Coronavirus: 'We hope to be proven wrong' - Poverty advocates push for tax reform amid pandemic

The Government is being urged to use the COVID-19 response as a chance to reform the tax system and fight poverty.

Already billions of taxpayer dollars have been spent keeping businesses afloat and people in jobs during the lockdown, and the Budget - to be delivered this Thursday - is expected to keep the cash flowing.

But there are concerns on who'll pick up the bill.

"The New Zealand economy is in the midst of the deepest recession we've seen since the 1930s," economist Cameron Bagrie told The AM Show on Monday.

Labour MP and Finance Minister Grant Robertson last week said the Government would likely have to run deficits "for an extended period" - Bagrie says it'll be five to 10 years.

"The numbers are going to look terrible. Net Government debt is going to go up from $70 billion to $170 billion... I think the Government's going to be running a $30 billion deficit in the next fiscal year as spending splurges and tax revenue collapses. That's going to be a tax on the next generation if we don't get the economy moving and flourishing on the other side."

Bagrie floated raising the superannuation age - which Robertson last week ruled out - and selling assets, a course of action Labour vigorously opposed while in Opposition.

Robertson's also ruled out tax cuts to boost private sector spending, and the Government has in the past also ruled out introducing a comprehensive capital gains tax.

Ricardo Menéndez March of Auckland Action Against Poverty says the Government needs to rethink its past reluctance to do more than tweak around the edges.

"All indications point to Grant Robertson not delivering any significant changes to the tax or welfare systems, which is disappointing," Menendez March, who'll be standing for the Green Party in this year's election, told Newshub.

"We hope to be proven wrong. We are pleading to the Government to make the most of the opportunity and not leave a whole generation growing up in hardship." 

Selling assets should be off the table, he said.

"In these times this is what Governments have often relied on, and this is a very short-term way to stimulate the economy. In the long-term what we lose are assets that are in public hands... taxpayers will become poorer." 

Ricardo Menendez March.
Ricardo Menendez March. Photo credit: The AM Show

And rather than boost regressive consumption taxes like GST, petrol and tobacco taxes, he said the Government should target wealth. 

"Even revisiting the capital gains tax at this point would be something we would be calling for. I know the Government's said they wouldn't be looking into it, but I think the circumstances now means they do have to be looking at better ways to be distributing wealth."

Menendez March's potential future boss, Green Party co-leader James Shaw, at the weekend said "the quantum of capital that we're currently injecting into the economy" would need to be paid back by future generations, so it should be spent in ways that would "serve their interests".

Justin Latif of the Child Poverty Action Group (CPAG) agrees, but said the question of how we end up paying for it isn't the most pressing right now.

"We can talk about who's going to pay for what, but there's almost too many unknowns in terms of the global economy, in terms of our own economy, how COVID-19's going to affect all of us. We don't even know if a vaccine can be created. There's a lot of question marks."

Right now, he told Newshub, it's vital the Government does what it can to make sure more youth don't end up in future child poverty statistics. 

"We are now seeing a larger number of people who are going to be affected and potentially larger numbers of children in poverty. We're not just advocating for 170,000 children now - we are accepting that number could swell far higher... 

"The Government has to probably invest more up front, and quicker, than this slow piecemeal approach that has been taken. We understand the political pressures and why this piecemeal approach has been taken, but I feel like in a time of crisis, you actually need to be thinking about doing more to right the ship. When the boat is leaking, you don't ask how much it will cost to fix."

CPAG doesn't have specific demands around increasing taxes, but Latif said it would help if the burden was "shared more broadly" - in effect, making the rich pay a more and the poor less.

"A progressive tax system which includes other aspects of taxing people beyond just wages is something we're in favour of... It's better to focus on the investment and think about how we pay for it in coming years and not get caught up in the detail. Not to kick the problem down the road, but we don't know what the problem is totally at this stage."

One specific way that could be done is to introduce a "net-equity housing tax", he said.

"This method taxes net equity in an asset at a fixed rate each year.  Extending the tax base in this more limited way would generate much of the revenue expected from a comprehensive capital gains tax, while circumventing some of the issues with a CGT. 

"Broadening our tax base will be crucial in the coming years, not only for generating revenue but for shifting our economy away from being so reliant on the housing market as a way to drive wealth in this country."  

The Budget will be delivered on Thursday afternoon and Newshub Nation will have a Budget special from 2pm.