The Opportunity Party's proposing a radical shake-up to the tax system through its tax reset policy. Brian Fallow takes a look under the hood

By Brian Fallow*

Elon Musk would envy the Opportunity Party. They are already on another planet. 

That reaction, or something like it, might well be elicited by an initial cursory look at the party’s most radical policy, the tax reset. 

Opportunity proposes a land tax which would make owning your own home even more expensive than it already is. Never mind that land is already a large, often the largest, part of the tax base for local government rates. 

And in a country where, the statisticians tell us, about half of the collective net worth of households consists of owner-occupied housing it sees the expected resulting fall in house prices as a feature, not a bug. 

Then to be told that the proceeds of the new tax would be used to pay people nearly $20,000 a year, called the Citizen’s Income, merely for the achievement of having survived at least 18 years, would add bemusement to that initial alarm. 

A closer look, however, may be less off-putting. 

Opportunity sees its tax reset as addressing three main issues. 

One is that we tax income, especially lower incomes, too hard. 

Second, the tax system treats as sacrosanct wealth which merely reflects decades of land price inflation, rather than any productive endeavour, even as it becomes ever more concentrated. 

Third is a welfare system which is bureaucratic and imposes very high effective marginal tax rates on beneficiaries who take on some part-time work. 

It says the combined effect of the land value tax and its version of the universal basic income idea would leave about 70 per cent of people better off and 20 per cent about the same, at the expense of the wealthiest 10 per cent. 

The Citizen’s Income could be seen as equivalent to introducing a large zero bracket at the bottom of the income tax scale. 

It would be accompanied by a simplified tax scale on earned income: 28 per cent for income up to $50,000, 34 per cent between $50,001 and $200,000, and 39 per cent for income above that. 

At the proposed level of $370 a week, the Citizen’s Income would cover the tax on the first $66,00 of earned income. 

Offsetting that, though, would be that Opportunity, like the National Party, wants to make KiwiSaver contributions compulsory and raise them to 6 per cent of gross wage or salary for both employees and employers. 

While not strictly speaking a tax, in that most of the money would go to managed funds not the Crown, it is still a compulsory impost on wages and salaries, like ACC. Opportunity's version would phase in the increases more gradually and, usefully, also phase in tax exemptions for the contributions. 

Still, the net effect is an income tax scale a lot less regressive than the current one. 

To pay for that, the land value tax would be struck at a rate of 1.75 per cent per annum for urban, and 0.5 for rural land. Opportunity reckons it would bring in about $24 billion a year.

The argument for taxing land rather than other forms of wealth is that unlike financial capital, or human capital for that matter, it cannot leave the country if you tax it too hard. 

What you would do is reduce its monetary value. Economists can have fun trying to model by how much. The party reckons 10 per cent to 15 per cent. 

Turning from the revenue to the expenditure side of the budget, transfer payments – welfare and NZ Superannuation – represent just over a third of it. 

The current system of benefits and tax credits, the party says, is complex, punitive and expensive to administer. 

The Citizen’s Income would replace many of the main benefits: Jobseeker Support, Sole Parent Support, Student Allowance and Supported Living Allowance. 

But, recognising that $370 a week for most people is not enough to live on, there would be supplementary payments. 

For parents with dependent children, child support payments would replace Working for Families, paid parental leave and Best Start. 

“They will be available for all parents, [and] are not reliant on parents attending work training or study, nor children attending daycare services. This saves extensive bureaucratic costs and gives parents more freedom of choice.” 

Opportunity reckons the simplification of the welfare system would deliver $1.7 billion in administrative cost savings, mainly in the Ministry of Social Development and Inland Revenue. And the tax changes would address the issue of the high effective marginal tax rates which discourage beneficiaries from seeking paid employment. 

For superannuitants, the Citizen’s Income would need to be topped up, by $5250 in total for a couple or $10,000 for a single person, to bring payments into line with current NZ Superannuation rates. 

The word “current” is important. 

Detailed as the party’s policy documents on its radical tax reset are, they are silent on the crucial question of indexation -- how all the dollar numbers above would need to adjust to compensate for inevitable rises in the cost of living. 

But in the end the issue is moot. 

Decisions about tax and transfer payments are core business for Parliament as a whole. They will not be dictated by a handful of novice MPs. To be fair, Opportunity's leader, Qiulae Wong acknowledges this. 

She describes the land tax as a long-term goal, one which would in any case need to be phased in over six years, and would first require buy-in from other political parties and the public. The immediate aim is a “place at the table” to make the case for reform. 

“We need to put bold policies out there to show New Zealanders what we stand for and where we ultimately need to get to. The tax reset is an example. It's a long-term vision for New Zealand” she told the Home Run podcast. 

“Going into coalition maybe there are some policies we can try to get across the line. Maybe not tax but some of the others.” 

And when asked by the Herald’s Ryan Bridge, ”If you don’t get a land tax what's the point of you?” she said, “We've got strong policies around innovation, competition, our energy market, and they don't require the land tax.”

*Brian Fallow is a former long serving economics editor at The NZ Herald.