Unpopular governments are often tempted to find an enemy they can unite the country against. For Putin, it is Ukraine. For Labour, it is the nameless 311 richest families that Revenue Minister David Parker accuses of not paying their fair share. The UK Guardian has this headline: “New Zealand’smillionaires pay lower tax rates than cashiers”.
“It’s not fair” is the beginning of most sibling fights. Revolutions are fought in the name of fairness.
The “ultimatum game”, as psychologists call it, shows what powerful emotions perceived unfairness generates. In the game’s simplest form, one person receives $10 and must split it with another. If the split is accepted, both receive the money. If the split is rejected, neither gets a cent. In every culture, many people would rather have nothing than accept what they regard as unfair.
Those who advocate fairness as the goal of the tax system need to remember that the only truly equal society is a monastery, where every monk has nothing.
The Guardian failed to mention that three reports were released about our tax system, two showing it is more than fair.
The IRD study was designed to show the rich do not pay their fair share. Under urgency, the minister changed the law so bureaucrats can demand to know everything we own. A scientific study would have looked at a cross-section of taxpayers, but that would have alarmed middle New Zealand. The minister picked the enemy - the richest families. Then the result was rigged by saying changes in the prices of assets are income.
Using the same methodology, the minister could scapegoat the poorest 311 families by saying government services are income.
He could say the poorest families are benefit-led, with many children. That there are 311 families which receive more than $2000 a week in benefits, accommodation allowance and special payments. Then there is the cost of education, whether the children attend school or not. Such families are often known to social agencies, police and courts, and some are guests of His Majesty. The big cost is health. Being poor is bad for your health. Many of our poorest families suffer from third-world illnesses. Frequent hospitalisation means there are at least 311 families that receive more than $1 million of taxpayer services a year.
If we follow the minister’s logic that anything of value is income, then those families owe - in income tax and ACC levies - $372,113 a year.
This is absurd. Services are not income. Our poorest families often owe the state thousands of dollars in liable parent contributions, benefit over-payment and fines. They cannot afford to pay any tax. Yet this government subjects them to a vicious tax that keeps their children in poverty and which few rich people pay. A government interested in fairness would slash tobacco tax.
Assets are not income either. Even the richest families could not pay, from their income, an annual capital gains tax on the increase in the price of their assets caused by inflation.
Revenue Minister David Parker believes more than 300 of NZ's richest families are not paying their fair share in tax. Photo / Mark Mitchell
Extreme cases make bad law. The richest and poorest families are not the norm.
The second tax report was from Sapere Research. It found that less than 2 per cent of all taxpayers pay 9.3 per cent of all income tax. The 21.2 per cent of taxpayers earning over $70,000 a year pay 68.5 per cent of income tax.
Most of the 311 richest families that the minister wants us to believe are freeloading pay many times their share of income tax. They are no cost to welfare. They often pay for their own health insurance and for their children’s education.
The third tax report was from Treasury and found that a third of all households receive more in tax credits and benefits than they pay in tax.
If the minister has his way, the new norm will be that everyone’s KiwiSaver will be reduced by capital gains taxes.
We will be taxed twice: once on our income and then on the price inflation of any asset that was purchased with that tax-paid income.
Capital gains taxes are complex and expensive to collect. The tax damages the economy. It encourages people to hold on to assets rather than deploying capital to its most productive use.
New taxes, like acorns, start small and grow into mighty oak trees. Income tax started in 1799 as a temporary measure to fund the Napoleonic wars, at 2 pence in the pound. Despite campaign promises, GST is now 15 per cent.
The Greens demand the capital gains tax rate be 39 per cent. The minister says it would not be on the family home. What is fair about a $20 million mansion being tax-free but the family bach being taxed? First, the mansions will be taxed, then our homes will be taxed. Labour is unleashing the politics of envy. They could consume us all.
Labour is also desperate for more revenue to feed its addiction to spending. It is irresponsible to feed an addict’s addiction.
The only fair tax is a flat tax.
- Richard Prebble is a former leader of the Act Party and a former member of the Labour Party.
