It’s staggering to think no-one noticed they were cutting KiwiSaver balances by $103 billion: what might have looked inert and common sense within the Thorndon Bubble reacted explosively on contact with outside air.
Comment: Backflips are nothing new in politics but the speed of the Government’s GST backflip was astounding. Within less than 24 hours from introducing legislation to align GST on KiwiSaver fees Revenue Minister David Parker scrapped his policy.
This Olympic-level backwards somersault was equally matched by his verbal dexterity explaining that the flip-flop was actually made to ensure public confidence in KiwiSaver.
How did a technical policy to align tax treatment worked on by officials for years become a lightening rod for political discontent and what does this say about the role of tax in our politics and society?
No matter the merits of levelling the GST playing-field for local financial service providers against the large Aussie banks, the policy was a classic case of poor political communication.
Cabinet had signed off on the bill whose regulatory impact statement contained modelling by the Financial Markets Authority that showed it could lead to KiwiSaver fund balances being reduced by $103 billion by 2070. Given the importance of KiwiSaver to New Zealanders and how many of our account balances have shrunk this year, this figure should have set alarms blaring in the minds of ministers and advisors.
It’s staggering to think that no-one noticed, or thought it a significant enough political risk to develop a communications plan to explain it. Perhaps it’s explainable. Technical fixes like this can take on a life and momentum of their own and what might have looked inert and common sense within the Thorndon Bubble reacted explosively on contact with outside air.
Predictably there was a backlash when the proposed GST on fees was discovered in the omnibus tax bill which was intensified by the absence of any mention of it in the press release, leading to accusations it was a tax grab by stealth. National would have been salivating at the political opportunities and their petition grew in less than one day to 22,000 signatures (despite their track record in Government of weakening KiwiSaver by removing the $1000 KiwiSaver kickstarter and halving government contributions).
Labour, lancing the boil, cancelled the policy before the 2pm Question Time. Parker defended the policy, calling the reaction overblown and blaming the media and others for misrepresenting it.
An old cliche in politics is ‘explaining is losing,’ but not explaining your policy at all can achieve the same result.
Personally, I was rather agnostic about the change. I understood the rationale and support the state increasing its revenue to fund creaking public services. I’m no fan of Aussie banks and the billions they send across the ditch but I would have preferred the affordable alternative presented by officials to remove GST from local funds’ fees also achieving the stated aim of consistency.
To me, what was most frustrating about the whole furore was where the Governments focus was – head-down, beavering away on a minor, wonkish technical tax change when so many pressing tax issues remain unaddressed.
New Zealand has had for a long time a national savings problem. For many Kiwis locked out of home ownership, KiwiSaver will be their largest asset and financial protection in old age.
Why was the Government focused on putting GST on fees rather than finding tools to reduce fees? Why weren’t they developing incentives to encourage KiwiSaver, increasing the Government contribution or restarting the $1000 kickstarter?
Since the reforms of the 1980s and early 1990s New Zealand’s wider tax approach has entrenched imbalances and inequities in our economy. There are so many more important areas the Governemnt and IRD could be looking into.
Instead of looking for areas to add GST to it could have been looking to ways to reduce this regressive tax which has jumped from 10 to 12.5 to 15 percent since its introduction and which impacts low income New Zealanders the most.
It has been estimated the lowest 10 per cent of income earners spend 14 percent of their net income on GST while the top 10 per cent spend less than five per cent of their income on GST. In the midst of a cost of living crisis they could have been looking at removing GST on basic food items like Australia.
Inland Revenue could have been reducing student loan balances like the United States Government has just done. To raise needed revenue Labour could be taxing windfall corporate profits like the United Kingdom Tory Government has just done or taxing unearned capital gains like almost every OECD country does.
The Labour-led Government with a once-in-a-generation MMP majority seems focused on working on minor technical tax fixes (unless there’s a backlash) and has ruled out a capital gains or wealth tax in Jacinda Ardern’s political lifetime.
David Parker to his credit has launched an investigating into the absurd situation New Zealand finds itself that the Government has virtually no idea what rate of tax is paid by the very wealthy, but studies and reports don’t raise revenue to pay midwives, nurses or firefighters.
On the other side of Parliament’s debating chamber National’s chief contribution to the tax debate has been promoting tax cuts which would benefit most those already doing well while delivering crumbs to the poorest New Zealanders. Ample evidence has demonstrated trickle-down economics doesn’t work and even National’s own supporters don’t back this.
Tax is a vital part of our modern society and our housing unaffordability, economic productivity, child poverty, inequality and climate challenges cannot be separated from how we approach taxation.
If we want to increase the wellbeing of New Zealand and make housing affordable we need to encourage capital to invest in productive enterprises not chase untaxed capital gains flipping houses we are going to have to have courage to change current tax rules.
If we want to get to achieve a zero-carbon economy we can’t continue to exempt our largest source of emissions from the Emissions Trading Scheme, whose profit and pollution is effectively subsidised by the rest of the economy. If we want to have high quality public services we won’t achieve it without adequate tax revenue and the wealthy paying more of their fair share. Tax is never an easy political conversation but it is one we will have to have if we are to address systemic problems.
This KiwiSaver backflip is a soon to be forgotten political failure but the much more important issue is a long-term failure of political vision and courage on tax.
