OPINION

Let’s talk about tax, baby!

Some of you may remember the 1990 hit by a band called Salt-N-Pepa that featured a different three-letter word that also ended in the letter ‘x’.

I could almost
hear the backing band as I watched Minister David Parker step up to the mic to deliver the results of the IRD report on rich people. I could not help thinking that what he was saying – or not saying – was perfectly in tune with the rest of the opening verse of that Salt-N-Pepa hit, which went;

“Let’s talk about you and me

Let’s talk about all the good things

And the bad things that may be”

Let’s talk, let’s talk, let’s talk. When it comes to that three-letter word – TAX – politicians have developed an unerring ability to talk the talk without ever getting around to walking the walk, possibly because it is very difficult for them to talk, walk – and kick the can down the road – at the same time.

When it comes to walking the walk, a few years ago we hired two young Swedish graduates to work with us on our international golf business. As part of the early contractural discussions, we offered to look into how we might set up their contracts in a way that meant they would pay tax in New Zealand, which would be less than what they would have to pay in Sweden.

Their response is one I will never forget.

They both declined the offer to find ways to pay less tax. For them, tax was part of the social contract they had with everyone in Sweden who had contributed to getting them to where they were now, and they were proud to begin paying that back, and then forward, to the next generation.

Proud!

It’s not a word we normally associate with tax, but maybe it’s one we should start talking about, in place of the word used so often when it comes to tax – “burden”. For those of us who can afford it, tax should not be seen as a burden – it should be part of that social contract that our two young Swedes recognised. The shared cost of being part of a civilised nation where there are things we can only pay for if we do it together – with our taxes.

And perhaps we should also look at removing the word “rich” when it comes to talking about tax as well. A word we could use in its place might be – successful.

Because that’s where tax comes from. Successful people who have taken risks, invested money, and time, and created businesses that create jobs that create the money for people to pay taxes.

Taxes that pay for politicians, pay for government officials, pay for doctors, nurses, teachers, hospitals, schools, roads, the list goes on. And that list is getting bigger as we face growing demands on all those institutions, many at crisis point.

And that’s before we add in the challenges coming down the line with climate change.

To learn more about just what tax is paid in New Zealand I went to the source, the IRD website.

There I found that the government collected almost $113 billion in the year to June 2022.

Where is that money spent? The latest information I could find showed the three largest areas of spending were:

Infrastructure, such as roads, rail, water, hospitals, and schools, didn’t feature in the list but a news story from January 2020 announcing a “$12 billion surge of infrastructure projects to upgrade New Zealand” gives an idea of where else that tax money needs to go.

And that was before Cyclone Gabrielle.

The American statesman, Benjamin Franklin, is quoted as saying “Nothing in this world can be said to be certain, except death and taxes.”

To that, we can add a third certainty. The cost of what we need to spend our taxes on, in order to create a just and equitable society, to handle the challenges of global warming and to deal with a huge infrastructure deficit, will continue to rise.

If we can all agree that a just and equitable society is what we want to create for our future generations, all of our grandchildren, all of our mokopuna, then we do need to talk about tax because the looming hole in what we need to spend is clearly getting larger.

And there are two sides to that discussion. The first is; where do we find the money we are clearly going to need in the future? The second, and equally as important, is; can we trust the Government to spend it well?

If we do choose to talk about that “tax burden” then let’s talk about who it is that is experiencing that burden the most. The parents who struggle every day to feed and clothe their kids, pay the rent, and pay for electricity – the basics that so many of us in the “successful” category can afford to take for granted.

And before we head down that well-worn political path of “giving money back to hard-working Kiwis to spend as they want”, we need to acknowledge the unspoken assumption that someone on less than a living wage, often who has more than one job, is somehow not deemed to be a hard-working Kiwi. What they get back makes very little difference to what they can add to their supermarket trolly.

“Give the tax back” always provides the greatest benefit to those of us who need it least.

An interesting statistic from the IRD website shows that GST makes up almost 30 per cent of the government’s tax take.

The OECD average is 20 per cent. Given that GST includes basic essentials, like food and electricity, surely lowering that is something we should talk about.

The discussion might be difficult, but the cost of living impact on those who can least afford it requires that we need to be having these discussions. If we are going to give tax back to all hard-working Kiwis – let’s make it a tax that includes lowering the cost of the essentials.

Yes to capital gains tax

I am a firm believer in a capital gains tax.

I have a friend, who Minister Parker would call rich. I prefer to call him successful, and he has taken that a step further. He capital gains taxes himself and then uses the money to fill the holes that government seems incapable of filling, at least with effective results.

I have personal experience of this as he funded a platform we have gifted to schools to fill the hole that inspires our Pasifika and Māori tamariki into believing that this thing called STEM, is in their DNA. The end result will be to guide our tamariki into those high-value jobs of the future – and pay tax.

There are many more “successful” people, like my friend, who voluntarily fill that multimillion-dollar hole in government spending every year.

The IRD report commissioned by Parker has created the divisions and drawn the lines in the sand that I suspect comes as no surprise to him. He has highlighted one of those with his views on “unrealised capital gains”.

His argument that capital gains should be taxed before they are realised seems to fly in the face of the experience of so many businesses who had their unrealised assets destroyed during the Covid pandemic. Businesses that people had built up over decades were wiped out, not only the capital gains, everything went.

Whilst this might be an extreme example, it is a reality that needs to be part of any discussions that are had around a fairer and more equitable tax system.

The irony is that the minister had first-hand experience of this in his business days back in Dunedin when the unrealised assets of a number of businesses he was involved in disappeared when those businesses failed. There is no shame in that – Iike many business people, I too have faced that situation.

And like many other business people I know, I would be more than happy to pay tax on gains that have been actually realised.

More than happy – I would be proud. As long as I knew it was being spent well.

Perhaps the minister could commission a multimillion-dollar, taxpayer-funded, report on that.