Andrea Black is a tax commentator - letstalkabouttaxnz.com - and former Independent Advisor to the Tax Working Group - who has been exploring current tax policy issues and more recently what tax fairness could look like in a world without a capital gains tax.
In a previous post she explored what policies she would support if she were ever elected as leader of a tax party. In this post she explored how any youth wing might look at things
Kia ora koutou
Andrea has handed over to us on the youth wing of the Andrea Tax Party for this week’s blog post so we can set out our views on tax.
What she proposed is ok but we can’t help feeling it was more than a little influenced by her Gen X, neoliberal, tax free capital gain and imputed rent earning privilege. A bit like the recent Budget – more foundational than transformational.
But we have also worked out that – by definition – any capital gains tax that applied from a valuation day or worse still grandparenting would have hit any gains our generation would have earned rather than the gains that have arisen to date.
And don’t get us started about the exemption for a family home. The only members of our generation who will buy a house – with exorbitant mortgages – are those whose parents can help financially. Again more revealed Gen X privilege.
So we aren’t super sad it is off the table.
TOP are still promoting an alternative minimum tax and CPAG want to tax a risk free return on residential property. Both reasonable and we may yet move over to them but it the meantime we are seeing if we can do better.
This is what we are thinking:
Land tax on holdings over $500,000. Limited targeted exemptions.
This was a proposal under National’s tax working group (see page 50) in 2009/10 that was also then ignored by the Government at the time.
The deal is that there would be a tax on the value of land. That’s pretty much it. There could be exemptions for conservation land, maybe land locked up for ecological services and Maori freehold land.
The last one might be controversial but we are completely over the race baiting that goes on anytime different treatment for Maori assets comes up. Settlement assets were a fraction of that taken by the Crown and until such time as Maori indicators – not the least the prison population – gets anywhere near non-Maori, we are open to different treatment to improve outcomes.
As this tax is certain what tends to happen is that the price of land falls by an NPV of the tax. The effect therefore is the same as a one off tax on existing landowners. And to be honest – we’d be open to that. Seems much lower compliance cost something Andrea and her friends get so excited about.
Now we know there is an argument that because of the effect on existing land owners – this is unfair.
However to a generation locked out of land ownership in any form due to the high prices – we are deeply underwhelmed by that argument. It was equally unfair that existing owners got the unearned gains over the last 10 years or so. And yes they might not be the same people who are affected – but again – underwhelmed.
So all holdings of land over $500,000 – other than those mentioned above – will be subject to a land tax. And honestly maybe we have the threshold too low.
GST – no change
This one causes us pain.
We really want to drop the rate as poor people spend so such more of their income than rich people. But rich people who might be living off tax free capital gains still have to buy food – and they spend more on food than poor people. So a cut in GST is – in absolute terms – a greater tax cut for the rich.
However the prevailing wisdom that increases in GST don’t matter if you increase benefits is also BS. This is for a couple of reasons:
Benefits – until this Budget kicks in – are increased by CPI but low income households have higher inflation than high income households.
Benefit increases do not survive National Governments. The associated rise in benefits from the GST introduction were unwound by the benefit cuts in 1992 and more recently benefits were eroded through changes to the administration by WINZ.
And even Andrea witnessed the changed behaviour of WINZ as she was in receipt of the Child Disability Allowance from 2007 to 2012. She went from having a super helpful empathetic case manager to having the allowance stopped when they lost her paperwork.
If anyone wants to argue instead that the last government increased benefits – bring it on – because if that is how Andrea was treated by them just imagine how WINZ behaved to people who weren’t senior public servants.
So we are recommending no change here unless there was some way of making it progressive.
Inheritance tax on all estates over $500,000
Andrea might be fixated with taxing people when they are alive but all this means is that the huge untaxed gains that have been earned get to be passed on to the next generation. And yes that might be some of us but anything to reduce the wealth inequality in New Zealand has to be considered.
We take Andrea’s point about this also applying to death of settlors (and maybe beneficiaries) but all estates over $500,000 will be taxed at the GST rate as it is inherently deferred consumption.
Make the personal tax scale more progressive
When Andrea started work in 1985 – as an almost grad – she earned $15,000 and paid $5,000 of that in tax. That is an average tax rate of 33% and probably a marginal tax rate of something like 45%.
She had no student loan because University was free. In fact she also got a bursary of about $700 three times a year. There was no GST.
Grads in 2019 start on about $50,000. Income tax is about $9,000. This is an average tax rate of about 18% and a marginal tax rate of 30%. Student loan repayments are 12% and GST is probably about 10% allowing for rent and savings. This gives a marginal tax rate of 52% which will then climb to 55% if they ever get a well paying job. So 10% higher tax than 1985 on pretty middling incomes.
We get that including student loans might upset Andrea’s tax friends but we are also guessing none of those people have 12% of their earnings going to Inland Revenue every pay day.
Team if it looks like a duck and quakes like a duck….
In fairness we also know her father in 1985 had a marginal tax rate of 66% although he got deductions for life insurance and ‘work related’ expenses. Now parents top out at 33% plus say 10% for GST – 43%.
We guess then parents should pay more but 1) not everyone has middle class parents 2) declining labour share of GDP and the ones who can are already helping us and that is a recipe for entrenched privilege.
So our policy proposal is:
2) Extend the bottom tax rate of 10.5% to $40,000
3) Increase the next tax rate to 25% from $40,000 to $70,000
4) Bring in a new threshold of 40% at $100,000
Or something like that.
The bottom threshold needs extending to include anyone who can still receive any sort of welfare benefit while also earning income. That reduction in tax then needs to be clawed back for higher earners and really high earners just need to pay more.
Emissions trading scheme
And please if there isn’t going to be any sensible carbon tax or any environmental taxes could we at least put a proper price on carbon in the Emissions Trading Scheme.
It is only human life on this planet we are talking about.
We think that is it for us. Andrea and her Gen X biases will be back next week.
Young friends of Andrea
This article is a re-post from here. It is used with permission.