Since re-entering Parliament in 2020 under the leadership of Debbie Ngarewa-Packer and Rawiri Waititi, the revitalised Te Pāti Māori (Māori Party), has reinvigorated progressive politics.
Its eight- point tax proposal is radical – some might say naïve and unworkable – but certainly gives pause for thought for those concerned with tax justice.
The proposals are headed by the whakatauki “Ehara taku toa i te toa takitahi engari he toa takitini” (My success is not mine alone, but it is the strength of many) which here speaks to the social production of wealth.
Unlike other GST (VAT) schemes, which typically target merit goods, such as fruit and vegetables, for zero-rating, the first proposal is for the removal of GST from all kai.
This would be a costly measure that would disproportionately benefit the wealthy but would avoid the hair-splitting distinctions between different types of food that other jurisdictions have had to deal with.
Furthermore, whereas we typically look to those on lower incomes being compensated elsewhere in the tax-welfare system for the regressive nature of GST, here the wealthy will pay more in other taxes which may effectively neutralise their GST gains.
The second proposal is for an income tax-free band of $30,000, a readjustment of bands, and two higher marginal tax rates being added (42% for the slice of income between $180,000 and $300,000, and 48% over $300,000). Strong technical arguments can be raised against the proposal.
The Tax Working Group considered the most effective way to deliver relief to lower income earners and rejected a tax-free band. At the other end of the scale, the wealthy would be incentivised to engage in aggressive tax planning, and we are likely to see bunching of income just below the top rate slices.
But Te Pāti Māori might plausibly argue that other countries have tax free bands and higher marginal tax rates, why should New Zealand be constrained by the arguments of technocrats?
The next proposal for individuals is a Net Wealth Tax (NWT). NWTs are unusual (only four were levied in the OECD in 2017) and typically raise far less revenue than predicted. NWTs are technically fraught and can lead to wealthy people emigrating, for example, when Norway increased its NWT to 1.1%, in 2022, 30 of the country’s wealthiest people left.
Te Pāti Māori’s proposal is for a tax-free band of $2 million of net wealth with graduated rates up to 8% for the slice of net wealth in excess of $10 million.
The highest marginal rate in the OECD is Spain’s 2.5%. NWTs make policy sense in the absence of a comprehensive CGT and capital transfer taxes, as is the case in New Zealand. But why introduce a highly problematic tax, rather than a CGT and a capital transfer tax along the lines of Ireland’s Capital Acquisitions Tax?
The plan would see the company tax rate restored to 33% from the 28% introduced in 2008. (Australia has a rate of 25% for small and medium businesses, and 30% for other companies.) Although the proposal argues the lower tax rate has “contributed to the worsening wealth inequality that is locking younger generations out of home ownership and prosperity”, the rationale is not clear and needs further explanation.
In addition to the increased company tax rate, Te Pāti Māori would introduce a 2% Overseas Financial Transfer Tax. At first face, this proposal appears to breach the principles of national treatment and non-discrimination which are important features of free trade and double taxation agreements.
Frustration at the super-profits of Australian-owned banks and the base erosion profit shifting (BEPS) activities of platform capitalist corporations is understandable but fomenting a potential tax dispute with our closest trading partner, and the world’s largest economy seems ill- advised. Waiting for international agreement on BEPS would be a better course of action.
Two further proposals relate to the housing crisis. The first is an Undeveloped Land Tax aimed at combatting land banking. This is a reasonable proposition which is consistent with well-established land tax principles but may prove difficult to implement. The second proposal is for a Vacant House Tax. These taxes are fairly common. Although Vancouver’s and Singapore’s vacant property tax rates are far lower than the proposed rate of 33%, that rate is in line with the French tax.
The final proposal is for “adequately resourcing the Serious Fraud Office and Inland Revenue to investigate and address tax evasion”. As my colleague Lisa Marriott has demonstrated, tax evasion is not investigated, prosecuted, and punished with the same enthusiasm as benefit fraud. This proposal makes economic sense and promotes social justice.
It would be tempting, if patronising, to suggest that Te Pāti Māori’s tax proposals come from the heart, rather than the head. But the proposals’ focus on social justice demonstrate how tax discourse in Aotearoa New Zealand is in thrall to technocratic ideas of economic efficiency. I am skeptical about the company tax recommendations, but otherwise, all the proposals can be seen in some or other form in the tax systems of other economically developed countries.