The Road to Hell (Wealth Taxes for Kiwis) is paved with Good Intentions
My column for the National Business Review is out and can be read at https://www.nbr.co.nz/node/232661 or below.
The NZ Treasury recently released its Long Term Fiscal Statement. Interpreting what it means for each Kiwi’s future, as well as our country’s future, requires some detective work. First and foremost, the Statement shows how NZ has no chance of funding future health-care and pension costs over coming decades, partly due to our ageing population, given existing policy settings, without putting “net debt on an unsustainable trajectory”. These welfare costs are forecast to rise from 12% to almost 20% of GDP by 2060. The OECD predicts they will go higher, reaching around 23% of GDP in NZ by this time.
Since debt financing is thereby ruled out, what’s going to happen? One possibility is cuts to per capita health funding, resulting in curtailment of services, including longer waiting lists and a quality of care that lags behind those nations with which we commonly compare ourselves. Clearly, Kiwis won’t accept such cuts without an almighty uproar. A system collapsing under the weight of numbers is something none of us is prepared to contemplate.
So we’re back to the same question, “What’s going to happen?” One doesn’t need to be Sherlock Holmes to find out where the trail leads. The Treasury report drops a clue by dedicating just two out of its 90 pages to how a health reform may offer a solution to the affordability problem by creating greater efficiencies. Amazingly, in terms of achieving this crucial objective, Treasury appears to have already given up on Labour’s current reform. That reform’s primary focus is not even efficiency at all, according to Treasury, but rather, “tackling inequities in the current system, which could lead to further increases in expenditure”!?
In contrast to its cursory comments on health reforms, eight pages of the Long Term Fiscal Statement are dedicated to “Raising Tax Revenue”. It “explores” how to “increase revenue by up to 8% of GDP to accommodate fiscal pressures”, suggesting this could be done “by increasing [existing] tax rates, or by broadening the tax base to which the system applies, or by introducing new kinds of taxes”. So at least the secret is out. The ground is being laid for huge tax hikes to cover future welfare costs. After waxing on about how NZ’s “narrow” tax base can be widened, Treasury then fires a bazooka. Land taxes. Wealth taxes on assets and inheritances. Capital Gains taxes. The document outlines how each of them could be implemented and muses about (iwi) exemptions.
Although the PM said she was “ruling out a capital gains tax under my leadership in the future”, the Treasury report suggests that her leadership is regarded as a short-term blip, immaterial to the evolution of these long-term scenarios. Could this be why the IRD has been snooping around, asking high net wealth Kiwis to declare all of their assets? Could Big Brother be trying to get a better idea of how much revenue would be raised via these kinds of new taxes for the purpose of funding future health and pension blow-outs?
Critics of such concerns call them scaremongering. They say ageing populations are an issue in many other nations. However NZ is different. Kiwis want a world-class health-care system paid for on the back of non-world class productivity. Our GDP per hour worked now languishes at 29th out of 38 OECD nations. Although the likes of the US, Germany and France are also experiencing rising health costs, their GDP per hour is around 50% higher than ours. So their ability to meet these costs is greater. What’s more, productivity growth in NZ was close to nothing through National’s nine years in power. If that’s what it’s like under a right-wing government, how can one expect it to pick up under a left-wing one?
Another factor ignored by critics who argue that we’re in the same boat as other places is that our private health-care sector is relatively small. In NZ only around 5% of total health spending comes from private insurance plans. So there’s little in the way of an escape route. We’re all heavily reliant on the public system, since the services which are privately provided are narrow and not comprehensive.
Consequently, as funding falls behind costs, as per Treasury forecasts, all of us, low and high earners alike, are on track to get a uniformly poor, yet “equitable”, health-care service, unless a swathe of new taxes is introduced. Of course, to the extent those new taxes scare away investment and further lower productivity, they may offer little salvation.
So what’s the answer? A reform of our health-care system, of course. But it requires bold, quality political leaders, not ones hung up on socialist ideologies, like many MPs in the Labour and Green Parties, nor ones who see virtue in “conservatism” and equate it with doing nothing, like most National MPs.
A larger private health-care sector needs to be built up to keep the public sector in check, just as our public health-care sector should be retained to keep private suppliers honest. Every Kiwi should have health insurance, funded by employers & employees out of cuts in corporate & individual taxes. A comprehensive government scheme should be available to avoid the problems besetting US-style private insurance markets. Health services must be affordably priced. Those without sufficient resources to afford their health-care needs should be subsidized, paid for by cuts in government transfers to the wealthy. People should be free to choose their own health-care provider, whether it be public or private, in stark contrast to Labour’s reform that puts decisions in the hands of a single central planner.
In other words, in the context of the low productivity situation in which NZ finds itself stuck, our only way out is to adopt a more efficient Singapore-style scheme. Health spending there is half of ours, with at least as high quality outcomes. You may say it’s too hard to make the change, but what’s the alternative? Treasury has already told you. Capital, wealth and asset taxes.