New Zealand’s top tax rate of 33 percent is one of the lowest in the OECD. Capital gains are untaxed, leaving a huge source of income for the wealthy taxed at a lower marginal tax rate than a minimum-wage earner pays: zero! With inequality stuck at unreasonably high levels, a more progressive tax system would accomplish two goals: a) restoring fairness to the system, and b) raising revenues to pay for investment in health, education, social security, jobs, etc. The wealthy pay too little, and low-income earners to pay too much. Things need to change.
Here’s how we fix this:
- Introduce two new top tax rates: 40% on incomes above $140,000 & 45% on incomes above $225,000. This would largely match the Australian income tax, with NZ’s top tax rate kicking in at a slightly higher rate. Match the trust tax rate to these rates.
- Introduce a new ‘high-income superannuation levy’. (Set it at a rate of, say, 3 percent on income above $125,000). All revenues would be directed to the Cullen fund, to protect superannuation for future generations. Rather than means-testing Super, we could ask the wealthy to contribute a little bit more to funding the cost of super: a more progressive way to protect the old-age pension without any benefit cuts.
- This would create a total combined top marginal tax rate of 48% on the wealthiest 1 percent earning over $225,000 per year, still leaving New Zealand below the same top marginal tax rate in the United States, at 48.6% and Canada, at 49.5%. It’s not radical, and would restore a sense of fairness to the tax system.
- Introducing a modest, br0ad-based capital gains tax with an exclusion for the family home is also an important policy change.
- Finally, provide tax cuts for lower income earners. Making the first $5,000 tax-free would cost around $1.6 billion per year. Slightly reducing the threshold for the 30 percent tax rate from $48,000 to $45,000 would partially pay for this, raising about $450 million, with the remainder coming from the other tax increases. (However, increasing family benefits like Working for Families, rather than tax cuts, would be a fairer, and more effective way to provide relief to low and middle income earners.)
- Someone on $15,000 per year would be better off by $525 per year, while someone on $50,000 per year would be better off by $150 per year. This would be a highly targeted, modest tax cut for low-middle income earners. The average CEO earned $1.645 million in 2014 — that average CEO would see a tax increase of $221,950.
