JPD on the Budget for low-income earners

Budgets cover many items but a particular feature of the 2010 Budget was its changes to tax policy.

The Wellington Justice, Peace and Development Commission is concerned that people on low incomes, especially those on benefits, will experience increased hardship under the terms of the government’s Budget last month.
Budgets cover many items but a particular feature of the 2010 Budget was its changes to tax policy. These changes give tax cuts of some degree to most of those paying taxes. Additionally there will be an increase of indirect taxation via Goods and Services tax (GST) to 15 percent. The argument behind this is that those receiving tax cuts will spend or invest their extra income and that any loss of revenue from direct taxes will be made up by the much more efficient indirect taxation of GST.
Some extreme theories about taxation claim that any taxation is theft (‘I earned this money, what right have you to take it from me and give it to others?’). Some think that taxation distorts the ‘natural functioning’ of a market economy, so less taxation means more people will spend or invest their money for the benefit of all. This thinking flows from the discredited idea that markets function best with little or no regulation. The recent and ongoing financial crisis has shown the shallowness of this view. Pope Benedict also criticised it in his recent address to the Pontifical Council of Social Sciences (April 30, 2010) following his broader critique in the encyclical Caritas in Veritate (2009).
The general principles about taxes in Catholic social thought are that they are a necessary way to share resources and ensure equality of opportunity in society; that taxes should be progressive (those with more, should pay more); and that taxes should be used to protect the most vulnerable members of society (cf Dictionary of Catholic Social Thought, 1994, p.934). The belief that taxation is aimed at building up the common good is based on the biblical idea that we are members of one family under God. In this understanding the economic, social and political spheres are formal, structured ways to care for our brothers and sisters.

Fewer people carrying tax burden
Recently the government set up a tax working group to canvass ideas about changes to the tax system. There was clear evidence that wealthy individuals could find ways to pay little or no tax so that the burden of direct tax falls on fewer people.
However, despite all the discussion and the plugging of some loopholes, the government has backed away from taxing capital gains (and therefore of those who make large profits) and stayed with the GST rise. This may be a ‘broad-based’ tax but it is one which will always hit those on low incomes harder. In terms of ordinary justice and of Catholic Social Teaching this is unacceptable.
On top of the GST rise are the rising prices of food (New Zealand Council of Christian Social Services Vulnerability Report, March 2010) and Emissions Trading Scheme costs. For those on low incomes, especially on benefits, desperation and debt are just around the corner. Any sudden illness or cost (new shoes, dentist bills, etc) can push a family into greater difficulties. In 1991 there were huge cuts in the welfare budget and these have never been made up. In the face of the GST rise and the other price rises the great probability is that inequality and poverty will increase in Aotearoa.
While NZ does need to watch its debt levels there are signs that a different approach could have been taken in the Budget. Research done by the NZ Council of Trade Unions ( Economic Bulletin #112, April 2010) shows that New Zealand is not at the worst debt levels for the OECD and government income has been better than expected in some areas. This means there is room for more generosity to those on low incomes or in special need (sickness beneficiaries, those with mental health difficulties).

Ensuring common good
In the Catholic social teaching tradition we see good government not first in terms of increased spending. Rather we see the role of government as first ensuring the common good of all citizens (nowadays this has a global dimension, taking account of the good of the earth and those outside our national boundaries). Looking to the common good must involve more public transport, ensuring people have the necessities of life, healthcare, education and the possibility of fully participating in the life of our society.
It seems the general principle in the Budget is that making things easier for those at the top and in the middle will benefit the whole of society (the benefits will trickle down to the neediest). But what if we looked at things differently? If we listen to Pope Benedict’s call that ‘the poor are not to be considered a burden’ (CV 35) could the first question be: ‘How do we best look after those in greatest need?’
Benefits could be raised. Infrastructure spending could be focused not just on roads or broadband internet but on renewing the public housing stock for families and the growing numbers of senior citizens (cf Centre for Housing Research, Aotearoa New Zealand, workshop, 2009). This would be a valuable economic stimulus and meet long-term need.