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Who pays the price of tax cuts for the rich?


By Q+A producer Tim Watkin

Published: 1:39PM Thursday January 28, 2010 Source: Q+A

There's a lot to recommend the Tax Working Group's 70-odd page report released last week, but for poor New Zealanders it represents another kick in the nethers at a time of rising unemployment.

The report kicked off what will be one of the biggest political debates of the year - what to do about our taxes. The fact that some kind of tax on the rental property market is finally looking inevitable has got to be good for the country; the $200 billion tied up in that sector could make a real difference if it was invested elsewhere in the economy.

You might think that such a new source of tax income would open the door for tax cuts for the poorest New Zealanders; after all, they struggle the most in tough economic times and spend a higher proportion of their income, thereby giving more stimulus bang for their buck. And one of the key goals of this review was to build a tax system that was fairer and more equitable.

But, no, the Tax Working Group (TWG) is instead pushing for tax cuts for the rich .

The TWG wants an "alignment" of tax rates at the top of the scale - the top personal income tax rate of 38% should be cut to 33% in line with the rate at which trusts are taxed, for example. It would remove the temptation for people to avoid tax by setting up trusts and companies, the group said. It worried that by relying so heavily on income tax, we're at risk of rich people up and leaving the country.

This must have seemed entirely logical to the rich men who made up the TWG. They're used to complicated tax structures that hide as much money as possible from Inland Revenue and offshore dealings. As the group itself revealed, only half of New Zealand's richest 100 people pay the top tax rate , which to my mind says half of New Zealand's richest are greedy cheats.

So did they take the next step and figure out how to clamp down on such tax avoidance? Nope. They looked to increase the tax burden on the poor.

Rather than make our highest earners pay their fair share, they effectively said, 'rich people will game the system anyway, so we might as well cut their tax rates. We can't beat 'em, so we might as well let 'em off'.

It's the tax equivalent of permitting doping in sports. They've decided they can't keep ahead of the cheats, so will focus on toughening the rules for the rest.

What the report effectively says is that because the poor can't afford to move, can't hire accountants to juggle their income and the like, they will be asked to pay a larger share. Their words are, "New Zealand's tax base will need to be less reliant on internationally mobile factors such as incomes of capital and skilled labour", but it amounts to the same thing.

GST could go up, they suggest. Company tax should come down, they recommend. Cuts taxes for the top tax bracket, they advise, but not for the bottom. In short, the report concludes that the poor are trapped and therefore exploitable. It is, the TWG argues, only efficient. So much for all the talk of fairness and integrity.

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