While they align with the ideals of the Labour-Greens, Gareth Morgan’s tax proposals go further than any party in Parliament would dare to propose

While they align with the ideals of the Labour-Greens, Gareth Morgan’s tax proposals go further than any party in Parliament would dare to propose

As Labour looks to clean up the edges of the tax system and the Greens look further afield with a capital gains tax and income tax floor, The Opportunities Party has challenged the policies of the left with a radical plan to tax wealth. 

Gareth Morgan is bringing his equity-based tax system to this year’s general election in the form of The Opportunities Party. Morgan argues that the contributions the current tax system demands from taxpayers are disproportionate to both their productive impact on society and their ability to pay. Wrapped up in this problem is the housing ownership gap: a family with a $5 million house but $0 income will pay no tax (besides rates), while a family with no assets but two adults earning $50,000 each will pay $16,040 tax. The Opportunities Party contends that this is unfair, and they would demand a larger tax contribution from those with lots of wealth, not just those with high incomes.

Morgan’s solution is a tax on wealth. Both individuals and businesses will have a minimum rate of return deemed on their productive assets – including housing and land. “Those that already declare at least that level of income will be unaffected. Those that don’t will pay more.” The increased tax revenue this would bring in would be accounted for by a corresponding decrease in income tax.

Morgan has said that he doesn’t intend to be a politician, he just wants to bring his ideas (chiefly TOP’s flagship tax policy) into the mainstream. If they are to be implemented, they would probably have to be picked up by one of the two major parties. The amount of political will required to radically shift the burden of tax revenue would be enormous.

How do TOP’s tax changes compare to the tax policies proposed by other parties so far? Next to TOP, the changes proposed by parties already in Parliament seem more familiar.

Of all the parties currently in Parliament, Morgan’s tax plan lies closest to the Greens. Having stuck with a Capital Gains Tax policy as a central tenet of their economic plan since 1999, they maintain that taxing income from the growth in value of capital assets is a fair way to redistribute wealth. However, their vision is not as broad in scope as TOP’s – their capital gains tax policy would support an exemption for the family home (the largest store of wealth for most property-owning New Zealanders). Either way, the capital gains tax is not the same as TOP’s proposal, which would tax a proportion of the value of the asset itself.

Though the Greens have not updated their tax plan since 2014, the fundamentals of their economic vision have not changed since they first came into Parliament. One of these fundamentals is a commitment to redistribution, particularly in easing the financial burden on the poor. The Green Party would “introduce and progressively increase a tax-free threshold up to $10,000 at the bottom of the income tax scale,” shifting the burden off some of New Zealand’s lowest earners. While it aligns with The Opportunities Party’s core ideal – shifting the tax burden onto those who can best meet it – an income tax floor stands at odds with Morgan’s proposals. According to him, the current tax system rewards those with high wealth and low income at the expense of those with no wealth and high income. The Green’s tax floor would advantage the former group, small as it may be. This leaves out of the equation the advantaged class of people (high wealth low income) who TOP have targeted at the centre of their platform.

If their tax is more redistributive than that of the Greens, how does TOP’s tax plan stand up next to Labour?

Though Labour still fly the banner of redistribution, the party’s experience with the capital gains tax in 2014 has ensured that they’ll stay far away from a radical tax change for now. Instead, they’ve focused on clearing up the edges, changing the way certain taxes are levied.

Tweaking the edges of how tax is paid rather than what it is paid on does not substantively change the distribution of wealth in New Zealand. This is at the core of TOP’s criticism of establishment economic policy, from both Labour and National. Labour are no longer proposing using tax as a tool to combat the imbalance between property owners and ‘generation rent’.

Labour’s tax policy would leave the revenue base largely unchanged. The party would abolish secondary tax, putting money back in the pockets of people who work two or more jobs. Though the absolute amount of tax paid by workers with multiple jobs would not change, having the additional income available throughout the year makes a difference for many people working low-wage jobs.  Furthermore, many people currently paying secondary tax do not know they can claim back what they have overpaid, and miss out on a tax refund at the end of the year.

Currently, people with two sources of income pay a flat tax rate on their second job, even if their total income does not place them into that tax bracket. At the end of the tax year, these individuals can file tax returns and have the balance restored, receiving a tax refund for the amount by which they were overtaxed. This way, they should pay no more tax than someone with one job who earns the same total income.

Under Labour’s plan, this would change. Rather than paying the highest rate on their second income and having to file a tax return at the end of the year to get the balance back, people working multiple jobs could simply pay the correct tax rate during the year. The planned modernisation of the IRD would make this change possible, and technical updates mean that it will probably happen eventually no matter who is in government.

This policy does not so much lighten the tax burden on those working multiple jobs as change when the burden is levied. Those working multiple jobs are often those struggling hardest to get by. Labour has recognised this, but changing the method by which these people are taxed will only go a small way to alleviating their tax burden. This is one of the imbalances which TOP has focused on: “Low-income families too often find themselves doing multiple jobs just to afford their rent let alone have any chance of owning a home. Their tax burden is way too high. Not just a little high – it’s way too high.”  Abolishing secondary tax is a good step forward, but ultimately will not go far to change the material conditions of many struggling to get by.

By contrast, TOP’s answer to the problem of secondary tax is an as-yet-unquantified decrease to income taxes – possibly at the lower end. If the promised decrease was to benefit those earning the lowest incomes, that would place TOP alongside the Greens in prioritising low-income earners for tax breaks. The crucial difference is that TOP’s tax break would come alongside a tax on wealth itself.

On the business side, Labour have promised to change the structure of withholding tax. Their policy has three parts:

  1. An entirely flexible voluntary withholding tax, to let businesses meet their tax obligations at a rate of their choosing and on their own timetable.
  2. Raise the threshold for businesses to pay provisional tax from $2500 to $5000.
  3. Remove late payment penalties on provisional tax.

This change to company tax would not change the amount of tax to be paid by businesses (still 28%), just make the tax easier to pay. This lowers the compliance barriers for business rather than changing the type of revenue collected. The changes in the amount of tax collected – the removal of late penalties and lifting of threshold for provisional tax from $2,500 to $5000 – are relatively small. They would not cause major changes in business behaviour or significantly alter the distribution of wealth.  If anything, Labour’s tax policies would slightly decrease government revenue. By contrast, TOP’s tax on the equity owned by a business would levy an additional tax burden on companies under utilising their capital assets.

Even with the differences between the tax doctrines of the left parties in Parliament and Gareth Morgan’s proposals, TOP would fit better with the Labour-Greens-NZ First bloc than with the immigration friendly, low-tax parties of the right. The radical nature of the TOP tax programme means that Gareth Morgan, should he enter Parliament, may take on a role similar to that of David Seymour: a one-seat support for the major parties with a tax policy too unorthodox to ever be considered viable.

  Green (as of 2014) Labour The Opportunities Party
Income Tax Introduce and progressively increase a tax-free threshold up to $10,000 at the bottom of the income tax scale, simplify rates in the middle bands of the tax scale, and increase the top rates of income tax. Remove secondary tax Income tax would be reduced as capital tax increases.
Business Tax The Green Party supports company tax as an integral component of New Zealand's tax system.

An entirely flexible voluntary withholding tax

Raise threshold for businesses to pay provisional tax from $2500 to $5000.

Remove late payment penalties on provisional tax.

Tax on deemed minimum return on all productive assets.
Tax on Capital Capital Gains Tax (family home exempted) None Tax on deemed minimum return on all productive assets.

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Ms Wiener - you say a "" policy too unorthodox to ever be considered viable"". You mean like universal education, abolition of slavery, women's vote?

Surely once the 80% of the population realise they will be better off and the remaining 20% of pensioners like myself although worse off financially most will be happy to live in a more equitable society and a society where our children and grandchildren have a better life.

The fact that his policy is simple, universal and tax total neutral will also appeal.

Which is not to say I don't have reservations - but surely a discussion worth having.

I don't understand the continued rhetoric that this policy is aligned towards the left. One reporter claimed it was a 'far-left' proposal. I would've expected that this is the kind of policy that ACT should champion, but are not. Frankly, it seems to me that it lies straight down the centre (and it will help middle class New Zealanders the most). It is simply rational and reasoned policy. Whether or not it is a good idea remains to be seen.

The most negative affected from my view are those who have been planning around their homes for their retirement. But wealth figures put those 65+ in the highest deciles as well as the most diversified financially. Not to mention Super which has a huge premium on normal benefits.

I agree - it is not a left wing policy. All tax systems take from some and give to others; what TOP propose would lead to a narrowing of the gap between the rich and the poor and would do so with minimum of complexity. ACT and National seem to prefer a system that takes from the poor and gives to the very rich.
Isn't this the answer Thomas Pinketty has recommended - otherwise it is a return to the middle ages with a small number of very very wealthy nobles and everyone else serfs totally dependent on them.

Poorly-educated reporters, and/or vested interest.

We are talking about the introduction of a wealth tax. Can you please explain how that is not left wing.

Agreed. Apparently there are some big differences in what people think "left" means.

All taxes are taxes on wealth, one way or another. This simply rebalances some of the tax burden off workers who cannot get out of it onto those who often do.

Quite why someone should suppose that almost all tax should be leveraged on workers' income is....well, it's no mystery at all, is it?

On the other hand, you see folk on Interest.co.nz bragging of how their wealth has increased through property, yet they squeal at the thought of contributing back some of that wealth with which society has imbued their land.

A problem with it is that many people have made a choice (over many years of working life usually) of spending their already tax paid income to have a lifestyle afforded by owning a home and land. The principal reason in many cases is not financial gain. Consider too that as these homes rise in value, local body rates become a sort of capital gains tax anyway. The TOP policy would really have the effect of forcing many retirees and lower income home owners to sell as the proportion of tax saved from low wages was exceeded by that taken from capital.

I agree.

I find his taxes to be the very definition of an economic theory with no relevance to the real world.

He is making the almighty assumption that a persons "economic" utility is equal anywhere and everywhere. This is just not true.

Taxing a persons home (That is what it is, to most people) with the intent that they will downgrade/move regions, is just blissful ignorance of what a home is to the bulk of the population, and why they call that particular place home.

Will his tax stop people from moving near a good school? No
Will his tax stop people from wanting an ocean/city/mountain view? No
Will his tax stop people from wanting to live close to family/friends? No
Will his tax stop people from wanting to live near work? No
Will his tax stop people from wanting to live near public facilities (parks, event venues, sporting grounds, hospitals, etc...)? No

These are the reasons people move to an area, the more people that want them, the higher the price goes.

Taxing it will not lower the demand, it will just make the price of admission higher. All great if you have the money like he does, not so good for the working populace.

Taxing houses does not lower the price, it merely restricts ownership. Just look at Stamp Duty, CGT, and land tax. I am yet to see one implemented anywhere on earth that has resulted in a property price decrease.

TOP could stand for Tax Our Populace, Top One Percent, or Terrible Oppression Party. But it sure isn't creating any opportunities for the average Kiwi. It is just burdening them with yet higher costs.

A person's economic utility: well at present my son a hard working labourer gets up early to do heavy work in the cold and wet and everyday he is at risk of a downturn in the construction market and everyday he risks injury that would leave him without income. Meanwhile earning more than 20 times more are the bosses of ATEED in their warm offices with no risk to their employment, with pleasant female secretaries to make them coffee and field all their emails. And my son is brighter than they and best of all he doesn't speak and write jargon but communicates clearly what he is thinking.
Today our society is not fair; 50 years ago a friend arrived in Auckland, he spent his whole life as a carpenter and had his own house on a large section with swimming pool and four children and a good life with fishing and voluntary charity work. He never earned as much as say a doctor but in those days all incomes were much closer to the average and anybody willing to work could have a good life.

Well if your son is as smart as you say he will do fine in life. Maybe he enjoys being a builder and money is not everything. If not he should be smart enough to change path and improve his life

You dont get it do you. The house tax is about equality. The home owner lives tax free...the renter doesn't. Until you can get your head around the unfairness of that, your rants merley show you inability to grasp a concept.

The same extends into the wlefare sytem....the value of the home excluded from an income test..once again, the home owner is kilometers ahead in equality terms.

How is it unfair?

I am not saying the current prices are fair, they are not. But a tax will not fix that.

Taxing houses will not create equality, it will remove that. Taxes raise prices, i.e. prices increase - how will that make it more equitable?

No a tax will decrease house prices as they will be valued on what they are, not what the tax distortion does.

Spend some time to get your head around the tax side. If I rent and have $500 k in bank and use the income to pay my rent...I am still taxed on the interest. if I have a home at $500k I pay no tax on the 'interest'. The interest in this case being the value of the return on my home. One 'income' source is taxed, one is not.

"One 'income' source is taxed, one is not."

Um, maybe because one is an income and the other is not. I derive zero income from my home - unless I sell it or rent it, so why should I be taxed?

Do you get taxed for the money you hold in your wallet, or the gold in your safe?
Do you get taxed for your car, boat, trailer, caravan, or ute?
Do you get taxed for coffee machine, lawn mower, fridge and TV?
Do you get taxed for your Stamp collection, Toy collection, Coin collection, or antiques?
Do you get taxed on Paintings, sculptures, or other art?

No you don't, for the sole reason that you don't earn an income from it.

You cannot just tax one asset, and not all others?

There is immense cost with owning a house, will I be able to deduct rates? insurance? repairs?, maintenance? compliance? and landscaping costs? What about mortgage interest? or legal fees?

Taxing non-income earning items is just plain idiotic. Even (what I would say is a pointless) CGT is still a million times better option.

If you ever come to sell the property, do you expect to sell the property for more than you paid for it?

Rastus, you don't need to waste time trying to be condescending. People who disagree do actually understand; they just disagree. As in, I do understand that Gareth Morgan has sucked you in to believing that imputed rent is real income, when it is not. He only does this so that he doesn't have to call his tax for what it is; a wealth tax.
The point noncents is making is that a person's home is personal. A person's decision to live next to the beach, build a bigger house, live in a school zone etc, are personal decisions. Morgan is trying to turn these decisions into business decisions, i.e. a retiree with no income (as in cold hard cash, not the imaginary income you talk about), will have to re-assess their HOME because it is not productive. Furthermore, the value will be assessed not on what could realistically be produced in the house, but on the market value, which is based on other people's personal decisions!

B-Rocker. Another who cannot get his head around a factual concept. Has nothing to do with disageeing or not. The distortion is fact based, not opinion or ideology based. Disagree on ideology if you like, but the tax distortion ir real...not an alternative fact.

Rastus... There is nothing "factual" about the idea that taxing pretend income removes a tax distortion...

That 'concept/idea" is in the Alice in Wonderland realm , as far as I can see... NOTHING factual about it.
Do you really think part of the reason people buy homes is to avoid some kind of tax..??

I bought my home to live in. (the idea of Capital gains was a part of my decision making ... and that is a different issue.) Taxing/not taxing pretend income had NOTHING to do with my decision making.

I'm curious to know how you "know" that your , so called, tax distortion is real...??. Please explain..??
My view is that is simply an intellectual idea/concept... and a bad one at that.

Would you say that the ability to live without paying rent did not factor into your decision to become a homeowner?

I don't know why you would assume that taxing property ownership would not reduce demand for it. Isn't that what you would assume in every tax?

Have I missed something or have the TOP party changed their policy from the Big Kahuna that Gareth was espousing earlier? In that he was proposing that everyone receive a benefit and everyone was free to earn as much as they wished thereafter, thereby simplifying the benefit systems removing a lot of administration costs and most importantly removing the poverty traps of the present working for families and housing supplement, I.e. everyone is encouraged to get out, work and make as much money as they want to and is not trapped in the welfare system. I am sure that with a system like this we would not be hearing complaints that kiwis are not willing to work.

Their policy is not the Big Kahuna. It's the tax side of the Big Kahuna without the major reform of the welfare side - so none of those immediate and complete simplification of the benefits system. The reason given was that they needed to 'see' how much income the comprehensive capital tax brought in before such time as they could safely project/cost the UBI proposal. I think there was a bit of grumpiness from the Big Kahuna followers, and hence they released this policy proposal;

First Steps to a UBI – Thriving Families
http://www.top.org.nz/top7

But it's complex/messy to my mind - nothing like the simple, clean break from the administrative/welfare state that the Big Kahuna was.

"a family with a $5 million house but $0 income will pay no tax (besides rates), while a family with no assets but two adults earning $50,000 each will pay $16,040 tax. The Opportunities Party contends that this is unfair,"

That poor family with no income is going to have to pay about $20,000 in rates. I agree it is unfair, how are they supposed to pay rates with no income? by being forced to sell their home? The policy sounds nice but forgets that people are alive, not a host of robots who can be numbered and squeezed to get more efficiency out of.

That 'poor family' owns more wealth than I am likely to earn over my entire lifetime. So, yeah I don't have a problem with asking them to contribute to the tax coffers. It is explicitly stated on their website that they would pay the taxes on sale of the house or death of the owner.