Political Roundup: The Greens’ Zeitgeist poverty and tax action plan

Political Roundup: The Greens’ Zeitgeist poverty and tax action plan

The Greens have shaken up the election campaign with the announcement of their radical poverty and action plan to reform welfare provision and introduce a new wealth tax for millionaires. It’s a big-thinking, controversial policy and has generated a lot of disagreement over how radical it is, whether it could work, and what it might mean for the election.

For the best reporting on the announcement, see Henry Cooke’s Green Party’s $8b plan would guarantee income of $325 a week, and pay for it with a wealth tax on millionaires. This explains how the Greens’ wealth tax would apply a 1% levy on people who have net assets above $1m – exempting the first $1m – and this would rise to 2% for subsequent wealth over $2m. There would also be new higher marginal tax rate of 37% for earnings over $100,000 a year, and 42% for earnings over $150,000. The increased revenue would be used to pay a “guaranteed minimum income” welfare payment of $325 to all those not in full-time work (including students, unemployed, part-timers, retired).

Praise from the left

Leftwing blogger No Right Turn is incredibly happy with the policy, saying: “Its bold, its progressive, it would make us a better, more equal society” – see: The Greens’ opening bid is transformational change.

Although the blogger would prefer a land tax rather than a wealth tax, which he suggests is easier for the rich to evade, he says a lot of the quibbles with the policy – such as whether the rich will simply be able to avoid the tax – are unfounded, as these can be fixed in the implementation phrase. However, he’s disappointed that the Labour Party appear to oppose the policy, which he puts down to too many in the party owning investment properties and generally being a force for the status quo.

Leftwing commentator Chris Trotter is also deeply disappointed by Labour’s apparent opposition to the policy, and suggests it’s typical of the party’s general moderate orientation in a time that requires boldness – see: Labour will not win with a yeah-nah strategy.

Trotter believes the Greens’ new policy “has the capacity to get young, poor voters up off the couch and into the polling booths.” He foresees the party possibly rolling out a similarly radical suite of policies which might “offer the voters something pretty close to a complete re-prioritisation of all the activity that makes up the New Zealand economy”.

Fellow Daily Blog writer Martyn Bradbury, is also a big supporter of the new policy: “For the first time in 3 years, the Greens finally give a reason why New Zealander’s should vote for them, and I’m genuinely surprised and pleased. The middle class woke identity politics, which has been so toxically alienating for the Greens and is why they have been floundering in the Polls, has been sidelined in favour of genuine social justice in welfare and a real economic philosophy of taxing the rich” – see: Finally a reason to vote for the Greens!

Newsroom’s editor Tim Murphy also praises the Greens’ policy for its radicalism and vision, saying the party deserves praise for being “the first party to offer a big, detailed and transformative policy in response to the economic tornado that is Covid-19. This is what political parties should be doing, 80 or so days out from a general election in the context of a major economic downturn” – see: The Greens’ cunning plan. He adds, “The Greens have shown us a medium to longer-term response to the economic crisis that challenges current political limits.”

Here’s Murphy’s main point: “the value in the Greens going early and going hard with such a sweeping policy is that the party has offered a response to the biggest crisis since the Great Depression that offers change beyond an orthodox, vast Government stimulus and infrastructure build. The party will be betting New Zealanders shaken by the rapid and comprehensive threat to jobs, incomes and futures will be open to a new, collectivist and non-judgmental platform where Kiwis accept they need to pay more from any wealth they have above million and two million dollar limits to help their sisters and brothers. Is there a new normal in compassion and sharing the burden?”

Critiques from the left

How radical is the policy? Leftwing playwright and satirist Dave Armstrong is generally supportive of the new policy but warns against seeing it as some kind of socialist nirvana: “So when we look at the Greens’ ‘far Left’ wealth tax, we have to remember that it is a slightly Left-of-centre party big on the environment and with the Right-wing ‘realist’ faction of the party firmly in control. To pay the Greens’ wealth tax you have to own an asset worth more than a million dollars. Even then you only pay a small amount of tax based on the amount over a million. So all those residents of leafy Wellington suburbs, mine included, can relax – especially if you co-own a house. Even if you own a million-dollar house and a million-dollar company, you’ll more likely be paying your accountant more per year than the wealth tax” – see: Greens’ wealth tax will appeal to Labour’s Left-wingers.

Armstrong points out that not only will the wealth tax be “about as potent as a shandy in global terms”, the resulting increased welfare payments will still be inadequate: “For many of us, living on $325 a week would be incredibly difficult. It’s hardly largesse.”

The Greens, Armstrong argues, are actually in broad alignment with all the parliamentary parties, who largely agree on the basic taxation settings: “Our five parties have an unspoken consensus that corporate tax must stay low, that indirect taxes must rise and direct taxes must fall, that our crippling – for the poor – GST rate of 15 per cent must remain, and that corporate tax be modest.”

However, the Greens’ policy will be useful for Labour, Armstrong says, because it means that they will be able to “come up with a wishy-washy centrist scheme to address child poverty and inequality and when there are howls of outrage from the anti-beneficiary Right, Labour can say, ‘it’s very moderate – nowhere as radical as what the Greens were proposing’.”

Leftwing blogger Steven Cowan is dismissive of the new policy, largely because it amounts to a band aid rather than a solution for inequality and poverty, which is actually produced in the economic system rather than the welfare system. He complains that the Greens are only willing to treat “the symptoms of the disease itself” as a way of avoiding the necessity of fundamental economic transformation – see: Treating the symptom and not the disease.

Like Armstrong, Cowan argues that the Greens’ proposed $325 per week isn’t enough to live on, and in fact is much lower than what the current government has deemed is necessary for those who lost their jobs during the current recession (they get $490/week). And because the Greens haven’t so far pushed Labour to be transformative during the last three years, Cowan finds it hard to imagine them doing it in the next term – hence he sees the policy as dead in the water.

Critiques from Labour and the right

Prime Minister Jacinda Ardern has poured cold water on the Greens’ policy, saying the wealthiest New Zealanders would simply change how they structure their assets in order to pay much less tax than the Greens have calculated. She has complained that the Greens have included some “fairly heroic assumptions” in their calculations that the proposed new tax would raise $8bn – see 1News’ ‘Significant behaviour change’ needs to be factored into Green’s proposed wealth tax, says PM.

Here are Ardern’s main points: “Some of the assumptions around people’s change in behaviour, they aren’t necessarily factoring in a significant behaviour change which often tax amendments like this would drive… Also the fact that people would change the value of their assets in order to avoid tax, the fact that people will often move funds offshore and also I’m interested in the underlying modelling which is not necessarily something I’ve had access to.”

On the political right, others have made some similar arguments about the weaknesses of such a wealth tax. National-aligned blogger David Farrar says the wealthiest can afford to use accountants and lawyers to hide their wealth: “Of course the super wealthy will pay nothing. They will have all their assets in trusts. This asset tax will just affect the prudent retired person or small business owner who has managed to save some money, but don’t have fancy lawyers to hide everything in trusts” – see: Greens want to tax, tax, tax.

Evaluations of wealth taxes

For an in-depth and thoughtful examination of the general pros and cons of wealth taxes, it’s worth reading Henry Cooke’s The crucial feature of the Greens’ wealth tax that would exempt most family homes. He explains why such taxes are not commonly advocated for in New Zealand: “There is a reason we tax income more than wealth in this country. Taxing wealth is very hard – both politically and logistically. It’s fairly easy to clip the ticket on someone’s pay packet every week, but a lot more difficult to ascertain exactly what they own, what it’s worth, and whether the public morally thinks that worth should be taxed at some level.”

Cooke also outlines how the Greens’ version of a wealth tax is actually rather moderate, and says it is difficult to see how it would raise as much revenue as the Greens suggest. This is because the tax only applies to the marginal value above a very high threshold, and assets such as houses are divided in value between the various owners – with each owner getting a $1m exemption.

So, for example, even if a couple owned a $2.1m home and had no mortgage, they each would only pay $500 a year in the tax. And, in fact, such couples might have the potential to reduce this further by making their children co-owners of the home: “it isn’t clear what would happen to stop people just putting their kids on the title of their home, spreading the wealth around a family and avoiding the tax.”

Similarly, Thomas Coughlan has written about how a wealth tax fits within the broader tax system, again pointing to the complexities of introducing this type of taxation – see: Taxing wealth: a necessary step, or unachievable pipe dream? He argues the benefit of the current system – which relies heavily on tax on incomes, spending, and corporate profits – is its effectiveness: “This ensures high rates of compliance because there’s no great reward for the costly practice of stashing your income somewhere the taxman can’t get at it.”

Coughlan interviews Robin Oliver, formerly the IRD’s deputy commissioner of policy and a member of the Government’s tax working group, who argues that such a wealth tax will have problems with valuing assets. He says a land tax would be preferable: “A land tax would be relatively more easy to implement as land values were independently calculated for rating purposes.” Oliver says: “All we’ve really got in New Zealand in assets is land… What we have is land, what’s untaxed is land.”

How the Greens’ policy might impact the election

Is there growing public interest in a wealth tax? Richard Harman thinks there might be, and he also points to growing international interest in such taxes – see: Ardern shuns Greens’ wealth tax; Nats mount scare campaign.

The problem, Harman says, is that the Labour Party will have very little desire to implement such a policy, making it “more or less dead on arrival”. And with Jacinda Ardern being so opposed to implementing a capital gains tax, she is “hardly likely to agree to a capital gains’ tax’s lesser cousin, a wealth tax.”

The Greens could yet get their plan implemented according to Barry Soper, who points out that with NZ First likely to be out of the picture the Greens might have the ability to make the policy a bottom-line for post-election negotiations – something the Greens aren’t ruling out – see: Is the Greens’ poverty plan a flight of fantasy? Think again.

For this reason, Soper suggests Labour’s best bet is to totally rule out the Greens’ proposal, otherwise it will give National and NZ First a strong campaigning message: “Smiling all the way to the ballot box if that doesn’t happen will be National, which will be out selling what a Labour/Greens coalition could look like. And so too will be handbrake Peters, who’ll be out there reminding the electorate of what he stopped Labour from doing”.

Similarly, Heather du Plessis-Allan urges Labour to unequivocally rule out the policy, lest it chase away centrist voters – see: Why the Green Party’s wealth tax is bad for Jacinda Ardern.

Here’s du Plessis-Allan’s main point: “Labour clearly hasn’t learned from the capital gains tax fiasco last election. Remember how that played out? As soon as the PM promised a CGT, her polls started falling. This time, it might not be her policy, but if it’s coming from a party she is most likely going to need, it’s close enough for some voters. Unless she rules this out, there is the risk that this becomes capital gains tax 2.0.”

Finally, for more about the advantages of a wealth tax, details of how it might work, along with some of its challenges – it’s worth reading Max Rashbrooke’s January report for the Tax Justice Aotearoa NZ: The case for a net wealth tax in New Zealand.

Dr Bryce Edwards is Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.

This article can be republished under a Creative Commons CC BY-ND 4.0  license. Attributions should include a link to the Democracy Project.