Kerre Woodham: Times have changed, does our tax system need to as well?

Yesterday we were talking about Chlöe Swarbrick's grand plans for economic reform, and today brings another interesting suggestion for economic reform, this time from Sir Roger Douglas and Professor Robert MacCulloch. I wonder if now is the time to be seriously looking at reforming our taxation system. Over the years, we've experimented with, we’ve dabbled in various taxes on wealth: estate duties, gift duties, stamp duties on property sales, the sort of things that other countries have and have adapted, but most were eventually abolished.  

The absence of a general wealth tax, capital gains tax, or inheritance tax has been a recurring topic of debate. No New Zealand government has been able to introduce a wealth tax and maintain it, but it's a staple of the Green Party's proposed Green Budget. Chlöe Swarbrick says we've done really big things in the past and there is no reason why we shouldn't again. She says in the 1930s and 40s, after world wars and the Great Depression, we came together as a country and decided to build a nation which looked at the foundations of public health care, public education, and public housing.  

Now, Sir Roger Douglas, former finance minister and the architect of the most sweeping economic reforms since the establishment of cradle to grave social Security and the one who did away with the high taxes, and Professor Robert MacCulloch, who you will have heard from time to time on the show, have released their plan for an economic reform. They first developed the plan for economic reform in 2016 but have updated it for 2025. They point out that by 2060, 26% of New Zealanders will be over 65, up from 16% in 2021. Professor MacCulloch and Sir Roger said that income tax on earnings up to $60,000 a year should be redirected into individual savings accounts to fund each person's health care, pension, and risk cover, and that would replace much of the current public system with private provision. This needs to be done, they say, because Treasury and Inland Revenue have both raised questions in the past year about how the government will be able to collect enough tax to fund the increasing cost of NZ Super and healthcare, the Superfund notwithstanding. People who didn't have enough in their individual accounts could still be helped by the public system, which would be funded on taxes collected on income over $60,000 a year.  

So under $60,000, you pay tax of a sort, but it's for you and it goes into a savings account to fund what you'll need in the future. So this would mean larger numbers of middle and higher income people paying for themselves while the system helped lower income people. MacCulloch said that would mean government costs were reduced, the quality of outcomes would be increased, and the plight of low-income earners would be improved. He says too many low-income people have no savings in KiwiSaver because they're going from paycheck to paycheck, this model would help to address that. And if you look at his model, it shows that an individual could save around $21,000 annually. You'd put $9,450 into a health account, $7,350 for superannuation, and $4,200 for risk cover. And they'd drop the corporate tax rate to help fund employer contributions. 

Robert MacCulloch argues that savings, not taxation reform, offers the ability to gain efficiencies in healthcare. A drop in corporate taxes would help fund employer contributions and rather than the government dictating where to go, people could choose their preferred public or private supplier.  

So bold suggestions. Douglas and MacCulloch’s more bold than Swarbrick. But does Chlöe Swarbrick have a point that we can initiate institutional reform if we want to? It's been done before. It's bold and it's visionary and it's scary. The bigger question though, is: should we? Is the tax system that we have right now working? Chlöe Swarbrick, Sir Roger, and Professor MacCulloch argue it's not. Unl

Episode Transcript

Speaker 1 (00:06):
You're listening to the Carrywood and Morning's podcast from News Talks.

Speaker 2 (00:10):
He'd be further to the conversation we were having yesterday
where we were talking about Chloe Swarbrick's grand plans for
economic reform. An interesting suggestion for economic reform again today,
this time from Sir Roger Douglas and Professor Robert McCulloch,

(00:34):
and I wonder if now is the time to be
seriously looking at reforming our taxation system. Over the years,
we've experimented with, dabbled in various taxes on wealth, state duties,
give duties, stamp duties on property sales, the sort of
things that other countries have and have adapted. Most were

(00:59):
eventually abolished. One government comes in, the next government arrives
and does away with the taxes, and the absence of
a general wealth tax, capital gains tax or inheritance tax
has been a recurring topic of debate and a reason
for labor politicians, senior labor politicians and former cabinet ministers

(01:20):
leaving the party and thinking, well, if we're not going
to make this kind of reform when we have the
ability to do so without bringing any other parties on board,
then we're never going to do it, and ar'm out
thinking specifically of David Parker in the last Labor government.

(01:40):
So no New Zealand government has been able to introduce
a wealth tax and maintain it. But it's a staple
of the Green Party's proposed Green Budget. Chloe Swarbrick says
we've done really big things in the past and there
is no reason why we shouldn't again. She says, in

(02:02):
the thirties and forties, after World Wars and the Great Depression,
we came together as a country and decided to build
a nation which looked at the foundations of public health care,
public education and public housing. So she wants to see,
in a way a reset back to that, using higher
taxes on the wealthy to do so to fund it

(02:26):
as they did back in the thirties. Anybody who's old
enough to have been working in the seventies will remember
the extraordinarily high tax rates. Now, Sir Roger Douglas, former
Finance Minister and the architect of the most sweeping economic

(02:46):
reforms since the establishment of cradle to grave social security
and the one who got away with the high taxes,
and Professor Robert McCulloch who you will have heard from
time to time on this show, have released their plan
for an economic reform. Robert McCulloch's talked about it and
snippets in various interviews that I've conducted with him, but

(03:11):
this has been re released in its entirety. So the
men first developed the plan for economic reform in twenty sixteen,
but have updated it for twenty twenty five. They point
out that by twenty sixty, twenty six percent of New
Zealanders will be over sixty five, up from sixteen percent

(03:31):
in twenty twenty one. Professor mc culloch and Sir Rogers
said that income tax on earnings up to sixty thousand
dollars a year should be redirected into individual savings accounts
to fund each person's healthcare, pension and risk cover, and
that would replace much of the current public system with

(03:54):
private provision. This needs to be done, they say, because
Treasury and Inland Revenue have both raised questions in the
past year about how the government will be able to
collect enough tax to fund the increasing cost of New
Zealand super and healthcare. The super Fund, notwithstanding, people who

(04:16):
didn't have enough in their individual accounts could still be
helped by the public system, which would be funded on
taxes collected on income over sixty thousand a year. So
under sixty thousand, you pay tax of a sort, but
it's for you and it goes into a savings account
to fund what you'll need in the future. So this

(04:40):
would mean larger numbers of middle and higher income people
paying for themselves while the system helped lower income people.
McCulloch said that would mean government costs were reduced, the
quality of outcomes would be increased, and the plight of
low income earners would be improved. He says, too many
low income people have no savings in key we save

(05:01):
it because they're going from paycheck to paycheck. This model
would help to address that, and if you look at
his model, it shows that an individual could save around
twenty one thousand dollars annually yet put nearly nine and
a half k into a health account, three hundred and
fifty for super four thy, two hundred for risk cover,

(05:22):
and they drop the corporate tax rate to help fund
employer contributions. So Robert McCulloch argues that savings not taxation,
reform offers the ability to gain efficiencies in healthcare and
that's just you know, as we were talking yesterday about
the nurses going on strike and same old, same old.

(05:45):
It's the same drum they've been beating for the last
fifteen years and longer. A drop in corporate taxes would
help fund employer contributions and rather than the government dictating
where to go, people could choose their preferred public or
private supplier. So bold suggestions Douglas and McCulloch's more bold

(06:10):
than Swarbrick. Means. Warbrick's just saying we're going to pay
for more stuff, and we're just going to raise the
taxes to pay for it. But does Chloe Swarbrick have
a point that we can initiate institutional reform if we
want to. It's been done before. It's bold, and it's visionary,

(06:34):
and it's scary. The bigger question, though, is should we
as the system, the tax system that we have right
now working. Chloe Swarbrick, Sir Roger and Professor McCullough argue

(06:55):
it's not unlikely bad fellows, but bad fellows they are
in terms of, you know, saying that what we have
right now is not fit for purpose and certainly will
not be fit for purpose. At all in the future.
Do we need to make institutional change around our tax

(07:18):
system and the way we pay for healthcare, the way
we pay for superannuation as we get older. The cradle
to grave social security plan devised in the nineteen thirties
is still pretty much around in the year twenty twenty five,
nearly one hundred years later. Times have changed. Does our

(07:43):
tax system need to change with it?

Speaker 1 (07:46):
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