The Greens have come out with their financial and taxation policy for the election, and there are few surprises. While I sympathise with their desire to eliminate poverty, this proposal will cost New Zealanders dearly but will, in fact, make only a small difference to those at the bottom of the pile.
“Today, the Green Party is announcing a plan to ensure everyone has enough to put food on the table and a roof over their head,” party co-leader Marama Davidson told around 100 people at the launch in Glen Innes, Auckland.
The Greens are calling for a Universal Basic Income of $325. $325 is still not enough to put a roof over one’s head and food on the table, but never mind the details. This is an attack on the ‘rich’, with a few crumbs for the poor thrown in. Their definition of ‘rich’, however, is interesting indeed.
To achieve this, they are proposing two higher top tax rates, of 37% for incomes over $100,000 and 42% for incomes over $150,000. May I respectfully point out that $100,000 is not a high salary these days. They also propose a wealth tax. If you have read any of my previous articles, you will know that I am vehemently opposed to any form of wealth tax, other than capital gains tax, because the fundamental principle of taxation is that it is supposed to be fair. A wealth tax, being calculated and paid on asset values and therefore on unearned income, is stringently unfair. It has the potential to drive a large number of ordinary people into hardship. As this policy is unlikely to lift anyone else out of poverty, it is fairly pointless. You could be forgiven for thinking that the Greens just want everyone to be poor.
The problem with this wealth tax, like most proposed new taxes, is that the thresholds are too low. If they had suggested that a wealth tax were to kick in with an asset base of $20 million, you might feel it is fair enough, although those assets may still produce no income. But the Greens threshold for a wealth tax is $1 million… the price of an average house in Parnell.
Therein lies the problem. The threshold is too low, and the family home is not exempt. So your mother, living in the family home which is now worth over $1 million, will find herself liable for $10,000 of wealth tax every year. If your mother’s principal source of income is superannuation, she will be in serious financial trouble. She will have to sell her property, but that will not save her. She will probably still have $1 million in assets, one way or another, until the wealth tax has eroded away a chunk of her capital base.
This is how ridiculous and unethical a wealth tax is. Exactly why the Greens see people who have assets of $1 million as rich in the 21st century, I have no idea.
Actually, I do. This wealth tax will hit a lot of ordinary people, as we have already seen. If they set the threshold at a higher level, even at $5 million, then they will not generate enough revenue to fund their social agenda. There are simply not enough really wealthy people in New Zealand.
This policy could, of course, cause a significant fall in house prices, which you may think is not a bad thing. But look at it this way. What about buyers with a mortgage of 80% of their property value? If house prices fall by a mere 10%, then such buyers are at risk that the banks could call in their loans. This is not a desirable situation for the property market overall, and banks are likely to apply the rules even more harshly when it comes to investors.
The Greens were obviously very disappointed that the capital gains tax was scuttled by NZ First, so in response, they propose a more inequitable, unacceptable form of taxation to attract voters. At least a capital gains tax would have been paid on actual gains, when assets are sold. At the moment, the polls show that a Labour-Green government is the most likely scenario for the next 3 years. As my colleague, Ex-PFC has pointed out, the only way to avoid the Greens having significant influence is by everyone voting Labour. Then, even if the Greens are part of the government, Labour will not be forced to give them large concessions to keep them happy.
The Greens are selling their policy on the basis that it is only billionaires that are going to pay for it, which is a common catchcry for those who believe that most wealthy people manage to avoid paying tax. But it is not just the multi-millionaires who are going to pay for it. Those people will have assets owned in various entities, and will have the ability to afford legal and accounting advice to avoid much, if not all of the wealth tax. It is the little old lady in her Parnell house who will be paying for it, and as we know, with the recent rises in house prices, there are a lot of people who live in ordinary houses that are now worth over $1 million. If the billionaires were going to pay for it, then the answer is to raise the threshold for the wealth tax to $20 million, so that ordinary middle class people are not affected. This won’t happen because it will not raise enough money. That tells you everything you need to know about the Greens’ new taxation policy.
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