“Despite being turfed out of office more than a decade ago, and having faced a humiliating defeat on the issue of a capital gains tax, Michael Cullen still wants to tax successful New Zealanders harder”, ACT Leader David Seymour says.

Cullen wrote to the NZ Herald today attacking ACT’s Freedom to Earn tax plan which would deliver a flat rate of income tax, and a company tax rate, of 17.5 per cent, complaining that it would mean tax cuts for high income earners.

“Tax cuts benefit those on higher incomes more because they pay more tax in the first place. Cullen also neglects to address the inherent unfairness of a tax system in which 5 per cent of taxpayers pay a full third of all income tax and 19 per cent of taxpayers pay no net tax at all.

“Even more curiously, he says that ‘most developed economies have a more redistributive tax system, higher incomes, and higher productivity than New Zealand.’

“Cullen seems to be saying that progressive taxes and large-scale redistribution leads to higher productivity and wages. It doesn't seem to occur to him that the opposite is the case: higher productivity and wages means a country can afford to pay for better public services. 

“National and Labour governments have given us progressive taxes and more welfare for eight decades. The previous National Government even boasted that it had made the tax system more progressive. We spend $34 billion a year on welfare and social security. Yet, New Zealand has suffered from low productivity growth and wages for years.

“If anything, the lesson is that more tax and more welfare make us poorer as a country. The economics literature bears this out. The simple fact is that history proves Cullen wrong.

“ACT believes that social engineering in the tax system is one reason productivity growth is so weak. A family can pay 33 per cent tax and lose 25 per cent to abatement. If you only keep 42 cents out of your next dollar, working, saving and investing looks less attractive.

“The tax system sends a bad message to all New Zealanders about effort and reward: If you work, save and invest, the government will take more and more money off you. On the other hand, if you drag your feet, you’ll pay less tax and be given money for free.

“In addition, having four different income tax rates, and a company tax rate that is different again, leads to enormous complexity and people attempting to game the system. This activity does not make us wealthier. In fact, fighting with the IRD over tax makes us less productive.

“ACT’s Freedom to Earn plan will mean there is only one tax rate – 17.5 per cent. The message will be clear: you must make a contribution on every dollar, but your money is primarily your own. The government will not take progressively more of your money as a punishment for success. A company tax rate of 17.5 per cent will make New Zealand one of the most competitive jurisdictions in the world, boosting investment, productivity, and, ultimately, wages.”