By Marina Cameron
Despite appeals from big business for Australian government to look across the Tasman at the New Zealand example, the reality is that tax "reform" there has led to an increase in social inequality and yielded no significant long-term rise in economic growth.
The restructuring of taxation began in NZ before the election of a Labour government in 1983. Moves away from direct taxation were proposed unsuccessfully in 1967 and 1982. However, the Nationals did bring the top rate of income tax down from 64% to 45% in the 1982 budget.
The real assault on direct taxation came under Labour.
In 1986, Labour restructured income tax from five rates to three — 15% for low, 30% for middle and 48% for high income earners. A goods and services tax was flagged in the 1984 budget and introduced in 1986. This was a 10% across the board levy, but excluded financial services, real estate transactions and very small businesses.
Indirect taxation was already quite high, although levied through a less visible general sales tax. After the GST replaced this tax, the amount of indirect tax as a proportion of government income increased from 22.5% to 33.2% in 1988.
In 1989, the GST was increased to 12.5%, with income tax being restructured to two rates (24% and 33%) and the top company tax rate coming down to 28% (later increased to 33%).
The government argued that the effects of the GST would be offset by lower income tax (although the new tiered system favoured higher income earners the most), more rebates and an increase in unemployment benefits.
The last, however, was a one-off concession and was excluded from adjustment for inflation. Labour and then the Nationals, after their election in 1990, continued to cut health, education and other aspects of the social wage. Welfare benefits were slashed in 1991.
These changes, combined with a drive towards labour market "flexibility" (i.e. driving down wages and working conditions), contributed to a massive shift in wealth from the poor to the rich. The number of people living below the poverty line in NZ rose by 35% between 1989 and 1993. Half of all income is received by the top 20% of income earners, and the wealthiest 16% own 75% of the country's wealth.
Economist Bob Stephens estimated in 1987 that between 1982 and 1988 "effective average tax rates including GST for couples on average earnings with two dependents increased from 18.7% to 24.1%. Average tax rates for similar couples on three times the average income declined from 40.3% to 34.9%."
Alternatives
The restructuring drives of Labour and National led to a large amount of disillusionment in NZ's two major parties. The — a progressive formation based on left-wing splits from the major parties, the Greens and the Maori party Mana Motuhake — ran in the last national elections on an alternative tax program, gaining 10% of the vote.
The Alliance policy was aimed at shifting the tax burden off the poor and onto the wealthy and big corporations. Central to this was abolishing the GST and replacing it with a financial transaction tax (FTT).
Alliance leader Jim Anderton pointed out, "The GST is a highly regressive and inequitable tax. It is a tax only on final consumption, so it has always fallen heaviest on those with the lowest incomes, who spend most of their income, out of necessity, on a weekly basis." The FTT instead would tax people 10 cents for every $100 transaction (including withdrawals, shares, currency, financial securities, land and buildings).
The Alliance proposed to raise the company tax rate to 40%, to levy duties on estates valued above $500,000 and overhaul income taxation. Those earning less than NZ$28,500 per year would pay less tax, while those earning more would be taxed progressively more. This sort of system would mean that 70% of New Zealanders pay less tax.
These changes were part of an alternative budget put together by the Alliance, and would have paid for free health care and education; extensive environmental, housing and employment programs; increased income support for students, unemployed and the elderly; and numerous other social services.