Matt McCarten: Inequality likely to increase with Labour's corporate tax cut proposal

I can understand why Michael Cullen gets frustrated by corporate lobbyists. The Government announced this week that it is likely to reduce the corporate tax on profits from a third to 30 per cent. You'd think that a promise of a cut in their company tax would get a big thank you. But no, we get an orchestrated barrage of whingeing that it doesn't go far enough.

I would have thought that if a landlord or supplier said he or she was going to give your business a 10 per cent cut that increased your overall profit by another 5 per cent, you'd be pretty happy. But it seems that no matter what this Government does for business, it's never enough. I suspect it's less to do with commerce and more to do with ideology and greed.

A corporate lobbyist I know confessed to me that the business sector always believed that the Government was going to capitulate to its campaign to reduce the tax rate on company profit. The real reason why lobbyists were running such a strong campaign was to get the Government to agree to reduce company tax, but also to scare off the Government from wanting to spread the tax base by introducing a capital gains or an asset tax like most other countries have. Judging by the Government's announcement on the proposed tax cuts, it seems they succeeded. Earlier indications that capital gains taxes were being considered to pay for the cuts weren't included in last week's package.

My lobbyist mate comes from the ideological school that believes all taxes are theft, and his job is to run whatever campaign he can to intimidate the Government into abolishing taxes. His latest campaign is to tell the Government that it should reduce company tax even more and fund the cuts through an increase in GST. I see from reading the business pages that he is getting quite a bit of buy-in from certain sections of the corporate sector, who suggest that GST be raised to 15 per cent or even 20 per cent and that the billions of dollars raised from consumers are used to reduce corporate tax. That would mean households paying another $20 to $50 a week to help increase the profits of our corporates. Scarily, there are business leaders who not only argue this with a straight face but actually believe it.

But the real consequence of the Government agreeing to reduce the company tax rate is that the top tax rate for salary earners will have to drop, too. The Government won't be able to maintain a top salary income tax of 39 per cent while having a company tax of 30 per cent. Anyone with half a brain earning over $60,000 will just form themselves into a company. Someone on, say, $100,000 a year will get another $3600 net. A backbench MP will get $8000, ministers $12,000, and our Reserve Bank governor, whose job is to preach constraint, will get close to $40,000 more. Make no mistake, this will be a windfall for our wealthier citizens.

The obvious question is where will the extra money come from to make up the shortfall of several billions of dollars. One thing is sure: there won't be enough fat left over for people on low and modest incomes. In fact, the tax cut for our wealthy isn't affordable unless it is made up from elsewhere. But as the Government has backed off on any discussion on wealth or capital gains, the changes will mean cuts in current services.

It seems we get back to the old story where our wealthier citizens keep getting a better and better deal at the expense of the rest of New Zealand. It happens whether Labour or National are in government. The sad truth is that the gap between the "haves" and "have nots" has been accelerating for years.

This is borne out by the most comprehensive study ever by the Ministry of Social Development into New Zealand living standards. It was carried out in 2000 and again in 2004. This research shows that there are now about a million New Zealanders living in hardship, while about 250,000 are categorised as suffering "severe hardship". There was a 20 per cent increase between 2000 and 2004 in families with children that suffer severe or significant hardship.

Most of the people I represent in my union work are holding down two jobs or are also studying. So it's not as if ordinary people were not trying hard to make a go of it. But our better heeled New Zealanders have been doing very well indeed. According to the NZ Herald, our richest CEOs, for a second year in a row, received massive pay increases, this year averaging 23 per cent. The medium salaries of our top 44 CEOs have surpassed the $1 million mark, and some earn around $3 million a year.

The Treasury reports that New Zealand has one of the highest levels of income inequality among OECD countries. A report commissioned by the Treasury found that while the incomes of those in the middle and lower sections of society have fallen over recent years, the wealthiest 10 per cent of households have acquired significant increases in their incomes. Well, there's a surprise!

All this is happening under a Labour government, while at the same time we have had consistent and strong economic growth. If Labour accepts more tax cuts for corporations and the wealthy, the inequality will accelerate even faster. I wonder if Labour's political leaders still believe that their job is to represent the interests of workers and the poor. After all, that's why Labour Party was formed 90 years ago, isn't it?