NZ–tax haven for the international rich

By Peter de Waal

The conservative UK Sunday Times newspaper recently published a survey of countries with a comfortable western standard of living wealthy tax-exiles could consider escaping to.

This article [only available online for a fee], published on July 11th 2010, described New Zealand’s 2010 budget as “the most radical change to taxation in 25 years.” Compare this to Key’s local attempts to downplay the importance and impact of the 2010 budget.

For a British boss or money speculator making £150,000 a year, Switzerland will take only £40,000 a year, yet “socialist” New Zealand is next cheapest tax shelter with just £50,000 of income taxes.

For this, the wealthy ex-pat gets access to a free world class health system, cheap housing conveniently out of reach for 90% of the population, anti-labour union laws such as the 90-day “fire at will” law that makes the setting up of a tax-loss generating “business” simple and relatively risk-free, and much more.

The cost of these gifts to the transient wealthy is a massive destruction of citizenship rights for Kiwis, with swingeing cuts to ACC entitlements, access to education, health rationing, the protection of union membership, GST rising to 15%, etc. Key’s austerity policies for the poor and working class are costing some their lives and making survival near-impossible for many families.

John Key sold himself to the electorate on the basis of tax cuts, but many didn’t realise that these cuts are biased towards the ultra-rich top 2% of the workforce. Key has transformed New Zealand into a tax-exile destination and articles such as this one in Bloomberg are here to sell the results of these decisions to the world’s rich.


‘Smiling assassin’ targets rich immigrants

By William Mellor 

Bloomberg via NZ Herald

Wednesday Aug 25, 2010

Business news agency Bloomberg takes an outsider’s look at where it thinks New Zealand and John Key are heading.

Prime Minister John Key promoted New Zealand on David Letterman’s Late Show last year. Photo / AP

NZ petition targets financialisation, the heartless heart of capitalism

by Grant Morgan

Michael Lewitt, who founded capital management firm HCM in 1991, has just authored a fix-the-system book titled “The Death of Capital: How Creative Policy Can Restore Stability”. He is a conservative free market capitalist.

In a recent column (see below), Lewitt bemoans how “the United States has strayed from a free market model to a system that privatizes gains and socializes losses”.

He continues: “During the last two decades, the American economy has suffered from a series of legal, fiscal and monetary policies that have favored speculation over production. The result has been the financialization of the economy, which has been characterized in economic terms by an unhealthy growth in debt at all levels of the economy and in cultural terms by the monetization of all values.”

Lewitt is calling for “a Tax on Speculation that would apply to the types of speculative activities that have so badly damaged the American economy, including naked credit default swaps, leveraged buyout, quantitative stock trading strategies and other stock and bond transactions”.

Lewitt’s strident criticisms of “speculation” and “financialisation”, and his call for a “Tax on Speculation”, personify the raging disunity within global elites which is starting to unravel their “Born to Rule” legitimacy. The Anti-Revolution is starting to eat its own babies.

Lewitt is trying to rein in financialisation in the belief this is required for American capitalism to overcome its critical “challenges”.

Marxists, however, understand that financialisation is capitalism’s main last hope of surviving a systemic crisis of profitability. If financialisation goes down the toilet, so does capitalism’s global economy. That’s why financialisation cannot be reformed into something else.

(For much more information on financialisation, and the convergence of systemic crises, see my essay, “Beware! The end is nigh! Why global capitalism is tipping towards collapse, and how we can act for a decent future”, http://unityaotearoa.blogspot.com/2010/03/grant-morgan-beware-end-is-nigh.html.)

On Budget Day, 20 May, it looks like the National-led government in New Zealand will raise GST to 15%. That is similar to save-the-speculators austerity measures by Europe’s governments which are sparking popular protests not only in Greece, but also Portugal and Spain.

On 22 May, two days after National’s budget, Socialist Worker and the Alliance are jointly launching a nationwide tax petition calling on Parliament to remove GST from food and tax financial speculation.

In effect, our petition is targeting financialisation, the heartless heart of neoliberal capitalism. As seen in Europe’s protests, financialisation is becoming the central battleground over what sort of economy we should have and who it should serve.

For more information on the tax petition, keep your eyes on UNITYblog website or email campaign co-ordinatir Vaughan Gunson at socialist-worker(a)pl.net.

Federated Farmers want poll tax, user pays and no rates

By Pat O’Dea


With the planned rise in GST to 15% tied to income tax cuts, the wealthy are continuing – with the help of their friends in parliament – to transfer the central tax burden away from themselves and onto the rest of the community.

Following success at central government level, the battleground for neo-liberal restructuring and deregulation of the economy is set to move to the local government level.

Hoping to take the advantage of Rodney Hide’s enforced amalgamation and centralisation of councils, right wing business lobby group, Federated Farmers are lobbying for a Maggie Thatcher type poll tax, which they call a “Residents Tax”, to replace rates on property.

The Fed president Don Nicolson sess this as the next step in changing what he calls the “three Fs” for councils: form, function, funding. With changes in form and function well under way, Nicolson says, “I do look forward to taking this third ‘F’ out of the shadows and into the light of day.”

If they are successful in dominating the new council bodies, the Feds and other right wing lobbyists, will seek to fund a huge rates cut for themselves, by imposing a poll tax on every single adult, including pensioners and beneficiaries. They are also demanding much more user pays for council services.

From Nicolson’s speech:

We want local government to get its tax income from every resident and not just those who are considered to be ‘landed’.

The ‘landed’ should not be expected to subsidise the rest of the community as a result of a theoretical value placed on their property.

Our future must be one where everyone pays for activities where everyone benefits equally – perhaps through a fixed charge on every adult resident.

I believe if it looks like a tax, feels like a tax and impacts your wallet like a tax, then let’s stop calling it rates. Let’s call a spade a spade.

A Residents’ Tax is our preferred outcome as it impacts 100 percent not just 64 percent. Our starting point is that every adult should pay a Residents’ Tax. Handing over your hard-earned money to a local council changes the psychological stake you have in a community. That includes beneficiaries too. Building community wellbeing starts with having an investment in a place. That place being your community.

The not quite overt message from Federated Farmers, is that the bulk of the urban and rural working poor are bludgers on the farm and business owners. As race and class are often very much intertwined you can detect the silent dog whistle behind these statements.

Robin Hood Tax video

John Minto:Drop GST – we need a financial transactions tax

By John Minto Stuff / Frontline It’s time to drop our goods and services tax and adopt a financial transactions tax. This was not an option proposed by the 13 comfortable men on the Government’s Tax Advisory Group but it’s an idea whose time has come. We all know GST disproportionately hurts those on low and middle incomes who work hard, live week to week and spend most of their income. An FTT, on the other hand, would impact most heavily on the likes of currency speculators and similar financial wheelers and dealers who gamble with wealth created by others. It’s an idea which is growing in popularity among developed countries in the northern hemisphere, with British Prime Minister Gordon Brown leading the charge. He hopes to progress the idea at the coming G20 meeting and a grassroots movement has begun to take shape to push the idea. The driving force in Europe has been the financial crisis whereby taxpayers spent thousands of billions bailing out their financial sectors. It’s not surprising that punishing corporate greed has been one driver popularising FTT in the north and there’s no reason New Zealand should be left behind. Some form of FTT already has support from the Alliance, the Maori Party and the Greens as well as support from some exporters. Two weeks ago the managing director of Sanford, Eric Barratt, told the company’s AGM the Government should start taxing those who speculate in New Zealand currency. He put it bluntly: “It is high time New Zealand as a country started earning some income from these currency traders that costs shareholders in Sanford and other trading companies many millions of dollars each year. “A tax on non-trade-related currency transactions could not only earn significant income for the Government it could also result in our exchange rate moving closer to its realistic value and thereby add significant value to the wealth of New Zealanders.” Barratt’s idea of a tax on currency transactions (without penalising trade in goods) is usually referred to as a Tobin tax. The Alliance, on the other hand, supports a broader financial transactions tax which would be simpler to administer and which would tax all financial transactions at a very low rate. In a media release last week Alliance Party spokesperson Victor Billot says the party supports such a tax on all withdrawals or purchases at a rate of just two cents per $100. He rightly says this would have no impact on ordinary people (2c or 3c on the grocery bill) but would raise large sums from financial transactions such as those associated with speculation on our dollar. It’s important to realise our dollar is consistently among the 10 most traded currencies in the world and each year it is swapped at volumes which dwarf our annual GDP. (Prime Minister John Key made his millions speculating against the value of currencies such as our dollar - I’m waiting for a reporter to ask him where he thinks his millions actually originated!) Exporters would benefit because speculative trade keeps the value of our dollar artificially high, which means less income from what we sell overseas. An FTT would lower the value of the dollar, increase returns from exports and increase the price of imports. Each of these brings value to our economy. There are those who say FTT will not be really effective unless it is applied internationally but such objections are red herrings from vested interests. FTT is not a panacea but its benefits would include: reducing the artificially high value of our dollar; helping exporters and local producers; taxing the parasitic activity of the unproductive financial sector as well as enabling a dramatic reduction in the iniquitous GST. FTT is a tax whose time has come.

Maori Party should not support Nat’s GST hike

Rahui Katene, Finance Spokesperson for the Maori Party, has hit out at National’s proposed rise in GST. In a speech to Parliament on Tuesday 9 February, she said:

It would appear that we are shifting the burden of taxation from the people who can pay it to those who can’t. For those at the top income level, there are ways and means of claiming the GST back – they can set up trusts, they can increase rents, they can make the end user pay. But for those at the bottom level, there is no other place they can claim the money back from.

Katene who is the sponsor for the Goods and Services Tax (Exemption of Healthy Food) Amendment Bill, repeated her party’s call for GST to be removed from healthy food. And for the first $25,000 of income to be tax free. She also expressed Maori Party support for “a minimum wage of at least $15 an hour”. Despite this, Katene and the other Maori Party MPs look likely to vote for the increase, as part of their “confidence and supply” agreement with National. The central issue appears to be the “compensation” the Government says it will pay to pensioners, beneficiaries and low income workers with children (through Working for Families), and the promise that low income workers will get tax cuts as well as the wealthy. However, such measures will provide short term relief at best. As prices continue to rise, compensation will be eaten away. A 2.5 percent increase in GST will continue taking money out of our pockets forever. Economic justice for the majority (e.g. the the 70 percent whose incomes are less that $40,000) means opposing a GST increase and tax cuts for the rich and all other moves that shift “the burden of taxation from the people who can pay it to those who can’t.” It means campaigning to take GST off food, to reduce taxes on the working poor and increase taxes on wealthy individuals and corporations – who’s ultimate source of wealth is the exploitation of workers and the natural environment. Through their support for taking GST off food, the Maori Party have made a stronger contribution to this campaign than any other party in Parliament. They should stand by this commitment and refuse to support National’s GST hike.

Above: Hone Harawira, Maori Party MP for Te Tai Tokerau, signing RAM’s the GST-off-food petition at the Kaitaia Markets

Rahui Katene: Shifting the burden of taxation to those who can’t pay

Rahui Katene

Finance Spokesperson for the Maori Party Prime Minister’s Debate Tuesday 9 February 2010

There was a statement that the Prime Minister made in his speech this afternoon that I am sure would be endorsed by every single member of the Maori Party – and I’m talking about the 23,000 members not just the five in this House. It was the recognition that he was “impressed and heartened by the resilience and optimism of New Zealanders and by their desire to do better for themselves, their families and their communities”. As I travel across Te Tai Tonga I am frequently in contact with people who are struggling to survive. The median family income for my constituents is $54,500 – some five thousand less than the median family income for New Zealand as a whole. Five thousand dollars that makes a difference at the petrol pump, at the supermarket checkout, at the pharmacy, at the bank. Today we are asking those same people to agree to a rise in GST to 15 percent. GST, of course, is an issue dear to my heart. Tomorrow, I will once again submit into the ballot my private members bill, the Goods and Services Tax (Exemption of Healthy Food) Amendment Bill. This is a bill which has directly responded to the situation for the people of Te Tai Tonga; the people of the Maori electorate, every day New Zealanders who are powerfully motivated by the desire to do better for themselves, their families and their communities. These every day New Zealanders have suffered from the impact of food prices which have risen more than twenty percent in the last three years, while real incomes have risen only very slightly. Within that, we know that increases for the staples of a nutritious diet – such as fruit, vegetables and milk – have been particularly high. In response to the long term impacts this could have on public health, organisations such as the Public Health Association of New Zealand Inc and the Heart Foundation of New Zealand, have called for goods and services tax to be removed from foods which constitute a healthy diet to make them more affordable. I repeat – their call is for GST to be removed – not to rocket up to 15%. I want to make it absolutely clear that the challenge faced by many of our families is of the harshest kind. It is our families who suffer from the reality that New Zealand’s after tax distribution is one of the most unequal in the OECD. It is our families, disproportionately, who are suffering from the unacceptable level of child poverty. Rates which are so dire that the 2008 Survey of Living Standards reported 19 percent of children are experiencing serious hardship and unacceptably severe restrictions on their living standards. Mr Speaker, these are the faces of the families that I take with me into this debate. We are pleased that our consistent call to remember these families has been reflected in the announcements made earlier today by the Prime Minister. We have welcomed the decision of the Government that any decrease in personal tax would be done across the board. If there are across the board personal tax cuts, then we will certainly be doing everything we can to ensure that our people will see some sort of benefit. We have certainly noted the statement of the Prime Minister that fairness is a very important consideration to this Government. And so we will be talking closely with the Government about finding a common context for what we mean by fair. Is it fair that 51% of beneficiary families with children are ranked as experiencing serious hardship? Is it fair that 28% of families with children had serious health problems for at least one child in the past year? Is it fair that for 22% of families keeping the house warm is described as a major problem, with another 17 percent saying that dampness or mould were major problems? The challenge we face as a Parliament, is to ensure that the current levels of inequality and poverty are not intensified by the tax package highlighted today. It would appear that we are shifting the burden of taxation from the people who can pay it to those who can’t. For those at the top income level, there are ways and means of claiming the GST back – they can set up trusts, they can increase rents, they can make the end user pay. But for those at the bottom level, there is no other place they can claim the money back from. And so we will be greatly interested in the discussions around fairness and equitable outcomes, particularly as they relate to the low income. The key thing for us is that there is an opportunity for dialogue; and within that we hope to put forward some of the key ideas that we have promoted from the Maori Party. And so I go back to that collective desire that I would hope we share across this House, to respond to the aspiration of the people to do better for themselves, their families and their communities. As a first start we must do something to unacceptable levels of serious hardship that compromise living standards. We must increase the minimum wage – and by more than 25 cents – we want to see a minimum wage of at least $15 an hour. We are greatly pleased that the benefits, superannuation and working for families policies will be increased to assist people on low incomes. Now if we were really to show a level of responsibility for those more vulnerable, we would put measures in place to ensure that the first $25,000 of income is tax free. We need leaders who see that small is the new big. We need visionaries who can create opportunities for a new economy, who are not mired in old thinking and tainted by the existing economy. We need more Grameen banks - we need community banks. Vision is what we need – not more of the same. And so as a Coalition Partner with the Government we expect to be involved in discussions concerning the nature of the income support provided to New Zealanders. We do support the goals of reducing dependency on benefits, but it is absolutely critical that at the same time we maintain an appropriate safety net for those in genuine need. We are really concerned about the vulnerability of sole parents to fluctuating income. Sudden change can often have a detrimental effect on the whole whanau. We know that far too easily families go further into debt just to meet the basic costs of food, rent and power. For too many of these families the opportunity to take up full time work is simply not available. While we are supportive of efforts to gain better entry of Maori into the workforce, we will not accept any proposals which threaten the capacity of whanau to be able to maintain a reasonable standard of living. We do not want to see our whanau in a worse off position through any of the ideas being floated. And in this regard, I am honour bound to remind the House that in the design of the Working for Families, the policy architects of that scheme effectively cut out the poorest 200,000 children who have been left, floundering, in increasing poverty. Finally I bring us back to a concept that resonates with tangata whenua – He aha te mea nui o te Ao, what is the most important thing in the world? He tangata, he tangata, he tangata. It is people, it is people, it is people.

Reverse Robin Hood from tax working group

By David Colyer A report by the Tax Working Group has ignored the popular campaign for GST to be removed from food, calling instead for an across-the-board increase in GST to fund tax cuts for the wealthy. National, various business groups and much of the media have embraced this idea, although they appear less keen on the report’s proposal to tax rental properties. The Tax Working Group was one of several economic “taskforces” established by the National Government soon after the last election. It’s report has been contrasted with the free market fantasy produced by Don Brash’s 2025 Taskforce – which claimed cutting the minimum wage would somehow help wages increase to Australian levels. But praising the tax report as free from “ideological rhetoric” misses the point that many of its proposals are straight out of a neo-liberal economics text book. Cutting taxes on the rich and introducing GST was a core part of Labour and National’s free market reforms in the ’80s and ’90s. In the classic reverse Robin Hood free market style, they made the rich richer, by taxing them less and making everybody else pay more. This time round, the Dominion Post calculates that cutting the top personal tax rate from 38 percent to 33 percent would “put about $20 a week in the pockets of workers on $90,000 a year but give those earning less than $70,000 nothing.” And of course we’d also get hit with a 2.5 percent rise in the cost of everything else, thanks to the rise in GST. Rich rort tax system On top of the worn-out claims that making the rich richer will help us all, a new and bizarre argument is being deployed. The rich aren’t paying their fair share, wage and salary earners are paying too much, therefore (and this is the bizarre bit) we should cut the top tax rate and increase GST. According to the Dominion Post, “an Inland Revenue sample of 100 of the richest New Zealanders showed only about half were paying the highest marginal tax rate on their income.” The solution to this “tax rort”? Close the loopholes and go after the dodgers? No way, just cut the top tax rate. The economic theory behind this approach is that if the rich didn’t have to pay so much tax then they (or their accountants) wouldn’t work so hard to avoid it. In other words change the law to make the problem disappear. I’d love to see this logic applied to the crime. Instead of the new “three strikes” law we’d have something like this ... “In a bold new move to tackle rising violent crime figures the Government has announced they will stop counting assaults.” The funniest thing about the report may well be the claim by Finance Minister Bill English that he found “startling” the reports revelations that many rich people were “able to restructure their affairs” using a “company, trust or special savings vehicle” to avoid tax. Hang on. Wasn’t that pretty much what English himself did in the housing allowance scandal? The next sentence in the the Dominion Post report might be closer to the truth: “That only half of New Zealand’s wealthiest individuals were able to avoid paying the top rate of tax would be ‘astounding to the layman’, he [English] said.” This looks like English is saying that it’s surprising that only half were avoiding tax (surely this is a typo?). We can shift the tax debate In the run up to the last election, National was able to tap into discontent about low wages and rising prices with calls to close the wage gap between New Zealand and Australia. Of course they weren’t talking about a 25 percent increase in wages, instead they managed to focus the debate on tax cuts. Labour made things easy for them, because they opposed big wage rises too. Instead they cut taxes before the election, which not only looked like a pathetic election bribe attempt, but also backed up National’s argument that tax cuts are the solution to poor pay. Both parties were also united in their opposition to calls for GST to be removed from food. Nevertheless, the campaign to make food GST free – initiated by RAM and supported by the Maori Party, Grey Power and others – gained significant public support, with one pre-election poll showing 73 percent in favour. In power, National postponed its tax cuts, because of the recession. Now they are back on the agenda. But with such dodgy arguments being deployed in favour of tax cuts for the wealthy, paid for by a GST rise that will hit low and modest income people hardest, there’s wide open political space for a revival of the GST off food campaign. Another progressive tax reform supported by RAM as a way of funding GST cuts is a transaction tax on the movement of large sums of money. Ten years ago, this idea, some times known as a Tobin Tax, was a major spur to the European mass movement ATTAC, which played a key role in launching the World Social Forums. More recently, this idea has been raised by the Maori Party, Jim Anderton’s Progressives Party and Socialist Worker’s Bad Banks campaign. No doubt there are many other tax reforms that the Left could rally around, and that many people would support. With the next Budget four months away, there is plenty of time to campaign around this issue. But perhaps not enough time to build a campaign big enough to stop National’s reverse Robin Hood reforms. Nonetheless, if we can make a bit of a fuss, we can shift the tax and income debate away from the idea that income tax cuts, rather than wage rises are the way to boost take home pay. We may also be able to pressure Labour and the Greens into supporting taking GST off food, setting this up as a central issue at the next election.

More neo-liberalism or an alternative?

The just released Treasury report aimed at influencing the National government advocates a new round of neo-liberalism: cuts to government spending, tax reform (including raising GST and lowering company tax), privatisations of state-owned enterprises, etc. Rather than "closing income gaps" it will of course increase them, and will most likely worsen the economy. A very different prescription from the CTU's Alternative Economic Strategy. Is there potential for two opposing ideological and political responses to the economic crisis to square off against each other, not just on paper, but in the real world?

Tax reform needed to jump-start economy by Brian Fellow from NZ Herald 23 November 2009 Far-reaching reform of the tax system and a much tougher approach to Government spending than the Budget foreshadowed will be necessary if New Zealand is to narrow the income gap with Australia and other developed countries, the Treasury says. The economy is seriously under-performing, it says in a report to ministers titled "Getting Started on Closing the Income Gaps". Both Government and private consumption has run well ahead of income, while business investment has been relatively modest. Debt levels are high, and land and house prices probably unsustainable. The Budget was underpinned by an expectation that the recession would trigger a process of rebalancing which would put the economy on a more sustainable path, but that is not panning out. Instead of the expected 25 per cent fall in real house prices, they are heading back above their 2007 peaks, aided by strong net immigration. The reorientation of the economy away from consumption towards production and exports is likely to be slower and weaker than had been hoped and that would mean overseas debt reaching even higher levels than those the Budget had forecast (over 100 per cent of GDP) and which the Treasury doubts are sustainable. "At best our current medium-term economic prospects appear to be fragile, unbalanced growth. There is little in the current policy mix that would make a material difference in terms of closing the income gap." What would, the Treasury argues, is a combination of ambitious tax reform and "front-loaded fiscal consolidation" - code for belt-tightening in Government spending that goes well beyond the $1.1 billion cap on new spending adopted in this year's Budget. "You have the opportunity for once-in-a-generation reorientation of the tax system," it told ministers. "If the opportunity is embraced, far-reaching tax reform could make a powerful contribution to jump-starting a process that, over a decade or two, could close the income gaps." The less ambitious the approach to other taxes like GST, land tax and capital gains tax, the harder would be the required choices about where to concentrate income tax reductions. Structural reform could not begin and end with tax, however. Also in the Treasury's sights are privatisation of state-owned enterprises, pricing not only carbon emissions but water, and a greater role for external capital in the dairy and meat processing sectors. Since 2002, New Zealand has had the fifth-highest rate of increase in Government spending in the OECD. The report is clearly talking about a significantly more demanding track than the Budget, which envisaged a decade of deficits even with a much lower cap on new spending.Significant and well-foreshadowed cuts in Government expenditure would limit the need for official cash rate increases by the Reserve Bank, it says, which in turn would mean less pressure, all else equal, on the exchange rate. The Budget had relied on fiscal drag - the process whereby inflation pushes people into higher tax brackets - to reduce deficits over time. "Fiscal drag sounds innocuous. In fact it would mean that by 2022/23 the average wage earner would be paying the top marginal tax rate." The Budget's priorities had been supporting the demand side of the economy through a recession, while averting a credit rating downgrade. "Having dealt with that initial situation, some more significant adjustment is now warranted." A combination of spending cuts and tax reform, the report says, could deliver an economic scenario which looked like this: Materially weaker consumption relative to income and lower house prices, materially stronger investment and employment in the export sector, a materially lower exchange rate for several years, interest rates and a cost of capital more in line with international norms and a materially stronger fiscal position with scope for tax cuts in the future.

Bad banks: NZ people vs banks $38 million and rising

Green Party media release 11 August 2009 The struggling New Zealand taxpayer is tens of millions of dollars out of pocket due to the fight between the Inland Revenue Department and some of our largest banks, said Green Party Co-Leader Dr Russel Norman. Figures obtained by the Green Party show that as at 31 July 2009, the total cost for all Structured Finance cases against some of New Zealand’s largest banks is approximately $38,500,000. In July the High Court found in favour of the IRD in a court case involving the BNZ. The case revolved around a particular kind of transaction known as Structured Finance. The IRD considered these types of transactions to be tax avoidance. The ruling - subject to the latest appeal - meant the BNZ must pay at least $416 million in back taxes. “This is a David and Goliath fight,” said Dr Norman. “However unlike the recent movie championing alleged ‘Kiwi battler’ Dave Henderson’s fight against the IRD ‘We are here to Help’ – this time the IRD is David and the banks are Goliath. “The decision today by the BNZ to appeal a High Court decision that went against the bank will see the cost to the NZ taxpayer of fighting Structured Finance cases blow out even further,” said Dr Norman. “We know from our experience of New Zealand’s de-regulated financial market in the 80s that if banks can get away with paying less tax they will. “The problem then is who picks up the tab – and that is the greater New Zealand public. At present the Government have set up a working group to study tax – and suggestions coming from this group are that GST should be raised to 15 percent.” The Tax Working Group announced by Finance Minister Bill English in May includes Business Roundtable chairperson Rob McLeod. Earlier this year Mr McLeod gave evidence on behalf of the BNZ in the High Court in his capacity as a tax expert. “Surely when picking a group to look at the New Zealand tax system we should be casting the net further than ‘tax experts’ who give evidence in court cases on behalf of banks engaged in fighting our own IRD,” said Dr Norman.

Building a mass movement for tax justice

As the New Depression takes hold the Left must push hard for tax justice. An economic recession will see tax revenues fall, putting pressure on government's social spending budget, which in times of severity will be even more necessary. For its part, big business will be pushing for a combination of "stimulus spending" - on their terms with the most benefit to their profits - and tax breaks. Thus social spending will come under the squeeze. Government revenue from tax, and where the government directs that wealth, will be a political battleground in the years ahead. The call for tax justice will resonate with low and middle income earners. Mobilisng masses of people behind concrete demands like getting rid of GST or a Finnancial Transaction Tax (FTT) is very possible. It will only be through truly mass campaigns that such progressive tax reforms will be won. Below is article penned by longtime US social justice and environmental campaigner, Ralph Nader, on the need for a Financial Transaction Tax in America. He argues that hundreds of billions dollars of government revenue could be raised by a modest tax on financial transcations in the order of 10 to 25 cents per hundred dollars. The left in New Zealand has long seen the need for a Financial Transaction Tax. It was one of RAM's Ten Commandments (for more detail see The RAM Plan).

How to Lighten the Income Tax Load on the American Worker: Tax the Speculators! by Ralph Nader from Counterpunch 7 February 2009 Let's start with a fairness point. Why should you pay a 5 to 6 percent sales tax for buying the necessities of life, when tomorrow, some speculator on Wall Street can buy $100 million worth of Exxon derivatives and not pay one penny in sales tax?Let's further add a point of common sense. The basic premise of taxation should be to first tax what society likes the least or dislikes the most, before it taxes honest labor or human needs.

Continue

See also Who bears the tax burden - the poor or the rich? A global battleground

British government raises top tax rate and makes one year reduction to sales tax

by Peter de Waal 25 November 2008 Looks like another one of my predictions from March coming home to roost. It's difficult to fleece those you left destitute after the last crash, and Gordon Brown seems to have accepted this logic by announcing a small increase in taxes for the UK's wealthy, as part of a desperate attempt to save the UK's economy. See the Guardian story Darling unveils 45p tax on rich to fund recession package (24 Nov). I don't think it will be nearly enough, but it's long overdue. It will be interesting to see what John Key makes of this move. He has also become a born-again Keynesian of late with announcements of public works and other fiscal stimulus packages. Those who voted for a right wing government here may be bitterly surprised when their taxes also increase. But at the end of the day Key is a member of the international finance speculator class, and this class has a deep vested interest in keeping their system going. It reminds me of what George Bush (W) did after his "election" in 2000. He dropped taxes for the rich. The rich smiled. He waged war in Iraq and Afghanistan. Oil, pharmaceutical, and military suppliers did well, all other branches of capital in America went to the wall. Particularly the small capitalists. I believe Key was planning something similar for NZ, but the credit crunch has put paid to it. In addition to usual Tory hammering of those on benefits, I expect he will now turn on the smaller capitalists as he attempts to keep the banks and other central institutions going, probably sooner rather than later. Key may be the banker's poodle, but he doesn't want to pull the whole system down. Workers just don't have the cash or assets anymore thanks to the last crash, so the predators will have to move up the food chain. Part of the economic stimulus package announced by the British government is a one year reduction in the VAT sales tax (the equivalent of New Zealand’s GST) from 17.5% to 15%. The British sales tax already excludes food items. See also Who bears the tax burden - the poor or the rich? A global battleground

Who bears the tax burden - the poor or the rich? A global battleground

Over the last 25 years the tax burden has been shifted from the wealthy on to the poor in NZ. Both Labour and National governments have overseen this wealth transition. Today, the conditions are emerging for a mass campaign for tax justice, which shifts the tax burden off grassroots people back on to the global rich. Removing the 12.5% GST tax on food is a battle that can be won, given the mass support that exists for this demand - and which will only increase as economic crisis starts to bite. A mass campaign to git rid of GST on food would also create the conditions to win mass support for a Financial Transaction Tax (FTT) – long supported by parties of the left – that would net the international speculators and corporates who avoid and evade paying tax in NZ. As the article below makes clear, who bears the tax burden – the rich or the poor – is right now a major global battleground. Britain’s largest corporations pay no tax by Jean Shaoul from World Socialist Web Site 4 November 2008 A massive 220 firms, almost one third of Britain’s largest 700 companies, including Cadbury, Standard Chartered Bank and British American Tobacco, paid no Corporation Tax in 2006-2007.

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Tax cuts will not eliminate poverty -­ Maori Party

Budget reaction 22 May 2008 The Maori Party says a $10.6 billion tax-cut package is a drop in the bucket, when there is much more to be done to address inequalities and need. "The tax cuts barely relieve the huge pressures on many families, and we really wanted to see a much greater emphasis on eliminating poverty," said Co-leader Dr Pita Sharples. "There is a negligible cut for those on less than $10,000, and a slightly bigger cut for the next group earning up to $20,000. But the biggest cut is for those between $60 ­ 80,000," said Dr Sharples. "So while someone living in poverty will get an extra $10-15 per week, a person on $80,000 will receive around $55 per week. "It will take two years to feel the full effects," he said. "And what is worse, discrimination continues against those who rely on benefits." "We need to recall that it is not just unemployed people who need help with feeding their families, but also those in part-time work and on low pay rates. "Of the 1.8 million people struggling to make ends meet, ten percent are children whom the Child Poverty Action Group has revealed are living in severe and significant hardship. "The Maori Party has called for food to be exempt from GST, and for people on incomes of less than $25,000 not to pay income tax. "These changes would have an immediate impact on people who cannot make ends meet. The tax changes announced today will not eliminate this poverty in the midst of plenty," said Dr Sharples.

Tax cuts locked in, but social services and wages still matter - CTU

CTU MEDIA RELEASE 

22 May 2008 

“Workers are feeling the pinch with high food prices, rising petrol costs and high rents and mortgage payments, and tax cuts announced today, targeted at low and middle income earners, will clearly be welcome for many workers,” Council of Trade Unions vice president Richard Wagstaff said today.

“But tax cuts can’t patch up for low wages, and with workers having some certainty now on the size of tax cuts, the acid is now on employers to lift wages.” 

“The wage gap with Australia cannot be closed by tax cuts. It requires ongoing wage rises for New Zealand workers and it does not help workers or the economy if employers try to avoid decent pay rises because take-home pay has gone up through lower tax.” 

“This Budget shows that even reasonably modest tax cuts still cost a lot of money. About $2.7 billion a year is needed to deliver tax cuts that start at $12 to $28 a week and rise to $22 to $55 a week.” 

“This means less money is available to build on the improvements in social services we have seen in recent years. Unions are therefore concerned about the long term impact of these tax cuts on the social spending.” 

Richard Wagstaff said that the focus on the Budget is mainly about personal tax cuts but the CTU also welcomes the earlier increase to family tax credits worth $275 million a year, the $168 million over 4 years for language, literacy and numeracy, broadband investment and funding to reduce the class sizes for new entrants to one teacher per 15 pupils.

Council of Trade Unions (CTU) Report on Budget 2008

(minus tables)  

Introduction This is a brief report on some of the Budget highlights. There has not yet been an opportunity to analyse all aspects of the Budget so this report does not attempt to provide a full commentary. You will see that funding increases are often stated as over 4 years and we also need to factor in demographic changes as well as an inflation adjustment before we can assess real increases.  

Key Points The main focus of the Budget is personal tax cuts. A $10.6 billion package over 4 years delivers tax cuts that start at $12 to $28 a week in October this year and rise to $22 to $55 a week in April 2011. In addition there is $275 million a year being added to family tax credits. Other key issues are a broadband package of $500 million, $168 million over 4 years targeted at language, literacy and numeracy initiatives and funding to reduce teacher/pupil ratios for new entrants in primary schools to 1:15.  

Fiscal Outlook The Budget is showing an operating surplus for 2007/08 of $2.6 billion compared with a forecast of $6.4 billion. The cash position for 2007/08 is forecast to be a surplus of $0.9 billion. The OBEGAL (Operating balance before gains and losses) is $5.2 billion compared with the forecast of $6.6 billion. The forecasts over the next 4 years are for large cash deficits for the Government of around $3.5 billion a year. And the allocation for new spending in future budgets has been reduced from $2 billion a year to $1.75 billion.  

NZ Superannuation Fund The New Zealand Superannuation Fund is forecast to be $14.5 billion in June 2008 rising to $29 billion by 2012.  

Tax Cuts Tax cuts will start from 1st October this year. From then the 15% rate on income below $9,500 changes to 12.5% on income up to $14,000 and the tax thresholds change from $38,000 and $60,000 to $40,000 and $70,000. The thresholds rise by 2011 to $20,000, $42,500 and $80,000.  

Family Tax Credits The Family Tax Credit, which is based on the number and age of children, will increase from 1 October 2008. The inflation adjustment due next year has been brought forward. All 371,000 families who qualify for Working for Families will benefit from this change. The family income threshold will also be increased to take account of inflation. This means that at any level of income above $35,000, there is an extra $7 per week boost to Working for Families tax credits. The Government has said that a two-income family on $65,000 a year with two children gets an extra $42.65 a week in October this year due to the combined impact of tax cuts and improvements to Working for Families.  

Health Health spending has been allocated $3 billion in Budget 2008 ($750 million per annum). This represents again one of the largest budget allocations. The most significant allocation is the $2 billion inflationary adjustment to DHBs for increased costs in goods and services. DHBs also received $172.3 million of financial incentives to realise efficiencies and progress health targets. There is $160 million, over four years, for elective surgery to reduce waiting lists was announced earlier in the week. A somewhat unexpected but welcome announcement is $60 million “to build a better workforce”: $37.6 million to provide staff training including GP training, $10.4 million to extend the Pacific Provider Development Fund and $12 million to improve the capability of the Maori nursing workforce. The Primary Health Care Strategy has had $80 million allocated over the next four years, which includes reduced co-payments of prescriptions sourced from secondary care facilities, for people enrolled with a PHO, and prescriptions sourced from out-of-hours doctor visits. There are number of health conditions and projects that have been allocated funds to make up the bulk of the $3 billion allocation. The largest of these is the $164.2 million, over four years, for a major immunisation programme to fight cervical cancer. $28 million has been allocated over the next four years for programmes that focus on ensuring higher-quality care and quality improvements.  

Public Sector There is some additional funding for the Department of Conservation. Also there is $216.3 million capital for the replacement of Mt Eden Prison, $205.4 million for research and development on top of the $700 million for the NZ Fast Forward Fund, $91.7 million to recruit additional probation officers, $6.3 million over two years to address the pressure on Auckland courts, $23.8 million is provided to increase the services of the Maori Trustee, $5.3 million to assist the Office of Treaty Settlements to meet the 2020 settlement target, $10.9 million for Radio New Zealand, and $4.4 million for the NZ Symphony Orchestra.  

Skills, Industry Training and Tertiary Education There is $168 million over 4 years to support the Unified Skills Strategy which is a partnership between the CTU, Government, Business New Zealand and the Industry Training Federation. Most of this new spending is on language, literacy and numeracy initiatives – mainly for workers. Industry Training Organisations get an extra $32.6 million over 4 years – in line with CPI. The budget has made investments into training, infrastructure and research in the tertiary sector including $591 million over five years and $15.5 million capital for universities and polytechnics.  

Compulsory Education The 5% increase in school operational funding, effective from January 2009, was announced pre-budget. This increase includes the component to assist schools with the cost of Information and Communications Technology (ICT). It therefore doesn’t deliver on expectations and hopes for increases and targeting of school-support staff which will be a major concern for education sector unions. The 2005 commitment to reduce the Year 1 teacher/pupil ratio to 1:15 has been met with $182 million in operating funding and $33.5 million in capital funding. $1.8 billion over five years is identified in the Budget ($619.1 million in Budget 2008 and the remainder from Budget 2007 and Budget 2009) for teachers’ wage settlements and key collective agreements.  

Early Childhood Care Education An increase to the early childhood education (ECE) annual cost adjustment brings this sector in sight of delivering on promises to meet staffing levels and salary increases for early childhood education teachers. $63.6 million has been allocated over four years in operating funding. This will increase the ECE funding subsidy, Free ECE and equity funding rates to reflect services’ costs increases; increases in the provisionally registered teachers support grant to reflect salary increases, and; includes funding for limited attendance centres.  

Student Allowances Access to student allowances has extended with an increase of 10 percent to the parental income threshold. Students whose parent’s combined income is less than $50,318.22 per annum will be eligible for a full allowance from 1 January 2009. 

 

Home Insulation Over the next four years $6 million will be allocated for 32,000 insulation fit-outs in the homes of low-income families (on top of the $22.4m announced for fit-outs in state houses last week). A further $5 million is committed to an interest-free loan scheme for middle income families to fit out their homes.  

Housing Following the $35 million announced last week over the next two years to be invested in a shared equity scheme, there will be $37.8 million spent over the next three years to develop the Hobsonville site in Auckland and a $220 million fund set up to help Wellington City Council modernise its affordable rental housing over the next decade and a half.  

Superannuation Reduction in personal tax rates will increase fortnightly superannuation payments for a married couple by $45.88 and $23.84 for a single superannuitant living alone.  

Community Organisations In February $446.5 million was announced to fully fund contracted essential services delivered by community organisations.  

Broadband There is additional $325 million of operating funding over 5 years and $15 million capital funding in the coming year to support the rollout of high speed broadband. This includes the setting up of a $75 million contestable fund over five years for rural broadband. 

Financial Education There is $7.8M for financial education in the workplace over the next four years.  

Contingencies The Budget refers to a number of new or changed quantified or unquantified risks. Examples are $105 million capital on border management, impact of Schools Plus, up to $84 million a year for school property, restructuring the rail industry, not-for-profit housing, funding for Courts in Greater Auckland, and five year action plan for out of school services.  

Summary This Budget is about personal tax cuts – and not a lot else. It shows that tax cuts even of this magnitude are costly - $2.7 billion a year. The forecasts show that the Government will run large cash deficits over the next 4 years, and the room for significant increases in social spending is constrained by lower revenue increases than previous years, and the tax cuts.

Carbon tax: a regressive hoax

The Labour government and the Green Party have been moving towards carbon taxes as a way of curbing greenhouse gas emissions. British Columbia in Canada has just announced the introduction of such a tax. However, this excellent editorial from the current issue of Canadian Dimension magazine makes some devastating arguments against carbon taxes. Evidence from British Columbia is that carbon taxes are simply passed on to working class people by the fossil fuel corporations. The “free market” doesn’t deliver any alternatives and the tax hits those who can least afford it most.

B.C.’s Carbon Tax: A Regressive Hoax The editorial in the current issue of Canadian Dimension magazine (May/June 2008) H.L. Mencken once wrote, “For every complex problem there is an answer that is clear, simple, and wrong.” British Columbia’s recently announced carbon tax is a case in point. It won’t reduce greenhouse-gas emissions and it will have no impact on global warming – but it will hurt working people and the poor. According to carbon-tax advocates, greenhouse gases are growing because emissions are free: corporations and consumers don’t pay when they use the atmosphere as a carbon waste dump. By imposing a price on products that produce CO2 and related gases, a carbon tax will cause consumers and corporations to adopt low-emission products or technology. Presto! Free-market magic works again! Even the most committed defenders of carbon taxes agree that this kind of tax will only work if two conditions are met: The tax must be high enough to cause buyers to switch to alternatives, and there must be alternatives available at prices buyers can afford. Neither is true for the B.C. plan. The budget proposes a tax of $10 per tonne of emissions this year, rising to $30 per tonne in 2012. For gasoline, this works out to 2.4 cents per litre this year, rising to 7.2 cents per litre in four years. By way of comparison, the average retail price of gas in Canada, adjusted for inflation, has risen forty per cent in the past five years. The increase is the equivalent of $120 per tonne of emissions – four times as much as the maximum tax proposed in B.C. But consumption did not decline. In fact, during the same period both gasoline sales and greenhouse-gas emissions rose to record levels. In effect, we’ve already tried a much tougher carbon tax than B.C. is proposing – and it didn¹t work. Corporations passed the cost onto customers, and wealthy consumers absorbed higher prices easily. Working people and the poor tightened their belts, spending less on other things. Why has the demand for petroleum products been so inelastic, so unaffected by price increases? Because, contrary to the carbon-taxers’ wishful thinking, the much-vaunted free market did not deliver alternatives. Despite oil prices that have risen farther and faster than any tax advocate proposes, the market has not given us clean energy, or low-emission cars, or cost-effective carbon-capture technology, or universally accessible mass transit, or energy-efficient homes and offices. Cities continue to be designed around roads and single-passenger vehicles. The main thing that the market has produced in response to rising oil prices is the Tar Sands. Rather than investing in clean energy, corporations are putting billions into the biggest, dirtiest industrial project in the world. Could the B.C. government use carbon-tax revenues to expand public transit and other alternatives? Perhaps – but what it is actually doing, as recommended by carbon-tax advocates, is cutting other taxes so that the carbon tax will be “revenue neutral.” Businesses will do particularly well: not only are their taxes being cut, there are no restrictions on their ability to pass the taxes on to customers. As a nod to social justice, the plan promises “Climate Action Credits” to offset the carbon taxes paid by low-income people. However, as the National Union of Public and General Employees points out, credit payments will not keep up with annual tax increases; by 2012 low-income people will pay twice as much in carbon taxes as they receive in credits. In short, the B.C. carbon tax is regressive, shifting ever more of the province’s tax burden onto working people, while reducing taxes on corporations. It will do nothing to cut emissions or slow global warming. The liberal environmentalists who have endorsed this scheme should hang their heads in shame.

Let's campaign to remove GST from all food items

by Grant Morgan

Chair of RAM - Residents Action Movement

Great minds think alike.

Inside the RAM Executive the other week we were agreeing that one decisive move the Labour government could easily take to relieve economic pressures on grassroots people would be to remove GST on all food items in the upcoming budget.

Lo and behold, a couple of days later I see a statement from my old comrade Don Franks, now a Workers Party candidate in Wellington, saying: "In a land of plenty, basics like milk and cheese are becoming luxury items. If Labour wanted to implement tax cuts favouring workers, they'd whip the GST off food."

But as Don said, Labour won't do so because "they're a capitalist party who inflicted GST on us in the first place".

As Jim Anderton's Alliance Party used to regularly hammer home in parliament, GST is a regressive tax which impacts far more heavily on the base of society than on the wealthy elites. That's because the have-nots spend all, or almost all, their money week by week just surviving, and so their entire income is subject to a GST tax of 12.5%. By contrast, the haves spend only a portion of their income on living luxuriously. And only this portion attracts GST. The rest of their income, which might well be the biggest portion, is invested to make even more private wealth for themselves alone, and these investments (surprise, surprise) are excluded from the GST net.

So GST is an unfair, class-based tax designed to kick the grassroots in the guts so that the wealthy could have their top tax rate slashed from 66 cents in the dollar (as it was under Rob Muldoon's National government) to a present top rate of 39%. Yet to hear the screams of the elites, you'd think that a top rate of 39 cents in the dollar was almost tipping decent society into the red-hot fires of full-blooded Communism. If GST was dropped from food, this would benefit the have-nots most of all, which is why the haves always call for a cut to income tax (especially the top rate) rather than GST. The wealthy always protect their own class interests, never mind about the poor.

As chair of RAM, I would urge a united campaign to compel the government to remove GST from all food items. I would like this to be supported by all left-wing groups, trade unions, social movements and others concerned about the increasing hardships of people who cannot keep a roof over their heads as well as feed their families.

I'm not sure if the Maori Party and/or the Greens have already made such a call in parliament. (Can anyone tell me?) If they have called for GST to be knocked off food, let's back them up and spread what they've said. If they haven't, then c'mon Tariana, Pita, Hone, Te Ururoa, Jeanette, Sue, Keith and the others, how about you all supporting this call?

Such a united campaign would go a long way towards challenging the basic "more market" ideology that is driving both Labour and National, and in its place start to create an alternative vision of a human-based society.

Britain’s largest corporations pay no tax

by Jean Shaoul from World Socialist Web Site 4 November 2008 A massive 220 firms, almost one third of Britain’s largest 700 companies, including Cadbury, Standard Chartered Bank and British American Tobacco, paid no Corporation Tax in 2006-2007. In addition, a recent report from parliament’s Public Accounts Committee reveals that a further 210 firms paid less than £10 million each. Just 50 firms (7 percent) paid 67 percent of the total. These firms came from 3 of the 17 industry sectors: banking, oil and gas, and insurance. Small and medium-sized businesses paid nearly half of all Corporation Tax. Not only did large corporations pay just 56 percent of all Corporation Tax, but they paid £0.5 billion less in real terms than in the previous year. Corporation Tax from large firms raised just £23.8 billion in 2006-2007. Her Majesty’s Revenue and Customs (HMRC) spends just £28 million in collecting tax from big business. The Missing Billions: The UK Tax Gap, a report prepared by Richard Murphy of Tax Research for the Trades Union Council (TUC) in February 2008, examines the accounts of the 50 largest companies, and calculates the tax lost to the government from tax avoidance by the very wealthy at £25 billion annually. This comprises £13 billion from tax avoidance by individuals and £12 billion a year from the 700 largest corporations—and the figure is rising. Corporations can avoid tax because they operate internationally. This allows them to trade between their various subsidiaries at prices that enable them to report profits in low-tax countries, a practice known as transfer pricing. Tax is payable in the country where the parent company has relocated its activities for tax purposes, not where the profits were generated. Up to 60 percent of world trade is undertaken to redirect profit from where it is generated to where top management wants to locate it in the interest of lowering costs, including tax costs. The accounting rules mean that there is no disclosure of any intra-company trading that facilitates such transfers. Tax Research found that nearly all the 50 largest companies paid 5 percent less than the amount they declare as payable in their accounts. Their effective tax rate, the amount actually paid, was about 22.5 percent, not the 30 percent set by Parliament, and fell by 0.5 percent a year over the previous seven years even though there was no change in the tax rate. By 2011, when the new higher rate of Corporation Tax for small and medium-sized enterprises (SMEs) reaches 22 percent, big business will be paying a lower proportion of their profits on tax than SMEs. Based on the de facto as opposed to the official tax rate, the UK ranks 16th highest in the European Union, with France the highest and Malta the lowest. It means that for all practical purposes, the UK—with the exception of Ireland—has the lowest Corporation Tax rate in western Europe. The report estimates that the cumulative tax savings of these 50 largest companies was £47 billion, £2 billion more than the total Corporation Tax paid by all companies in 2006. In addition to the £25 billion lost revenues resulting from personal tax and corporate tax avoidance in the UK, a further £8 billion a year is lost as a result of tax planning, whereby the wealthiest—those earning more than £100,000—take advantage of the opportunities provided by Britain’s tax laws to reduce their tax rate. It states that the rich can “make a disproportionately greater and more lucrative use of tax planning than those on lower incomes. In particular, those on higher incomes who control their own businesses have more scope to plan their tax than those who pay tax primarily through PAYE [pay as you earn, whereby tax is deducted by employers].” They do this by some combination of: • Shifting income from the person who should pay the tax to someone else, which probably leads to a loss of tax revenue of at least £3.2 billion a year. • Moving transactions out of Britain. This is believed to result in a tax loss of £4.3 billion a year. Changes to the rules announced in the 2007 pre-Budget report will cut this to a measly £500 million a year. • Changing the nature of the transaction so that it is subject to Capital Gains Tax, not income tax, resulting in a tax loss of about £1.8 billion. • Deferring income. • Obscuring the nature of the transaction. • Abusing the law relating to limited companies. To get some sense of perspective of what all this means, the amount lost due to tax planning by those earning more than £100,000 a year would increase child tax credits by enough to halve child poverty. Recovering just under half the total amount lost due to tax avoidance would be enough to increase the state pension by 20 percent, or reduce the basic rate of income tax by 3p in the pound or build another 50 hospitals. Unpaid tax by the rich and major corporations costs every British worker at least £1,000 a year. Corporate refusal to pay tax is not just a British but a universal phenomenon. A report by Christian Aid, Death and Taxes: The True Cost of Tax Dodging, published earlier this year, argues that illegal tax evasion by companies is depriving the world poorest countries of US$160 billion a year. The sums lost globally due to tax evasion, which is illegal, are approximately equal to nearly one and a half times the amount of foreign aid given to poor countries. Adding in tax avoidance, which is entirely legal, this would be several times greater than all foreign aid. The money lost due to illegal tax evasion could save the lives of 350,000 children, 250,000 infants, every year. Christian Aid Director Daleep Mukarji said that “illegal, trade related tax evasion alone will be responsible for the deaths of some 5.6 million children under the age of five between 2000 and 2015.” The charity blames the secrecy offered by more than 70 tax havens around the world for the widespread abuses and accuses the international accountancy firms of facilitating the evasion, often illegally, as the US$450 million tax fine on KPMG in the US illustrates. Raymond Baker, someone who without blushing describes capitalism as “the greatest economic arrangement ever devised,” writes in his book, Capitalism’s Achilles’ Heel, that Western governments and banks are failing in their duty to police the system. “Falsified pricing, [tax] haven and secrecy structures and the illicit movement of trillions of dollars out of developing and transitional economies break the social contract…that Adam Smith incorporated into the core of the free market system,” Baker notes that 6 out of 10 US corporations pay no tax and that advanced countries could make massive inroads into world poverty by tackling the abuse of the tax and banking systems. In the final analysis, tax payments by business represent a deduction from the surplus value extracted from the working class and available to the capitalist corporations and their owners in the form of profit. Any reduction in tax payable—or more importantly, tax actually paid—represents an attempt to increase their profit or the rate of return on capital employed. During the post-war period, when profit rates were rising or at least not falling, corporations largely paid their taxes. But in the 1970s, as the absolute amount of capital employed in modern industries rose, the rate of profit began to fall. Corporate bosses sought to counter this by moving production overseas, cutting out swathes of the workforce, slashing wages, gutting working conditions, driving up productivity and eliminating their rivals as a way of restoring and then increasing the level of profit available for distribution to their shareholders. Later, they turned their attention to undermining and eliminating the welfare state. Facing little opposition from trade union leaderships that have become ever more craven and openly part of management, major corporations demanded that governments cut taxes and employers’ contributions to social insurance funds. The mega-rich insisted upon, and got, a reduction in their own personal tax via cuts in the top rate of income tax at the expense of ordinary people. Not only do the financial elite not “pay their way,” they make others pay for them. Governments everywhere have clawed back the billions lost in corporation tax via regressive taxes on the consumption of basic goods and services that have hit the poorest families the hardest. The corporate and financial elite have become ever more venal, parasitic, and indifferent to the long-term consequences of their actions. With methods that have more in common with criminals and gangsters, they lie, cheat, steal, cook the books and break the law to avoid paying taxes. Since Labour came to power in 1997, it has followed the policy of previous Conservative governments and shifted the burden of taxation from the rich to the poor. It has cut Capital Gains Tax from 40 percent to 18 percent and introduced a new entrepreneurs’ relief scheme, which will tax the first million of capital gains at just 10 percent. Corporation Tax will fall from 30 percent to an all-time low of 28 percent for the tax year 2007-2008. It has lifted the inheritance tax threshold from £300,000 to £700,000, and refused to lift the cap on the highest rate of Council Tax, payable by all householders. More tax is now paid in the form of income tax and, even more importantly, consumption taxes such as VAT, which affects the broad mass of the population far more than the rich. Government statistics show that the top fifth of households paid just 25 percent of their gross income in direct tax (income tax) while the bottom fifth paid 9 percent. The disparity of the burden of consumption taxes is much greater. It accounts for only 11 percent of the income of the top one fifth of households, but 27 percent of the bottom fifth. Thus the poorest pay the same combined percentage of their income in taxes as the wealthiest. Average Corporation Tax receipts have been a mere 3.3 percent of GDP for the last decade. While the government loses no opportunity to attack those who abuse the benefits system, it has allowed tax avoidance by the very rich to grow to a massive £47 billion.