Lizzie Marvelly: Time for tax changes, top and bottom

Steven Joyce's fiscal estimation was somewhat off the mark. Photo / Mark Mitchell

COMMENT

Does everyone remember Steven Joyce's $11.7 billion hole? I wonder how it tallies with the Labour Government delivering a surplus of $7.5b, the highest since the global finance crisis . . . The Government recently opened its books to show that more people are in paid employment, being paid more and businesses are making more money. So I guess the sky didn't fall in when Labour took office.

This surplus will give the Government the opportunity to affect significant change for New Zealand families. It's a good sign and one that comes with the unexpected bonus of a side serving of egg-on-the-face of the local business community. Amid successive gloomy whine-fests about plummeting business confidence, the economy is in robust shape under Labour. Perhaps it might be time for some of our business leaders to buck up their ideas, suck up their sour grapes and simply get on with it.

It's also time for the Government to get on with spending the extra cash. Not recklessly, but wisely and sustainably.

To that end, I had a chat with economist Shamubeel Eaqub this week and he suggested that there are three main priority areas where the Government should use its surplus. The first is to spend on chronically underfunded public services. This would need to be done gradually, as many sectors don't currently have the capacity to grow quickly. We'd need to train more medical professionals, for example, if we were to bring our health system up to scratch.

Personally, I suspect Joyce's $11.7b hole (or something close to it) could probably be found in the devastating underfunding his government delivered for public services. New Zealanders deserve decent public services, so I believe that reinvestment should be this Government's first priority, alongside further investment for public housing.

The second area Eaqub identified was increased spending on infrastructure but, rather than rolling out new projects, he suggested that projects already been approved should instead be fast-tracked. Personally, I'd like to see another few million thrown at the interminable Takanini motorway disaster (and, of course, the improvement of the rail network) but that's only because recently I've wasted more valuable hours of my life than usual sitting in traffic on Auckland's motorway. Still, it's undeniable that our transport systems leave a lot to be desired.

Minister of Finance Grant Robertson: Which way will he turn with the surplus? Photo / NZME

Those two areas of spending are, however, unsexy to most of the population. The third is the one that will be likely to receive the most attention. Tax cuts, and other government policies that will put more money in the pockets of its constituents, are likely to dominate airwaves, political debates and party advertising over the next 12 months. No lead-up to an election would be complete without a national spat about tax.

I'm one of those who is extremely fortunate to not need a tax cut. I live within my means, I can pay all my bills and afford a pretty decent lifestyle. Sure, a bit of extra cash in hand would be nice, but at this stage I'm in the blessed position that it would more than likely be spent on luxuries (like DIY house tools and implements – I've become a regular at Bunnings in my old age) rather than necessities.

For other New Zealanders, I know that's not the case, which is why any tax relief or additional financial support should go to New Zealanders earning less than the average income. One way to achieve this would be to bump up benefits and implement more of the changes recommended by the Welfare Expert Advisory Group, but we all know that alone won't win an election. If there's one thing "middle New Zealand" seems to hate more than the Wallabies and capital gains tax, it's beneficiaries.

Although I personally believe that targeted funding that put more money in the bank accounts of low-income families (beneficiaries included) would have the biggest impact on the health of both our society and our economy, it's unlikely that such a plan would be pitched by a government relying on the middle swing voters for its re-election. So what would be the next best option?

I'm going to go out on a limb and suggest that our tax brackets could do with an overhaul. Our current system stipulates a 10.5 per cent tax rate for income up to $14,000, a 17.5 per cent tax between $14,001 and $48,000, a rate of 30 per cent between $48,001 and $70,000 and a top tax rate of 33 per cent over and above $70,000. The income tax system hasn't changed since 2010 but inflation, the cost of living and wages have all risen in the past decade, pushing more people into higher tax brackets, while expecting them to spend more to survive.

Put some of the surplus into the wallets of low-income Kiwis.

Any tax system changes would, of course, need to be sustainable and couldn't simply be election bribes funded by a surplus year. We could, however, follow the Australian example and create a bottom tax bracket that was tax-free and a higher tax bracket for very high income earners (say, those on more than $250,000 per annum). I'm no tax expert, but if we had the financial breathing room, it might also make sense also to raise the earning thresholds for the 17.5 per cent and 30 per cent tax rates.

Of course, changing the tax brackets would benefit almost everyone and combined with additional measures targeted to low-income families, such a plan could deliver both the fiscal stimulus the Reserve Bank is calling for, and help to improve the standard of living for Kiwi families.

So I think it's time for the Labour Government to act like a Labour Government, and spend this surplus – although in intelligent and maintainable ways.

Oh, and since we've got the cash, let's buy Ihumātao and give it back to its rightful owners.