The Green response to John Key’s tax policy statement raises questions about who they’re representing, and some bits of their policy they momentarily forgot

The Prime Minister’s tax skeleton outlined last Tuesday is surely a bit stunted, maybe a bit deformed. But so was the Green response to it.

Hints so far are that the government will implement a number of its expert tax working group’s (TWG) recommendations. However, without more, what we heard from the PM in his 2010 statement to Parliament would do a poor job of addressing the problems and goals diagnosed by the TWG -- broadening the tax base, and resolving unfairness. Closing the property depreciation loophole, plus a GST rise, would exacerbate unfairness, without much extra breadth. (Although, “unfairness” means different things to different people: the things the TWG identified as unfair -- tax dodging, and taxing predominantly salary and wages -- are rather smaller parts of the systemic social inequality others are worried about.)

Since then, Key’s dropped lots of further clues. This shows how a package both structurally big and fiscally neutral might be put together, with a tax-free threshold to compensate for GST, and top rate realignment funded by the depreciation clawback. There’ll be some other pet rats and mice, I guess, like Peter Dunne’s income-splitting.

In reply, Green spokesperson Russel Norman focused on three things: the effects for those on lower incomes, “social justice” as opposed to “sustainability”, and taxing income from capital gains.

Taking those in reverse order, everyone seemed to infer that a capital gains tax had been ruled out entirely in Key’s statement. I am not so sure. The PM used careful language about a “comprehensive capital gains tax”. The following day Bill English made a little slip of the tongue in question time (which doesn’t show on the transcript), commenting that the TWG could not agree on whether “a capi … a comprehensive capital gains tax” would work.

I could be reading too much into this. But that wriggle room on capital gains is not inadvertent, and a partial tax of this sort could still be in the mix, even if only as a fall back, in case other sums don’t add up, or coalition support breaks down for other options. For example: if you exempted all owner-occupied homes (which would be exactly Green policy), would that still be “comprehensive”? Key’s indications that middle income earners won’t be neglected, including a suggestion on Q+A on Sunday that the 21% rate might come down to around 16-17%, will have to be offset somehow, unless they’re gambling on economic growth to cover the shortfall.

The first flag up the mast of Norman’s objections to the government package could, therefore, be a bit premature. And the Greens' persistent attachment to a capital gains tax, in the face of the TWG’s doubts, seems a bit bullheaded. I think that there are three reasons: the Greens have long endorsed a capital gains tax, don’t have a current policy on land tax (the principal alternative), nor is there flexibility in their constitutional process to ad lib about policy or revise it on the hoof.

In fact, we do already tax land owners. It’s called “rates”. What if, instead, consistent with the philosophy of what this tax reform exercise is supposed to be about, you levied rates like tax -- so that every resident user of local and regional services paid them, perhaps based on income? A broader rates base ought to reduce the impost on most current rate payers, which could then create space for a fiscally neutral tax on the wealth represented by ownership of the land itself. Norman can find a Green precedent for this sort of idea in the 1975 manifesto of the Values Party.

The Greens’ other main plank of objection has been the GST increase. The government says we need to put a brake on New Zealanders’ consumption.

If the PM’s sole motive was tax cuts for himself and his rich mates, that could be fully funded by closing the property depreciation loophole. This makes it possible (with a bit of pinhead-dancing) to argue that tax cuts for the rich will be fully funded by the rich themselves, or relatively rich; it is not a GST-funded wealth transfer from the bottom end. It also shows that the government must have a genuinely held consumption-based concern: Key didn’t have to buy the GST fight. This should also be the Greens’ concern, given consumption’s environmental as well as fiscal unsustainability.

A GST hike might not cure our spendthrift ways. The fact that the government is announcing this as part of an economic growth package is itself an indication that it doesn’t call a very effective halt. Nor does it differentiate necessities from frivolities. But my beef is the lack of evidence that the Greens even considered this other angle, in their haste to fly the flags of inequality and social justice.

The likely compensatory mechanism, a tax-free threshold of around $5,000, would be consistent with the Greens’ own tax policy. Their objection is the collateral regressive effect of the package in its entirety: much of what people on low or fixed incomes will receive will only offset additional cost, or leave them perhaps marginally better off. The government is dropping coins into their palm that it nicked from the back pocket first, whereas the wealthy get a fistful of cash.

But the scale of this distortion is about the policy design of the whole package, not particular to GST. If GST was in other respects a good idea (setting aside the regressive effect), nothing precludes the government from designing complementary aspects of the policy so that all the various bits of it end up better balancing the scales than they were before. I don’t see how the Greens can rule out GST in quite such simplistic terms, until they’ve asked and what else?

A clever policy design would find a way to optimise the whole mix of Green goals, rather than pissing all over a point about consumption that the government is in fact correctly making.

Norman has also chosen to ignore for the moment the disproportionate tax burden borne by the middle class. Yes, social inequality is worst at the bottom -- but this is about tax, and in the tax context, I’m not sure it’s the bottom taking the beating.

The Greens are surely not confused about who votes for them, and who they represent: a decent chunk of their constituency must be middle class. Maybe they win those votes on environmental values, whereas for others on low and fixed incomes, a different socially-focused platform is required. But I don’t seriously believe this is vote-buying. If it was, it would be deeply, unattractively cynical. This is a branding opportunity.

Labour, on the other hand, has been asking lots of questions directed at the $40,000-$80,000 income bracket. By contrast, when in government, they steadfastly ignored bracket creep, and subjected those of us without student loans or children to various vote-buying exercises, like Working for Families (WFF).

I’m sure much of WFF ends up where it should: in the many New Zealand households raising kids on average or below incomes, to give them what is effectively a state-guaranteed minimum income. And it’s absolutely in all of our interests to ensure that the next generation is brought up well fed, healthy, educated and so on -- and that there are enough of them to help pay for rising social costs.

However, I was interested to see that the Greens’ WFF objection has been solely focused on the correctly-made point that the equally blameless, most needy children of beneficiaries were excluded from this munificence. Granted, you have to choose your battles in sound-bite land. But what are the Greens doing about supporting or encouraging a life choice not to have children -- arguably an environmentally and ethically irresponsible choice? Is it globally sustainable for the government to support more than a population replacement policy of around 2 or 3 kids? And at the top end of WFF, isn’t it also regressive for not unduly wealthy, but childless, people to be subsidising the life choices of more comfortably off couples?

I hope Russel Norman & co worked the whole thing through. I hope that what seemed a simplistic response last week wasn’t what it looked like: an ideological myopia at least as bad as National’s. It was the sort of un-nuanced response I expect to see from an Opposition party, and a lost opportunity to communicate alternative visions and philosophies by talking about more than one Green idea at a time.

 

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by on May 08, 2012
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