If we want better tax settings we need to change peoples’ views about tax and that change is often best made conversation by conversation. Opportunities may arise to talk about tax at work, at social occasions and family gatherings and this page contains some hints to make those conversations go well.
2 core ideas
Aotearoa New Zealand needs more money - To achieve a society in which everyone thrives, public income (mainly tax) needs to be larger. There are stories every day of how our public services (health, roads, education, climate mitigation etc) are underfunded; we are all worse off as a result.
Our tax system is upside-down – Tax is one of the biggest tools governments can use to reduce poverty and inequality – but New Zealand’s tax system doesn’t do this well, especially in comparison with similar countries overseas.
6 tips on how to talk about tax
Be respectful – Listen, don’t lecture. People are more likely to be open-minded if they are treated with respect. Making change may take more than one conversation.
Ask open questions – Good questions can help elicit views and build trust: “what do you think?”; “how would that work?”.
Vision comes first – Connect with people about a positive vision, before jumping to solutions. Start with talking about the type of society we want, that a just tax system can enable – “a community that cares for one another - unlocking people from poverty, ensuring everyone has a home, a high-quality education system, protecting our environment”. And keep it at this level of principles rather than policy detail.
Talk about tax as a positive contribution – “Taxes are how we resource what we value the most”; “it’s a collective investment in our shared success”; “it’s the contribution that each of us makes to build our community and our society”; ”it’s good for all of us”. Focus on “public good” rather than benefits to, and costs to, individuals. Government exists not to do what people could do for themselves, but to do things they could not do, or do so well, on their own.
Talk about taxes as part of preparing for the future — “We need to plan for the big things and prevent problems in the future”. “Pay now, or pay more later”. For example, to mitigate climate change, prepare for the ageing population, ensure the wellbeing of our grandchildren.
It’s systemic – Point out that it is the tax system that doesn’t produce the results we care about, and we can change this. Avoid villainising some people, for example the wealthy. Also avoid focusing on “fairness” — for some people this reinforces a view which justifies regressive taxation.
Facts on Tax
Although it is important to keep things human you will need hard information at some point and our Facts on Tax page has plenty that you will find helpful. You may also need to talk about different types of tax changes that could make a difference. You can have a look at the summaries of possible changes on this page on our website. However, try not to get hooked into debating the details of each of these tax changes or the ideal mix of taxes as everyone has their preferred model. Try to keep it at the level of principles, and the policy principles adopted for the Better Taxes for a Better Future campaign are a good guide.
Answers to common arguments about tax
"Taxing the wealthy undermines aspiration"
There is no evidence that asking those who can afford it to pay a little more will undermine aspiration. Many other high tax countries have high performing economies in which people thrive and can aspire to better futures. You can ask for evidence.
"This is merely the politics of envy"
Most people do not want to be wealthy, they just want to be secure and have enough. Our country is wealthy enough to ensure everyone has enough to live with dignity. Income poverty and material hardship rates for the whole population are around 12% (income poverty) and 7.4% (material hardship). Both of these rates are on a five-year downward track and this shows how using tax resources to lift lower incomes can make a difference. If the wealthiest and those on the highest incomes contribute more then we have the public resources to lift most people out of poverty (or even to end poverty in this country).
"Wealthy people have earned their money through hard work and taxing them more does not respect the effort that they have put in"
We all work hard and want the best for ourselves and our families. The minimum wage worker who has to hold down multiple jobs, the teachers and health professionals who work in incredibly stressful jobs in overstretched systems, the young people who have to go out to work rather than undertake study because their families need the money to survive.
"Why should wealthy people fund services that they do not need to use?"
We are all in this together and all of us (including people who acquire wealth) have been supported by tax funded public services in many ways, for example:
- Most of us are likely to have been educated in the public education system or
benefited from having a workforce that has been educated in our public education system.
- Most of use roads and rail systems funded in part through taxation, whether to
travel ourselves to transport goods.
- Just about all of us are eligible for universal NZ Superannuation (which was the
largest single item of expenditure on social security in 2020 at $15.5bn out of a
budget allocation of $44bn).
- We all benefit from our public health system, whether we or our whānau have had
to use it ourselves or through the support it provides in maintaining the health of the nation, including supporting a healthy workforce.
- The justice system helps manage the disputes that naturally arise in any society,
including those that arise out of commercial relationships essential to businesses.
- The Department of Conversation helps protect our natural environment while
enabling access to it for the public and for business.
- The Police help keep the public safe (and help protect the assets of the wealthy)
In addition, business owners may well have benefited from such things as the regulation that supports fair competition, the research and development funded by government or from procuring contracts with government agencies.
"Wealthy people often take great personal risks to grow their businesses and should be able to reap the rewards"
It is true that many business individuals have taken considerable personal risks in building their businesses and should be appropriately rewarded for that (although some have inherited their wealth and others may have been assisted by good fortune). No one would argue otherwise, but the rewards should be treated like all income and taxed appropriately. The Inland Revenue Research into High Net-Worth Individuals released in March 2023 shows that New Zealand’s 311 wealthiest families pay just 8.9% of their income in tax – less than the rate paid by a minimum wage worker (10.5%) and less than half the rate paid by the average Kiwi (19.7%). These wealthy individuals have such a low tax rate because so much of their income (about 80%) is capital gains – money made from selling assets – and that is barely taxed. Only 17% of their income is conventionally taxable income like wages and salaries. So despite being worth an average of NZ$276m ($168m; £135m) each, and typically earning $8m a year, these families pay an average of about $640,000 each in tax – less than 10% of their income.
"Wealthy people will just leave the country if we tax them appropriately"
It is possible that some wealthy people might leave New Zealand in protest against higher taxes on wealth. However, the evidence from countries that have introduced a net wealth tax does not support this claim (OECD. The Role and Design of Net Wealth Taxes in the OECD, p.66). More generally, even the highest earners are less sensitive to tax rates than is often thought. Swedish multimillionaires generally remain in Sweden, despite its high tax rates; American states with higher local tax rates do not see outflows of millionaires (Michael Mazerov, State Taxes Have a Negligible Impact on Americans’ Interstate Moves, Center on Budget and Policy Priorities, Washington, D.C., May 2014). While Australia might be an attractive destination, those moving there would have to pay capital gains tax and income tax at 45%. Other factors also matter. To quote the scientist Paul Callaghan, nations retain people by being places where “talent wants to live”. And talent generally wants to live in countries with safe streets, good health systems, highly educated workforces and a strong rule of law – all of which are supported by tax-financed government services.
"Wealthy people create jobs for other people and we put that at risk by taxing them more"
This argument is closely related to the above argument that wealthy people will just leave the country if we tax them appropriately. As argued above, the evidence from high tax countries does not support this.
It is also worth pointing out that public expenditure is an important source of jobs for the economy through the:
- direct employment of public service workers;
- indirect employment of workers, by contractors supplying outsourced goods and services;
- employment of workers on infrastructure projects
It has been estimated that globally public spending supports 40% of all jobs: 15% as public employees, but 25% in the private sector (David Hall, Why We Need Public Expenditure, Public Services International Research Unit, London, 2010 p. 20 http://www.psiru.org/sites/default/files/2010-10-QPS-pubspend.pdf). In addition other public measures such as subsidies and employment guarantee schemes also support employment in the economy.
"Our single rate of GST across almost all goods and services, with minimal exemptions, is effective and administratively simple. We shouldn’t consider redesigning GST, for example removing GST on food or fruit and vegetables, because we would risk undermining this effective tax"
GST is a regressive tax, in that the less well off in society pay the same rate as the most well off for every product or service that they use. Creating exemptions for things that the less well off rely on, such as food (or fresh fruit and vegetables) would introduce complications, but it is not impossible as other countries such as Australia (which has a GST rate of 10% compared to our 15%) do it already.
"It will damage the economy and destroy innovation"
The argument assumes that innovation is purely down to the efforts of individuals and businesses. However, Government has a major role to play in innovation both directly through its funding of research in our universities and Crown Research Institutes and incentivising research and development in the private sector. The countries often cited as innovation economies include Finland (tax take: 42% of GDP) and Sweden (43%). Both have capital gains taxes and Finland also has an inheritance tax.
Overall their tax takes are far higher than New Zealand’s 32%. Finland currently spends 2.94% of GDP on research and development and Sweden spends 3.53%, whereas New Zealand currently spends 1.49%. In other words these countries spend around double what we do and as high tax countries their economies are also more successful than ours with GDP rates that above the OECD average, while New Zealand’s is below the OECD average.
"You shouldn’t tax inheritances and gifts because it is unfair that people are not able to pass on their wealth to their families"
A wealth transfer tax or inheritance tax would not stop people from passing on their wealth to their families, it would just acknowledge that inheritances and gifts are a form of income and should be taxed accordingly. Inheritance taxes internationally do not usually impact most people as they have a high threshold for eligibility.
"Wealthy people already pay most of the tax the government receives and to tax them more would be unfair"
In 2019/20 the 122,000 people (representing 3.17% of the taxpaying population) who earned more than $150,000 a year provided the government with 24% of the tax received (Treasury, ‘Who Pays Income Tax… and How Much?').
So on the face of it this is true. On the other hand, given that our tax system is meant to be progressive, this should not be an issue – we recognise that those who can afford it should be asked to contribute more. But as the recent IR Research into High Net-Worth Individuals demonstrated, the system is arguably upside down. The report released in March 2023 shows that New Zealand’s 311 wealthiest families pay just 8.9% of their income in tax – less than the rate paid by a minimum wage worker (10.5%) and less than half the rate paid by the average Kiwi (19.7%).
"We can’t trust government not to waste our money"
This argument is raised regularly and the first way to respond is to point out all the useful and important things that public expenditure is used for. In 2020/21 we spent around 91% of our tax revenue on health, education and social security. There are also plenty of examples of positive public expenditure, such as the food in schools programme, that you can refer.
This argument is often based on misunderstandings. For example, when some people look at the annual 2020/21 spend of $44bn on social security they often assume that the bulk of this is going on the unemployed or other groups that they may hold negative views about, but the biggest single item of expenditure in this vote is NZ Superannuation at $15.5bn, which we are just about all entitled to receive once we reach age 65.
People also sometimes point to things such as individual projects or programmes that they don’t like as an example of wasteful expenditure. Projects or reforms can be costly but they are usually one-off items rather than ongoing costs, and because someone disagrees with a particular project or programme does not necessarily mean that it is a waste of public money. Waste may occur, but it is important to have full and accurate information rather than relay on generalisations.
No one likes waste and there is indisputably some waste in government. Waste can be found in almost all organisations, but unlike most other organisations public sector entities are subject to review by bodies such as the Auditor-General and the Ombudsman. They are also accountable to their Ministers and parliament, who are in turn accountable to the public and subject to election every three years. Waste in private sector or not-for-profit organisations is less likely to be drawn to the public’s attention.
Another argument is that we are wasting money on an increase in public servants and the use of consultants and contractors. The Public Service consists mainly of government departments such as Inland Revenue, MSD and Corrections – it does not include other public sector agencies such as those that deliver education or health services.
Public servants do essential work to support our communities as well as providing advice to the Government and administering large complex systems like our education system. The public service also deliver many services directly including benefits, conservation programmes and prisons. Around 40% of staff in the public service are in public facing roles and 55% work outside of Wellington in the regions.
It is true that there has been a growth in both public service numbers and the use of consultants and contractors over recent years, although the numbers of both have declined slightly off their peak numbers in 2021. Both the growth and the falling off reflect in part a number of one-off projects and events such as the national Covid-19 vaccination rollout and government reform programmes. While it is important to reduce the reliance on external contractors and consultant, this will require building both the capacity and capability of the Public Service, rather than a reduction in the numbers of public servants.