A lead worth following – the Financial Transactions Tax – Minto

A lead worth following – the Financial Transactions Tax – Minto

Posted on November 19, 2012 by admin in Mana Blog

What do France, Germany, Italy, Spain, Austria, Belgium, Greece, Portugal, Slovakia and Slovenia have in common? As well as being members of the European Union they also announced a fortnight ago they are introducing a Financial Transactions Tax.

This is the latest in a developing international consensus to shift the tax burden onto those who have never paid their way while easing the burden on wage and salary earners.

EU Commission President Jose Manuel Barroso says –

“This is about fairness – we need to ensure the costs of the crisis are shared by the financial sector instead of shouldered by ordinary citizens.”

If fairness were the criteria we’d have had an FTT decades ago and the case for New Zealand to follow the European lead is particularly strong. Not because politicians, financiers, or banks want it but because it would be a significant start in rebalancing our rotten tax system.

Is rotten too harsh an adjective? You be the judge.

In 2010 the wealthiest 150 New Zealanders had an increase in wealth of $7 billion – and for the most part they paid no tax on this windfall of unearned riches. The rest of us mere mortals pay tax on every dollar we earn and every dollar we spend. And for those on the lowest incomes the tax rates are particularly savage.

The lowest 10% of income earners spend 14% of their income on GST while the top 10% spend less than 5% of their income on GST.

Meanwhile the super-rich pay hardly any income tax either.

A recent Inland Revenue sample of the wealthiest 250 New Zealanders (with wealth in excess of $250 million) found only half are paying the top tax rate of 33% which kicks in at earnings of over $70,000. You could be excused for uttering an expletive at this point. US multi-billionaire Warren Buffet pointed last year that his secretary pays a higher tax rate than he does but in New Zealand it’s even worse – the more you get the lower the tax you pay.

In 2010 when concern was expressed about the wealthy avoiding paying the top income tax rate of 39% Finance Minister Bill English dropped the rate to 33% to match the rate paid by trusts. In other words the rich wouldn’t play by the rules so the rules were changed to suit them. Another expletive at this point would be understandable.

The total tax take from our most affluent could be as low as four or five percent while the lowest income New Zealanders pay around 26% when income tax and GST are taken into account.

It’s no exaggeration to say New Zealand is a tax haven for the rich who grow fat on the hunger and homelessness of the poor.

Some have argued that the social value of the work of the rich justifies their higher incomes and lower taxes but this is market myth.

A hospital cleaner paid close to the minimum wage does work of high social value. Just think if the job was left undone for a couple of weeks. On the other hand currency speculators, such as Prime Minister John Key in a former life, are paid vastly more but their work contributes nothing of value to society. In fact it’s mostly calculated as a negative.
Currency traders have the same role in global finance as a burglar has in our homes – to rip us off.

We are allowing the “market” to value the work people do but the tax system is supposed to give some acknowledgement of the value to society of the work done. In New Zealand any pretence of such acknowledgement was abandoned by Labour in the 1980s and we’ve have the fastest growing income inequality of any OECD country for most of the period since.

Right now our tax system rewards the idle who trade in wealth created by others while those on low incomes struggle under the heaviest tax burden. Robin Hood would be turning in his grave.

Major structural changes to our tax system are needed to bring “economic justice” to our families but a financial transactions tax would be a good start.

The FTT to apply in the 10 EU countries will cover transactions on currencies, bonds and shares traded at banks and financial institutions. We need it here.

Last year the New Zealand dollar was the 10th most traded currency in the world and a 0.5% tax on that trade alone would bring in more than enough to abolish GST, giving a huge boost to families on low and middle incomes.
As well getting rid of GST a tax on currency trading would also reduce the value of the New Zealand dollar by dampening speculation which in turn would bring in more income from exports. This is the direct way of dealing with our overvalued currency rather than the agonised three-monthly interest rate decisions of a hobbled Reserve Bank.

We should also apply the tax to share trading, such as in the UK where they’ve had such a tax (set at 0.5%) for several decades.

An FTT would be a good step away from the tired old neo-liberal polices which tax the poor to death while the super rich pay peanuts.

We should follow the European lead.

John Minto
Co-vice President
Mana Movement