Many New Zealanders walk a road of austerity or even poverty as massive profits pile up away on the sides. Photo / 123rf
Many New Zealanders walk a road of austerity or even poverty as massive profits pile up away on the sides. Photo / 123rf
OPINION:
We need a tax system that prioritises people over profit. Everyone should have enough to make ends meet and afford the basics of life - but right now wealth is out of balance in Aotearoa.
Every day thousands of children in New Zealand go hungry. People struggle to payrent or mortgages. Families go cold, often forced to make impossible decisions about whether to pay the bills or eat.
Meanwhile, massive Australian-owned banks make eye-watering after-tax profits, with ANZ alone posting a record $2 billion; supermarkets rake in an excess profit of well over $1 million, every single day; and one energy company has presided over a 600 per cent increase in their takings.
Excess profit is by definition unearned. It is a result of external circumstances, and existing market power, which allows a few big corporations to get away with charging higher prices than their costs justify.
Nearly every single dollar of this excess profit is going into the pockets of shareholders and corporate executives - rather than shared among all of us.
Corporate super profits aren’t down to “hard work” or “business-savvy” decisions. No one has suddenly struck gold because of a smart investment. These corporates are benefiting from the Government’s economic response to the Covid-19 pandemic and global inflation.
To date, the main players commenting on the cost-of-living debate have missed the contribution of market power and corporate super profits to inflation.
Both the major parties have got it wrong. It is an inequality crisis, and a cost-of-living scandal, made worse by corporate profiteering.
Earlier this year, Revenue Minister David Parker said he would “[shine] a light on unfairness in our tax system”. Well, Minister, large corporations making a killing in profits, while tens of thousands of families struggle to make ends meet, is just about as unfair as it gets.
The Green Party has always been clear that we need to do things differently. We have often been the only political voice fighting for a fairer tax system.
On Sunday we once again put forward a proposal to rebalance our economy to support the majority and not just a privileged few. Our ideas, which are open for feedback, centre around the introduction of a new excess profit tax. A one-time tax on a large corporation or industry that is benefiting from a change in economic conditions they did nothing to bring about.
The principle is simple: when large corporations can make super profits from a change in circumstances that affects us all - such as the war in Ukraine, or fiscal and monetary stimulus - then those benefits should be shared.
An excess profit tax is a simple and effective way for large corporations to pay their fair share, and go directly into initiatives that help families reduce household bills, such as energy-efficient retrofits that reduce power bills, more frequent and free public transport, and investments in public housing. It directly tackles corporate profiteering to enable investment in public purpose.
An excess profit tax would apply only to the slice of corporate profit considered excessive, and would be an additional tax above the standard company tax rate of 28 per cent. This wouldn’t apply to small businesses, only a handful of large corporations profiting to excess at the expense of the rest of us.
Other similar countries have already adopted something akin to an excess profit tax. The European Union, for example, is implementing an excess profit tax on the energy sector. Spain has its own excess profit tax on both the energy sector and banks.
And there is precedent in Aotearoa. During World War I, we followed the UK’s lead and introduced an “excess profit duty.” After allowing for a 6 per cent return on capital, any profits above the pre-war average for each company were taxed at 50 per cent.
The revenue raised from a new excess profits tax would largely depend on the settings. However, history shows it is an effective way of raising additional revenue that can be reinvested into our communities. In 1997, the UK government raised £5.2 billion in British pounds in a tax on privatised utility companies. Under Margaret Thatcher, a tax on the excess profits of the banking sector brought in £400 million.
Green Party list MP Julie-Anne Genter. Photo / Supplied
By definition, a tax on excess profits is temporary.
That is why we are also floating the idea of permanently raising New Zealand’s corporate tax rate, which successive governments have chipped away at over the last three and a half decades. Returning the corporate tax rate to 33 per cent, as it was in the early 2000s, would increase government revenue by approximately $3 billion per annum.
This additional revenue could be used to provide vital support for public services like health and education, and to make sure those with the least have enough income to live with dignity.
As many struggle to afford the basics while big corporations generate eye-watering amounts of profit, now is the time for a conversation about how we rebalance the tax system towards supporting the people who need it the most.
Julie Anne Genter is the Green Party of Aotearoa New Zealand’s finance spokeswoman.
