The Future of Tax Should Have a Focus on Children

Child Poverty Action Group (CPAG) is pleased that the Government has sought extensive outside viewpoints on its re-envisioning of taxation in New Zealand, via a call for submissions to the Tax Working Group, on the “Future of Tax”.

CPAG has made a submission to the TWG today.

“In our submission, we take a child-focused lens to taxation,” says Associate Professor Susan St John, CPAG economics spokesperson.

“CPAG believes that in its current state, New Zealand’s tax system is no longer fit for purpose. It does not fulfil the 1980s promise of broad base/low rate and no longer serves the needs of families well. A child-centred re-envisioning of tax policy is required urgently.”

Despite tax-based initiatives over the years such as Working for Families (WFF) that help offset the tax burden for low-income families, families are affected more than ever by the interactions of tax with welfare provisions.

An increase to the rate of goods and services tax (GST) in recent years, as well as markedly increased costs of basic needs and housing mean that low-income families pay a disproportionate amount of their incomes in tax. High rates and low thresholds for student loan repayment, as well as sharply increased abatement rates on housing assistance and tax credits compound the effective marginal tax rates (EMTRs) for families, meaning earning extra income is hardly worthwhile.

Housing-related poverty is a significant and growing cause of child poverty and CPAG says that taxation of housing must be radically reformed to improve affordability and reverse the trends to growing wealth inequality.

“Rather than a capital gains tax, CPAG hopes the TWG will fully examine the case for a net housing equity tax. The next generation requires that we refocus housing as a basic human need, not a vehicle to invest in for profit,” says Alan Johnson, CPAG’s housing spokesperson.

Although the Tax Working Group has stated that WFF tax credits are outside of its terms of reference, the TWG is supposed to examine the use of taxes to incentivise behaviour. To date, the promise of work-incentivisation written into the terms for the In-Work Tax Credit (IWTC) has failed. Instead the significant payment offers advantages to some, but is withheld from those who need it the most.

“The IWTC is a payment for children to help alleviate poverty and that should be its role rather than pretending to incentivise work. To date it has failed, and the number of children facing the worst of poverty has grown,” says St John.

Anyone interested in having a say on what changes will take place is able to make a submission via a poll and questionnaire on the website, or by email for those wishing to make a more detailed response. The deadline for responses is April 30.

To read CPAG’s full submission, click here.

CPAG also submitted last year to Making Tax Simpler - Proposals for tax administration.