The Green Party tax policy was announced in June this year.
While perhaps not as revolutionary as that of Te Pāti Māori, it aligns well with the Green Party vision (with one exception, but more on that later).
The policy proposes increasing the progressivity of the personal income tax rates. This starts with a tax free threshold of $10,000, meaning the first $10,000 earned is not taxed. Currently the first $14,000 earned in Aotearoa is taxed at 10.5%. This would bring Aotearoa in line with other comparable countries that offer a tax free threshold (e.g. Australia, where the tax free threshold is A$18,200).
The other significant change is the proposal to increase the top income tax threshold from 39% to 45% for those earning over $180,000. There are other changes to the tax brackets and rates, as shown in the table below.
Many will welcome the proposed wealth tax that is a core part of the Green Party policy. This proposal is a wealth tax of 2.5% where an individual has net assets (i.e. taking into account debt) of $2 million. Only the asset values above $2 million are taxable. The Green Party modelling suggests the tax will be paid by 0.7% of New Zealanders and will generate $12 billion in 2024/25.
Those who have assets but limited cash flows can defer payment of the wealth tax until their assets are sold, adopting a similar approach to that of some councils that allow deferral of rates payments. This policy includes the usual assets, such as shares and property, but also extends to high value property like artworks. A $50,000 exclusion will allow most household items to be excluded. Māori land is exempt.
A trust tax of 1.5% is also proposed, with the intended aim that people do not move their assets into a trust to avoid the wealth tax. However, an incentive would remain for people to move their assets into a trust, due to the differential rates between the trust tax and the wealth tax.
Trusts with a beneficial social purpose are exempt from this tax. Under the Green Party proposal, the corporate income tax would increase from 28% to 33% with a projected $2.5 billion in revenue collection in 2024/25.
Aotearoa’s company tax rate is already among one of the higher rates in the OECD. Using the most recent OECD data (2022) only five of 38 countries have rates above 28%. These are: Australia (at 30% but note that companies with a turnover of less than $50 million per annum pay a reduced tax rate of 25%); Colombia (35%); Costa Rica (30%); Mexico (30%); and Portugal (30%). Introducing a 33% company tax rate will see Aotearoa move to the second highest company tax among OECD member countries.
On the transfer side, significant changes are proposed for the welfare system, including the introduction of an income guarantee. This proposal would mean a minimum weekly income of $385 after tax, including for students and those who are unemployed. The amounts increase for parents, with a single parent receiving at least $735.
This system would replace Working for Families, with payments for those looking after children of $215 per week for the first child and $135 for subsequent children, topped up with $140 a week for each child under three years of age.
Abatement thresholds rise to $60,000 (from $42,700) and the rate of abatement reduces from 27% to 18%. This will assist with the current steep abatement rates.
A further key part of the proposal is transforming ACC to include a wider range of health and disability conditions, rather than only accident-related health issues. The intent is that a minimum payment of 80% of the full-time minimum wage would be paid to everyone not in paid work because of a health condition or disability.
This would be funded by changes to employer and employee levies. Employee levies would increase for higher income earners, with removal of the current upper threshold of $139,384. The Green Party proposal includes individualising support for those who are not working. This means that if someone has an employed partner, they will still receive support if studying or looking for work.
Along with the more generous financial support, many of the existing punitive welfare measures are targeted for removal. These include some of the eligibility tests, stand-down periods and sanctions.
It isn’t usually fair to critique what isn’t present in a policy, but in the case of the Green Party it seems appropriate to observe the absence of tax initiatives with environmental objectives. There are many global examples where the tax system has been used for this purpose, such as tax concessions for low emission vehicle purchases (e.g., in Norway or Ireland).
The Green Party vision is “a climate- friendly Aotearoa that honours Te Tiriti and meets the needs of everyone within the boundaries of the planet, so that we and the rest of nature can thrive”. Therefore, something for the planet, as well as the people, would have fitted well within the overall theme of the policy.
Lisa Marriott is Professor of Taxation at Te Herenga Waka—Victoria University of Wellington School of Accounting and Commercial Law.