This short article is written following my hearing Roger Kerr of the Business Round Table talking on the radio, and the repeated remarks by Don Brash and fellow right wing economists, about the continued need to lower taxation. There would be tax cuts for businesses, which may have a degree of merit for some businesses, but many larger corporations seem to be clever at avoiding a full tax burden in any cae. But it doesn't stop there as the package also comes with reduced taxes for the better off. Also we are constantly berated as to how high are tax levels are compared to our competitors, the continued drag of taxes on the economy etc etc.
I get annoyed by the constant repitition of this right wing economic philosophy, which of course is the religious mantra of people generally who are pretty well-off in any case.

I certainly would agree that one doesn't want to pay taxation for its own sake; but my economic philosophy is that many important national endeavours and businesses are best and most efficiently achieved through public enterprise. We live in small nation, where the market just isn't big enough to ensure sufficient competition in many enterprises through private endeavours ­ these often becomes monopolistic or operate in a cartel-like arrangement, so that the presumed efficiencies of privatisation and competition never eventuate. In addition, to protect the public interest in these situations, a good deal of regulation is required, which negates the market mechanism in any case, and in itself generates a lot of extra expense. The electricity reforms would be a prime example of such mistaken privatisation and introduction of supposed competition. The efforts of the previous National Government to introduce competitive elements in the health system were a predictable disaster.

One example. Just now a meningitis immunisation campaign is starting. This present Labour administration deserves a great deal of credit for this endeavour, for we have had a meningitis epidemic for nearly 13 years now. Much of this coincided with the National government's tenure of office, but absolutely nothing was done about this; in fact you could say they had made the problem worse by Ruth Richardson's destructive budget reducing social security payments and their run-down of public housing. And did any private enterprise come to the rescue, did you see for example any drug company come to the party and offer to develop a vaccine? Did you heck. It took a courageous but simple political decision, leadership and quite a lot of money, which comes from taxation. And that is why we pay tax.

1) Whilst at first glance there doesn't appear to be any particular correlations, in fact there is a tendency that wealth per capita increases with increased taxation, eg compare Mexico with Luxemborg, and the fact that the majority of wealthier OECD countries are taxed more than is New Zealand.

2) New Zealand is not particularly heavily taxed - our total taxation is about 35 %, 11 countries are less, 13 are more. However if you exlude countries with lower per capita GNP than NZ, then 4 are taxed less (including Australia, US, Japan, Ireland) one about the same (Switzerland) and 11 countries more (including UK, Netherlands, Austria, Finland, Sweden)

3) Some countries which have preserved a high standard of living for many years, such as Denmark and Sweden are heavily taxed, but they are still considerably better off than NZ.

4) What is the practical importance of these figures? Well, we could increase total taxation take by 15-20% and still not have an unduly taxed nation. Nor does it mean that increased taxation will be deleterious for the economy. Looking at the four countries that are wealthier than us, but have lower tax, three are hardly comparable, the US, Japan and Australia, all have vastly larger economies and populations. Only Ireland, (the little cross above Australia on my chart) is comparable. And this is a country that has never been shy to offer tax incentives, government direction etc, and belongs to the EU, equally able to interfere with the natural economy with subsidies, quotas and tax help, all of which are an anathema to the Round Tablers and the new right economists. When it comes to economies that are much more comparable to ours, then we should be looking at Sweden, Denmark, Finland, Austria and the Netherlands. All these economies have weathered all sort of changes since WW2, and have managed to continue a reasonably prosperous course, continually out performing NZ. It is not taxation per se that is the problem, it is the wisdom of the consensus with which it is taken and spent. For instance, high taxes on petrol discourage gas-guzzling vehicles, and stimulate demand for public transport, and money taken from petrol taxation can be spent on improving public transport, it is a virtuous circle. If I were ever in a position to do anything about it, I would increase petroleum taxation significantly.

UPDATED 30/5/05. I have redrawn the graph above with figures for 2004 for GNP and 2003 for tax. (Figures from OECD and UN). I have done this because yet again taxation is another perennial political football, pumped up with hot air to high pressure for the election and bounced from political goal line to political goal line. Don Brash kicked off with his promise for unspecified income tax cuts "by Christmas"; rhetoric which seems to match his promise to rid New Zealand of its nuclear ban "by lunchtime". He, or at least his finance spokesman, seems to be back-passing on this already; do Don Brash and John Key communicate? Possibly not, as Don Brash isn't often there. Of course, Act is in the penalty area smashing this dangerously pumped up football in to the goal on the left, Rodney Hyde promising massive tax cuts for all, though more so for those with a bit more all than others. (The figures are 25% corporate rate, 25% top rate and 15% for all others). And even Peter Dunne, United Future, can't resist scrambling for the ball, promising no taxation on the first $3000 of income and increasing the higher tax thresholds by $5000, a rather more moderate proposal. Dr Cullen has just announced a very measured budget, dribbling the ball with great skill in a measured direction, deflecting, so far, all political tackles. But there isn't much flair, he just seems to be playing for time, the crowds are clamouring for exciting, risky, on-the-edge-of-your-seat action-packed soccer action. Perhaps Cullen misread the mood of the crowd; just a few short years of steady Labour policies, achieving some economic success with continued low inflation, very low unemployment, balanced books and a superannuation fund, has bored the onlookers, the excesses of the 1990s well forgotten. The tired old policies of that era, now sporting a flashy new strip, though with many of the same tired old players in it, have been repackaged to try and attract a new crowd loyalty, with plenty of bright new slogans, which sound uncannily like the old ones, and even financial inducements to turn up for the game. And, just like those e-mails from some unfortunate Nigerian who's father was killed in an air-crash and who just happens to have had a few spare millions that needs your help to smuggle out of the country, there will be enough suckers to fall for it. If you have read other parts of my internet site, you will have learned about the changes coming our way. In particular there is a major and urgent investment needed, amounting to many billions of dollars, in renewable energy, public transport, energy efficiency and sustainable development, new urbanism etc. To promise tax cuts in this dire situation is mischievous, simplistice and unsustainable. It is to promise the earth, but to loose it.



Comment on the 2004 graph. There isn't really that much difference from my previous one. I have filled in all the different OECD countries' names this time. I didn't know what to expect, but New Zealand hasn't changed much. Our tax rates are just about the same, our GDP per capita adjusted has risen, as it has for the other countries. Some countries have done very well, Ireland has really leapt forward, as has Norway and, to a lesser extent, Denmark, and I may be wrong, but there seems to be a slightly wider gap in GDP in the wealthier countries, but of course this might be the way I have plotted the graph. But the overall taxation rates have remained remarkably consistent. I think the main points that I was making about taxation above still apply. The only country in the OECD which might counter my opinion about taxation is Ireland. This little country seems to have bypassed the industrial revolution and roared ahead on a wave of new industry and technology. Joining the Common Market really gave this previously rather backward country a tremendous filip, and the joke truly is now on Ireland. But as mentioned above, I wonder how the particular circumstances of the Irish economy, bound so inextricably with the EU, politically, economically and geographically, relate to New Zealand. I would still be of the opinion that countries like Denmark, Norway, Sweden, Finland and Holland provide a many years example of steady, social democratic progress in smaller countries, that we should be emulating. And if that is the case, all the arguments about taxation are so much hot air - that overpumped soccer ball can be given a mighty kick out of touch, where it can slowly deflate in its own time, whilst New Zealanders get on with the job in hand - creating a stable, sustainable and wealthy economy for a stable, sustainable and happy population.

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Taxation, June 2006

Another recent budget provides no further tax cuts. It's the same sort of fiscally conservative budget the Dr Cullen, our minister of finance, has consistently delivered during his tenure of office, now six years, or is it seven? Yet again we have an opposition baying for tax cuts, ably supported, it seems to me, by a media which also seems to have tax cuts as a very strong agenda. Dr Cullen himself recently pointed out how the media seem to be promoting this one sided view of the taxation issue and, unusually for him, he has been strongly critical of the media's role in this matter. At a time when inflationary pressures are building, our balance of payments deficit is so humungus, our oil import bill is rising precipitously, housing prices are still rising, and where the public's overseas indebtedness is now about NZ$150 billion, or nearly $40,000 for every man woman and child, to me tax cuts seem a somewhat stupid idea, but then I'm not an economist, nor a National politician.

However my perception of the media's agenda in regard to taxation issues, and Dr Cullen's, is supported by this comment that appears on the Scoop website, by Peter Thompson, senior lecturer in the School of Communication, Unitec, NZ. (I have converted this web page to a pdf file, and placed it on my server, as I have a feeling that many of my internet references will, over time, become obsolete or unobtainable.) He states "The budget is a political-economic policy of significant public import- but without any outstanding defining feature to characterise the budget, it becomes more difficult to contrive a 'sexy' headline and newsworthy angle of discussion." and he goes on to say "The approach of both the print and broadcast media (at least in terms of their lead stories) was therefore to frame the budget primarily in terms of anticipated tax cuts which had not occurred.". The article is well worth the read for a scholarly view of the role of the media in this taxation debate, but I suspect the same sort of techniques are used in framing the agenda about a good deal of other political debate, and public interest matters. (See my comments about the photos in the Kai Tiaki journal)