Inside Economics: The Opportunity Party’s tax reset won’t fly, so what would they really bring to a coalition?

It seems to me that this is the kind of thinking which is possibly going to become mainstream as inequality and disparity of wealth become ever more apparent.

What I like is that it is simple and easy to understand and implement.

There appear to be savings and efficiency benefits to the government administration as well.

Best regards

David W

A: Hi David,

I have read it. And I agree it looks good on paper ie in theory.

I won’t go too deep into the details; it’s all on their website.

But essentially, everyone gets a universal basic income of $19,400. That is paid for with a land tax at 1.75% annually on urban land value (not buildings), 0.5% on rural land, raising about $24 billion a year.

This UBI (or citizens’ income) replaces most main benefits (Jobseeker, Student Allowance, Supported Living).

Supplementary payments for children, disability, housing and sole parents sit on top. Income tax is simplified to three rates: 28%, 34%, and 39%.

According to Opportunity’s working, the Government would win, poor people would win, middle-class people would pay about the same amount of tax, and just the top 10% of wealthy landowners would pay more.

I can’t pretend I’m qualified to contest its work.

When combined with a compulsory KiwiSaver policy (which Opportunity wants), our economy would win as increased capital would flow to productive investment.

I especially like this bit of the equation.

But, I’ll put this out there upfront: I think it represents too much of a shift for New Zealanders to embrace – any time soon at least.

Even Opportunity calls it a tax reset.

It would be one of the biggest tax resets in New Zealand history – rivalling the Roger Douglas reforms in the 1980s.

Douglas was the Finance Minister in a majority government with a first-past-the-post mandate.

Neither Labour nor National would have the mandate to implement that scale of reform on current polling, let alone a new player who squeaks in on 5%.

This nation has been arguing about a capital gains tax for more than 20 years, and we’re still deadlocked on how to reform superannuation and compulsory saving.

After almost 30 years of debate, we have only just managed to implement some kind of bipartisan approach to zoning and housing supply.

A complete overhaul of New Zealand’s tax system is, in my view, an insurmountable cultural challenge.

So, Opportunity’s tax policy is an interesting discussion document, but it is a red herring in the political drama of forming a government.

A recent poll had Opportunity at 4.6% in the party vote, and that has put it in the media spotlight.

It could now be a real contender to join the next coalition Government and possibly even decide whether Labour or National leads that coalition.

The real question

That raises questions about Opportunity’s political leanings and what other policy hopes it has.

What achievable policy would Opportunity push for in talks?

What could Labour or National offer that would entice it into a coalition?

What could it actually change in the economic landscape?

A look through its other major policy platforms suggests a kind of blue-green, capitalist approach to environmentalism.

Its big energy policy – requiring the Government to use all $500m in power company dividends to subsidise renewable energy – also looks too grand to fly.

But it’s not hard to see Opportunity doing some sort of deal to boost subsidies for solar power. Both major parties are already toying with that.

Opportunity is also big on boosting productivity. The major party that offers the best concessions on R&D investment or SME boosts might get some traction.

Opportunity has also pushed for our political lobbying culture to be curtailed and donations to be limited and made more transparent.

That’s a policy a major party might agree to and let Opportunity call its own.

Party leader Qiulae Wong has also indicated the party has a role in mitigating the swings from left to right that have made bipartisan progress difficult.

That’s a very moderate juxtaposition to its radical tax policy.

But it is likely a reason many people are drawn to Opportunity.

Opportunity’s desire to see an intergenerational infrastructure plan, decided by apolitical experts, might be acceptable to both major parties.

So to sum up, I find Opportunity’s tax ideas interesting, but I think it’s its more subtle policies that could decide things if it makes the 5% threshold.

I’d like to see those goals outlined more clearly.

Spending promises

Q: When there is an announcement of the cost of some item of government expenditure, it always seems to be the upfront gross cost that is mentioned. Would it not be more accurate and honest to report the net cost to the government/taxpayer?

An example of what I mean is the reported cost of implementing pay equity over the next four years. This cost has been reported at around $11 billion. Of this sum, approximately 30% would get immediately returned to the Government in income tax. The remaining 70% gets taxed at 15% through GST when the money is spent. The recipients of the spent money then pay further income tax and GST, and so it goes on. It is not hard to see that the Government, without any real effort, would recover well over half the cost to it.

Is this a valid analysis, or am I missing something?

Regards

Neal Henderson

A: Hi Neal,

The framing of these policy promises is always contentious. I think your analysis is valid, but has limits to how far you can push it.

You’re right about the fact that every dollar spent has its own profile with regard to the tax it generates for the government.

It’s a bit like the way industry groups count up their contribution to national GDP, or the way councils count the economic value of a big event in their region.

You can apply a multiplier effect as you follow a dollar’s path from the initial spending event.

At some point, it gets very fuzzy, and you begin double-counting.

I often think that if you added up the self-assessed economic value of industry in New Zealand, we’d have a GDP twice our actual size.

My point is that we can do the same thing with spending policies and the taxes they generate to mitigate the costs, but, at some point, we start to get a bit speculative.

I think the problem is that political parties like to have it both ways, factoring in complicated flow-on effects for their own policies and costing their opponents at face value.

What we need is consistency.

I noticed that with Labour’s public transport policy, for example, the opposition immediately claimed it was massively under-costed.

They argued it didn’t factor in the increase in use a subsidy would bring.

But then Labour argued that this would benefit the transport companies, who would be expected to pay some of the gains back to the government.

Suddenly, it all seems too complicated, and the media moves on.

Don’t get me started on the “fiscal hole” debate of 2017.

That’s why it has been suggested, by the likes of the NZ Initiative, that we need an independent body to assess policy costings before elections.

Apparently, National and Labour both agree there should be some form of costings unit to consider election-year policies independently, but disagree on how it should be implemented.

I’m not sure this is something that can be easily depoliticised by a panel of experts.

But some sort of number-crunching council might be good to ensure that none of the policies served up to the public are completely unrealistic.

Light at the end of the tunnel

Let’s go out on some good news.

Firms have been cheered up by the fall in fuel prices, according to the latest ANZ Business Outlook survey.

Business confidence jumped 27 points in June to +37, ANZ said yesterday.

Expected own activity rose 11 points from 25.6 to also be +37.

Most of the lift in both preceded the sharp fall in oil prices mid-month, ANZ chief economist Sharon Zollner said.

Presumably, some of the improved confidence was just around the realisation that the worst supply shock fears from earlier in the crisis were easing.

That means there should hopefully be more of an upbeat sentiment shift to flow through.

Also encouraging was a fall in inflation expectations, which eased from 3.63% to 3.36%.

Cost expectations fell from 90 to 85, and pricing intentions fell six points to a net 51% expecting to raise prices, the lowest since November.

“Firms appear to be more optimistic about what lies ahead, and generally more willing to invest and employ,” Zollner said.

“Importantly, the lift in activity indicators wasn’t a knee-jerk reaction to the sharp fall in oil prices that occurred mid-month – the improvement was already present in the responses in the first days of the month,” she said.

“While headwinds persist, this month’s survey offers hope that firms and the broader economy can, to some extent, pick up where they left off before the oil price spike.”

ANZ is still expecting an OCR hike next week.

But at Westpac, where it now forecasts the RBNZ to keep the rate on hold at 2.25%, senior economist Satish Ranchhod said the result reinforced his expectations.

“Firms’ forecasts for wage growth remained at subdued levels in June, which will help to assuage the RBNZ’s concerns about the inflation outlook ahead of next week’s interest rate meeting,” he said.

Don’t forget to check out the Herald’s new podcast, The Economy of Everything, with Liam Dann and Tamsyn Parker – thanks to CMC Markets.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts.

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