many ways to switch things.” But this isn’t Labour policy – which, he was careful to say, won’t be announced until later in the campaign – and it’s not a straightforward exercise either. 

Making the first $5,000 tax-free, for instance, would cost around $1.8bn. That would be a lot of revenue to make up, when a capital gains tax – if it applies at the moment people sell assets – takes a long time to raise much money. And the move would still face many of the usual right-wing attacks. So even with the scale of the problem now plain to see, the prospects for a proper solution remain distant.

Stuff: What's really going on behind the scenes of the latest tax battles?

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When you file your income tax return, or see the PAYE deductions from your salary, do you experience a gross breach of privacy? Nineteenth-century commentators thought so. Confronted with the then-novel demand to itemise his income to the state, one British critic labelled it an intolerable intrusion by “the pimply minions of Bureaucracy”. In New Zealand, the MP John Bryce argued that men would be tempted to file false returns – and, thus hardened to criminality, would pretty soon be turning to drink, hitting their wives and robbing banks.

All this was nonsense, of course. But it served to defend the well-off against a new levy and to buttress the belief that the contemporary system was fair.

Income taxes, of course, eventually won the day, and are now totally normal. This tells us two things. First, what counts as “commonsense” can change out of all recognition. The radical becomes respectable. And second, progress is often delayed, for a time, by people raising spurious objections.

Why is all this relevant now? Because those with vested interests and entrenched beliefs fear that change is in the air, and are mobilising against it.

Stoking their anguish is the much-trailed publication next week of an Inland Revenue report on the assets, incomes and taxes of New Zealand’s 400 wealthiest individuals. The research continues the agency’s long-standing interest in whether the wealthy play by the same rules as the rest of us.

Very often, of course, they don’t. Inland Revenue has had to carry out this research because the wealthy often refuse to fill out the statistical surveys which would otherwise yield this information, and which the rest of us readily answer. Officials also have a not-unreasonable suspicion that the wealthy are quite good at minimising their taxes.

One key issue is capital gains. If someone has a salary of $100,000 and also makes a capital gain of $100,000 selling an investment property, they pay $24,000 tax on the salary, but (often) nothing on the property sale. That means their total tax rate is $24,000 on $200,000 of income – just 12%, less than someone on the minimum wage.

This is the kind of thing Inland Revenue is investigating. But not everyone welcomes such scrutiny. A 200-page report published this week claimed to show, in the words of RNZ, that the tax system is “reasonably fair and equitable”. Written by consultants Sapere, the report partly bases its claims on “illustrative” examples of wealthy families who – conveniently enough – take hardly any of their income as capital gains.

Indeed, to claim that the current system works, one has to ignore all kinds of data. The 2019 Tax Working Group showed that, once GST is included, poorer families pay about the same rate of tax as middle-class ones – despite being evidently less able to afford it.

And at the upper end, tax rates almost certainly fall. In 2020, Treasury estimated that many wealthy New Zealanders pay a rate of less than 10%, partly because much of their income may be untaxed capital gains. Next week’s report is a more detailed attempt to answer the same question, but as it stands, the best estimate is that many millionaires pay a lower rate of tax than supermarket cashiers.

Yet the irony here is that those mobilising against tax reform – which now includes the chartered accountants’ association and the National Party – may have little to fear. Though they seem convinced the Inland Revenue report presages a capital gains tax (CGT), this is far from obvious.

In technical terms, a CGT is relatively straightforward: for all the hand-waving one hears about unintended consequences, the truth is that Australia, the US, the UK and nearly every developed country has introduced one without major issues. The problem, rather, is that the politics of tax is difficult at the best of times, let alone during a recession, and the government remains badly burnt by its last failure to implement a CGT.

The Inland Revenue report will, nonetheless, hand Labour a large dilemma: if, as expected, it shows very low tax rates at the top end, the government will either have to do something about it and face a massive political fight, or explicitly say it will do nothing to right the injustice its own research has identified.

The establishment would, of course, prefer inaction. Sapere, conveniently, warn that the mere act of researching top-end tax rates could create “a more uncertain environment for investment” if the well-off fear it foreshadows a CGT.

Democratic debate, in other words, should be constrained lest it harm established interests. Which would be convenient for the wealthy – for if there is one thing we can take from the nineteenth-century defeat of income tax’s opponents, it’s that bad ideas don’t stand up to scrutiny. But, as a corollary, the good ones eventually win out.