The other week we talked about what a new economic order should look like, following the neoliberal experiment’s resoundingly failure. Sustainability and fairness need to be at the heart of the system. Government acts on the economy through law, taxation and income redistribution, and as market player. Let’s start with tax and redistribution. My concept is basically a suped-up version of Gareth Morgan’s Big Kahuna with the explicit goal of eliminating poverty.
The Government takes in about $60 billion in tax a year. Over $20 billion of that (around about as much as is collected through personal income tax) goes out as transfer payments – ie. superannuation, working age benefits, housing allowance, Working for Families. Another billion or so is spent on allowances and loans for students’ living costs.
So, all this money (about 10% of GDP) is being pooled by the government and then redistributed to those in need. That’s really important work that forms the basic income for about a million New Zealanders (540,000 pensioners, 350,000 beneficiaries, plus students) and reduces or eliminates the tax bill for hundreds of thousands of working families.
But its a very complicated system of separate benefits. Some people who need help fall through the cracks and get nothing, some who don’t need help get it. And the very high abatement rates on benefits and, to a lesser extent, Working for Families can make working not worthwhile. For every dollar over $80 a week you earn while on the dole, you lose at least 80.5 cents – not exactly an encouragement to find part-time work. And we have poverty while a few live with massive wealth (the wealthiest 10% have more net wealth than everyone else put together and the bottom 50% have no net wealth).
A better system would begin with a guaranteed minimum income. If every taxpayer received a tax credit of $250 a week, that would form a minimum income of $13,000 post-tax a year for everyone. That’s at or above the level of most benefits and more than most families’ Working for Families – and not far from the post-tax individual poverty line ($15,000 – most adults with incomes below $2,000 will be living with others on higher incomes, so would avoid poverty).
Of course, that’s big bikkies. 13,000 times 3.1 million taxpayers is $40 billion.
About half of that is going to be paid for by more or less eliminating the benefit/super/WfF/student assistance system which isn’t needed any longer, apart from topping up some special cases.
For the remaining $20 billion, some could be raised by making the income tax system more progressive, say starting at 10% and rising to 50% by $100,000. 50% isn’t a crazy top tax rate – its typical of many other developed countries and we got along just fine with much higher. The net tax bill for people with incomes under $100,000 would be lower than it is now even if the income tax on their earnings was higher because they’ve got the minimum income, and you could tweek the rates and thresholds to whatever point you like.
After the last Budget, Tracy Watkins gushed that people earning over $50,000 now pay less tax here than in Aussie. Wouldn’t it be better to say that people earning less than $50,000 pay less tax and we don’t allow anyone to live in poverty?
Now, the idea is this is all fiscally neutral, so here’s still a bit of a hole in the revenue to make up. Of the $40 billion cost of the guaranteed income, about $20 billion has been saved by replacing benefits and another $2 billion, say, could be raised in income tax while still leaving most people with a lower tax bill.
Currently, polluters get 50% of their carbon credits free, paid for by us. You could save another $1 billion this year (and $110 billion by 2050) by removing the government subsidy for climate polluters, and help the environment at the same time.
If you stop locking up everyone, wasting money on white elephant motorways, and buying military crap that we don’t actually use then another billion is freed up.
The rest of the gap would be filled by a comprehensive capital tax like Gareth Morgan suggested in his ‘Big Kahuna’ idea (this is a tax on owning capital, not on capital gains) or a land tax on the Georgist model (the philosophy of the Georgist model is that an owner of land is depriving everyone else of the ability to use it, so they owe a rent to the rest of society). It would take only a 1% capital tax to fill the gap or about a 2% land tax.
Yeah, that’s going to be a lot for people with large capital or land assets. For example, say you’re a ex-currency trader with $10 million worth of property in New Zealand, you might be looking at a $200,000 per annum bill (you would be allowed to defer taxes, with interest).
But that’s the point. The greatest inequality in this country is not inequality of income but inequality of wealth. 50% of us have no net wealth between us, while 10% have more net wealth than everyone else combined. An inevitable result of a capital tax would be a redistribution of that capital.
It’s an ambitious scheme that would as good as eliminate poverty and correct some of the unfair distribution of wealth in this country. From that, huge social benefits would flow. And it’s not complicated from an operational stand-point. The guaranteed minimum income would be like a universal version of WfF. The systems for capital taxation are already established with the rating system and tax on shares.
This could all be done. We could rid ourselves of poverty, a complicated benefit system, and the gross inequality of wealth. Does anyone have the courage to do it?