The NZCTU wants to see an economy built for working people, their families, and the communities in which we all live. The economy is a means to pay for the quality of life that we want for all New Zealanders. It is not a means to deliver ever-rising levels of wealth and income for a select few. The gap between the highest and lowest income earners continues to grow. Over the past two years, incomes for the top 10% of income earners have increased by $2,188 more than the poorest 10% of income earners, and $1,337 more than the average earner.[1]
The Prime Minister has said that New Zealand should be the best country in the world in which to be a child.[2] We can deliver a country where all children grow up in warm, dry, secure homes. A country in which children grow up in safe, well-resourced communities. A country in which children can achieve their potential regardless of who they are or where they come from.
The NZCTU believes that we will only see lasting change in our economy and society if we see greater economic equity in New Zealand. Equity is different to equality. It means that those with the highest needs get support, and those with the highest ability make greater contributions. Countries with higher levels of equity tend to do better than others on a range of indicators from health to economic development. This will require an enabling and active state that delivers high quality public services.
“We imagine that equality is going to occur naturally or spontaneously, a bit like a fairy tale. But the reality is that we also need political institutions, an education system, health care, a transport system and a tax system that targets the highest incomes”.
Thomas Piketty, Capital in the Twenty-First Century
Challenge: Taxation and investment
Investment in our public sector helps deliver economic development. Many of today’s firms were born from government-created infrastructure, investment, and regulation. These include Fletcher Buildings, Air New Zealand, Fonterra, and Zespri. [3] [4] [5] [6] [7] Using innovative tools such as a social procurement approach,[8] investment should help ensure that spending delivers both economic and social development outcomes. Our economic development strategy must illustrate how we are going to deliver our long-term investment needs as a country. It must highlight what the cost of inaction has been, and will be, if we get it wrong.
“We have to make the case more strongly that the neoliberal agenda that just lowering taxes and that means lowering public services is not working, it has not led to faster growth. It’s the first time this generation is going to be worse off than the last generation. We have to be thinking that the 21st Century involves changes in our economy that are going to require more public investments because we’re moving into an innovation economy”.
Nobel Laureate Joseph E. Stiglitz[9]
Many countries have struggled to find innovative ways to finance the solutions to their problems. This is particularly difficult in New Zealand where much of our available capital is tied up in housing.[10] This means that projects and programmes that might provide long-term results are starved of the resources that they need to make a real difference.
In any discussion on economic development, we should acknowledge the role that taxation plays in the economy. Taxation helps drive development and investments. Historically, our taxation system has encouraged investment in ‘unproductive’ assets such as rental housing at the expense of investments in more ‘productive assets’ such as plant, machinery, or new software.
OECD analysis shows that New Zealand is unusual in its taxation system. IRD claims that we operate on a ‘Broad-Based, Low-Rate’ system, which suggests that by taxing many things they can be taxed at a lower level.[11] However, evidence from the OECD shows that this is not the case.[12] In reality, New Zealand has a narrow taxation base and an average level of taxation.
The tax-to-GDP ratio in New Zealand has remained stable at 32.5% in 2000 and 32.2% in 2020.[13] We don’t tax capital, wealth, or inheritance in ways that are standard overseas. GST — a regressive tax — collects 50% more revenue here than it would do in an average OECD country.[14] Company taxes make up 17% of all taxes in Australia – but only 12% of all taxes in New Zealand.
These challenges are compounded by our current fiscal system that encourages a short-term focus on stability and an overly conservative position on debt. There is no debt crisis in New Zealand, but we behave as if there permanently was one around the corner.[15]
It’s time to have a conversation as a country about the kinds of taxation we want to see in New Zealand, and the impact the current system is having on investment. We also need to have an honest dialogue about how we pay for our public goods and services. Most countries we wish to emulate have much higher levels of government spending than New Zealand, and consequently better public services.[16]
“Effective taxation is essential to promote a more inclusive and sustainable growth”
2018, Ángel Gurría – Secretary-General of the OECD
Policy Proposal: A National Investment Bank to finance our central economic missions and a new state-owned default KiwiSaver provider
To help address this challenge, we propose the creation of a New Zealand National Investment Bank (NZNIB) modelled on the Scottish National Investment Bank.[17] The NZNIB will invest where the private sector is not providing sufficient investment and can support projects seeking to improve our economy. It would provide patient capital (First in Last Out) to de-risk projects that have long-term benefits to the New Zealand economy. [18] One of the benefits of patient capital is that it allows projects to focus on long term growth and sustainability alongside positive social and environmental benefits instead of needing to maximise profits at pace.
Initiatives the NZNIB could deliver include:
- A new State-owned default Kiwisaver created to provide all new default Kiwisaver services. There are currently around 380,000 New Zealanders in default schemes.[19] This would be an arm of the National Investment Bank and could co-invest in the projects of the National Investment Bank.
- Being a lender for Māori land where the structure of land ownership prevents traditional lending practices, particularly to encourage the development of housing. This is a major market failure in New Zealand and requires significant reform. This section of the Bank would be managed by, and run for, Māori.
- Creating co-financing opportunities. Bonds that are delivering the activities of the NZNIB would be open to other investors such as Kiwisaver funds.
- The NZNIB could be in part funded through a levy on the profits of the largest banks in New Zealand. Banks benefit significantly from the infrastructure and development that the government provides. The ‘de-risking’ that our government investment provides to banks should be recognised financially.
- The NZNIB would be able to take its ‘return’ either in interest or in fiscal savings to the Government generated through its activities. It would only undertake this form of financial return where that saving can be directly attributed to its investment.
- It would help finance some of the activities of the Ministry of Green Works and the Just Transition activities set out later in this report.
Next mission:
Mission: Delivering Adequate Housing and Our Infrastructure Needs for the 21st Century
Footnotes
[1] Household income and housing-cost statistics: Year ended June 2021 and June 2019. Stats NZ
[2] https://www.labour.org.nz/children
[3] See 1923 New Zealand Dairy Board, Primary Products Marketing Act 1953, Creation of the Dairy Production and Marketing Board, Dairy Board Act 1987
[4] The New Zealand National Airways Act 1945 established a single domestic airline – the National Airways Corporation (NAC).
[5] Private and Public Enterprise: Fletcher Construction and the Building of New Zealand, Baker, 2002, https://www.ebhsoc.org/journal/index.php/ebhs/article/download/110/91/
[6] See The Kiwifruit Industry Restructuring Act 1999, and the Kiwifruit Export Regulations 1999
[7] The New Zealand National Airways Act 1945 established a single domestic airline – the National Airways Corporation (NAC).
[8] The Victorian Government uses the following definition of social procurement: “A social procurement is when organisations use their buying power to generate social value above and beyond the value of the goods, services, or construction being procured”.
[9] Stiglitz delivered the Inaugural Laurie Carmichael Lecture: The Economic Benefits of Trade Unions at The Capitol, Melbourne, 20th July 2022. https://www.youtube.com/watch?v=kk3TXDHmU5U
[10] Symes, L. (2021). The Wealth Ladder: House Prices and Wealth Inequality in New Zealand. NZ Treasury. https://www.treasury.govt.nz/publications/an/an-21-01-html.
[11]https://www.ird.govt.nz/-/media/project/ir/home/documents/about-us/who-we-are/our-minister/the-new-zealand-tax-system-and-how-it-compares-internationally.pdf
[12] https://www.oecd.org/tax/revenue-statistics-new-zealand.pdf
[13] ibid
[14] ibid
[15] IMF Data Mapper (2020). Central Government Debt: Percent of GDP. https://www.imf.org/external/datamapper/CG_DEBT_GDP@GDD/SWE/NZL/AUS
[16] The IMF provides annual updates of government expenditure broken down by function of government. Data can be accessed here https://data.imf.org/?sk=dbbd8d3a-24eb-4c7d-a385-758090fd4ce2&hide_uv=1
[17] https://www.thebank.scot/
[18] Patient Capital (short for patience) is a type of long-term investment where investors do not expect to return a profit on their investment in the short run.
[3] Beehive.govt.nz KiwiSaver default provider scheme improvements slash fees, boosts savings. https://www.beehive.govt.nz/release/kiwisaver-default-provider-scheme-improvements-slash-fees-boosts-savings