The Green Party released its tax policy earlier this week. The key points are: A new top marginal rate of 40 per cent for individuals earning more than $140,000 per annum;
OPINION: Increasing the tax rate for trusts from 33 per cent to 40 per cent; and
The introduction of a capital gains tax.
The Greens believe the above changes will result in a fairer tax system.
Marginal tax rates for individuals are progressive. That is, the marginal rate of tax increases as income increases.
The current top marginal tax rate is 33 per cent on income over $70,000. The Greens say that their proposed tax rate would apply only to the top 3 per cent of individuals. They also note that:
Our top rate of income tax is the seventh-lowest in the Organisation for Economic Co-operation and Development (OECD); and
Even at 40 per cent, we'll still have one of the lowest top tax rates in the OECD.
The Greens would also harmonise the trust tax rate with the top income tax rate, and introduce measures to make it harder for people to avoid paying their "fair share of tax". The forecast increase in tax take is close to $1 billion a year, used to fund child poverty initiatives.
By contrast Labour has proposed a new top marginal rate of 36 per cent on income over $150,000 and National would not increase tax rates. Act, as you might expect, favours a reduction in tax rates. Internet Mana advocates the introduction of a financial transactions tax, a capital gains tax and a wealth tax. New Zealand First would remove GST from basic food items and residential housing.
In response, critics have said that a 40 per cent top tax rate would:
Increase tax avoidance;
Penalise hard work; and
Send some of our best and brightest offshore.
Any increase in taxes is likely to increase tax avoidance and evasion, but I suggest more could be done to discourage tax avoidance and evasion.
While there is evidence high tax rates act as a deterrent for hard work, I note that the highest effective marginal rate applies to some of those on income-tested benefits.
The top personal marginal tax rate in Australia is 45 per cent, albeit on income in excess of A$180,000 (NZ$200,000). In addition there is a Medicare Levy of 2 per cent. Despite there being a higher tax rate and a capital gains tax there, many Kiwis have moved to the "lucky country". I suggest that tax has very little to do with Kiwi migration other than to countries with much lower tax rates or no income tax at all.
In my view we should not wait until election time to discuss our tax system.
Murray McClennan is the principal at Tax Central Ltd, a specialist tax consulting firm. Email email@example.com to contact him. The above comments are of a general nature only and are not a substitute for specific advice.
- The Southland Times