New Zealanders are addicted to taxpayer-funded entitlements once they are introduced even if they are unsustainable, a new survey shows.The poll result also makes reform of the taxation system difficult if it means reducing or cutting any of these program
New Zealanders are addicted to taxpayer-funded entitlements once they are introduced even if they are unsustainable, a new survey shows.
The poll result also makes reform of the taxation system difficult if it means reducing or cutting any of these programmes, says the Maxim Institute, which commissioned the survey in conjunction with a study on tax policy and economic growth.
The poll, commissioned from UMR, shows overwhelming opposition to cuts in government spending on such programmes as Working for Families, KiwiSaver, interest-free student loans, “20 hours free” early childhood education and New Zealand Superannuation.
A majority are also opposed to a land tax and an increase in GST, even if personal income taxes are reduced at the same time, Maxim Institute researcher Steve Thomas says.
“The popularity of government spending on these programmes reflects a common principle, that once spending is introduced it is very hard to remove,” he says.
“In 2004, government operating spending was at 30% of GDP. It is now at 36%. Any money the government spends has to be earned by ordinary New Zealanders. We should think very carefully about whether these programmes are of good quality and worth their cost.
“Costly, poor quality government spending is a drag on the economy and is unsustainable in the future. Forecasts show that in the next five or so years, the government will be spending more than it collects in revenue. Any predicted spending drops do not counter predicted revenue drops.”
Reform proposals
Mr Thomas’ report, Lifting the Bucket: Tax policy and economic growth, recommends medium-term changes to the tax system that will favour economic growth over unsustainable entitlements, including:
• establishing a two-step personal income tax scale with a bottom rate of about 10% and a top rate of about 27%, which would take effect at a threshold of about $27,000;
• increasing GST to 15%;
• dropping corporate income taxes to 27%;
• lowering trust tax rates to 27%; and
• setting an upper-limit benchmark for government spending at 30% of GDP.
“The tax system should be designed in a way that is friendly toward economic growth. Some of the key drivers of growth are innovation, investment, enterprise, increasing skills and using resources efficiently,” Mr Thomas says.
“At the moment we rely most heavily on tax bases that are the least growth-friendly. High income and corporate taxes can damage people’s incentives to take risks and innovate.”
“We need to move toward a system that relies more on consumption taxes, like GST, and less on income and corporate taxes, so that the tax system is more growth-friendly on the whole.”
