Anti-CGT assault masks real support for increasing fairness

Media Release – Equality Network

Thursday 28 February 2019

Anti-CGT assault masks real support for increasing fairness

Following an initial onslaught of opposition to a capital gains tax, the coming weeks will see the less vocal majority assert their support for moves to increase fairness, the Equality Network says.

The network of organisations committed to reducing inequality notes polling by UMR that shows two thirds of New Zealanders support a capital gains tax that excludes the family home.

“Reducing tax for low and middle income earners and taxing the gains from capital income for the wealthy are welcome steps towards more fairness and greater equality in this country,” says Equality Network Steering Group member Paul Barber, in response to in the final report of the Taw Working Group (TWG) released on 21st February.

“There is a strong emphasis in the TWG report on reducing inequality and imbalances in the system and the report acknowledges that tax plays a critical role in reducing inequality. A fairer tax system will help to rebalance our communities and ensure that all people contribute fairly to the wellbeing of our country, according to their income and wealth.”

“While the TWG recommendations are positive steps in the right direction, more needs to be done to create a coherent system to reduce inequality, including better interface between the tax and benefit systems and a higher tax rate on the highest incomes.”

“The lack of effective tax on wealth remains the largest gap in the tax system and is deeply unfair,” says Paul Barber. “The currently largely un-taxed gains from capital income enjoyed by a relatively small proportion of our country need to be brought into the tax system to help lift the incomes of those who are struggling. The wealthiest 20% of our population are the ones who are being asked to pay their fair share of tax. “

“The New Zealand tax system is a complete oddity among the other wealthy nations like Canada, United Kingdom, and European Union countries, because we have no meaningful wealth or capital gains taxes,” he says.  This is making our system unfair and inefficient, as well as threatening the sustainability and integrity of the tax system, says the TWG in its report.

“Tax reductions to those on lower incomes will give some much-needed extra cash to help reduce the level of poverty in this country, especially for households with children. Lowering tax rates for people on lower and middle incomes is effective but the TWG report is also makes it clear that the most effective way to help the lowest income earners is through direct transfers i.e. increased welfare benefits and other income support. The EN calls on the government to heed this advice and take action to increase welfare support for those who are missing out.”

“The links between the tax system and welfare, including secondary employment tax rates and abatement rates for benefits, thresholds for access to Working For Families tax credits and other assistance, have a huge effect for hundreds of thousands of people living in poverty in this country. It is disappointing that the TWG has not done more work on this issue. The report of the Welfare Expert Advisory Group that was completed this month will hopefully contain proposals for urgent change in this area.”

“The EN continues to urge the government to introduce a higher tax rate on the highest incomes. Cutting tax rates for the lowest income earners will also give tax cuts to all other income earners. Under the scenarios included in the TWG report, someone earning over $100,000 per year would receive a tax windfall of up to $595 per year, the same as someone on $22,500.”

“The increased revenue from better taxing high incomes and wealth would ensure that the government has more revenue to meet the urgent health and social needs in our communities, such as better housing, health and education, and deliver wellbeing for all.”

International research over recent decades has shown that higher levels of income inequality such as we have had in New Zealand since the mid-1980s are a causative factor in health and social problems including mental illness and imprisonment rates, as well as weakening cohesiveness of society, such as the level of trust, and inhibiting inclusive economic growth.