Troy Bowker: Labour need to rule out the possibility of a wealth tax if they want to win

Should an additional 1 per cent tax be imposed on those with over $1m in wealth, and 2 per cent for those with over $2m, each year? Photo / 123RF

COMMENT:

Running an election campaign with a radical new tax policy is hardly a winning formula. Just ask the Prime Minister why she was forced to rule out a capital gains tax (CGT) proposed in the 2017 election campaign.

A much better strategy for Labour would be to sit back and watch your future coalition partner in the Green Party (who seem to be forever joined at the hip to Labour) run their campaign on a policy which would significantly increase taxes. It's entirely plausible, indeed likely, that it suits Labour's political agenda for the Greens to be the ones campaigning on a radical tax policy rather than themselves.

What I'm referring to, of course, is the Green Party's 2020 flagship tax policy that appears to be taken straight from the tale of Robin Hood in Nottingham Forest in 12th-century England.

It would see a tax of 1 per cent per year imposed on the value of every person's wealth over $1 million and 2 per cent per year on wealth above $2m. The money raised – estimated to be nearly $8bn per year – would be used to fund a massive increase in payments to beneficiaries. Anyone who isn't working, regardless of their circumstances (including university students and all school leavers) will receive a minimum of $325 per week in addition to all the other allowances and benefits. This proposal represents a significant expansion of welfare system.

Essentially, the policy confiscates billions a year from those in our society who have worked and saved hard all their lives and hands it to anyone who chooses to sit at home all day on their PlayStation smoking weed.

To date, the Green's flagship tax policy - dubbed the "envy tax" - has not received much air time from mainstream commentators and media and, quite rightly, dismissed as "nuts" by Winston Peters. Presumably, people are thinking this policy will never get across the line as the Greens are struggling to reach 5 per cent and, after all, they are a minor party with a lot of their ideas on the fringes of mainstream thinking.

However, we should not automatically dismiss a wealth tax so fast. The way MMP works is if the Greens achieve just 5 per cent of the vote and their seats are needed to form a government with Labour, they will be pushing very hard to make this policy a "bottom line" as part of their coalition agreement. And as we know, when you are in a coalition negotiation and you desperately want to hold onto power, pretty much everything is on the table.

The big question is where does Labour stand on all this?

So far, all we have heard from Prime Minister Jacinda Arden is a vague dismissive statement about the assumptions behind the Greens' wealth tax being "heroic" and telling us that this policy is not a Labour Party policy. Further, we are being told by Jacinda Ardern to wait for Labour' s tax policy which, much like a controversial block buster movie, is "coming soon".

But if Labour ran a mile from CGT once they properly understood the political risk-reward ratio of implementing it, wait to see their reaction once the public get a chance to understand what is being proposed by the Greens.

Let's start with a few of the practical challenges Labour and the Greens will face if they attempt to bring it into law.

Firstly, different interest groups will become so outraged when they realise it will hit them hard, they will demand exemptions. The problem with exemptions is that everyone thinks their situation deserves one and once you start handing them out, the tax revenue declines very quickly.

The threshold of $1m sounds a lot but when you consider the average house price in Auckland is $935,000 and the value of all other assets (such as KiwiSaver, shares, baches, businesses) are added up and taxed annually regardless of your income level, the number of people effected will be enormous.

Those running farming and agricultural businesses will be hard hit as will the entire savings and retirement industry. If you don't have the income to pay the annual wealth tax you will be forced to borrow or sell. Let's not forget the 600,000 small- and medium-size business owners as well.

This is precisely the wrong time to be forcing massive tax increases on those people already contributing by far the most to economic recovery following Covid-19.

One sector of society that won't be hit by this radical tax policy is iwi. The Greens have handed an exemption from assets held in Māori trusts by iwi as part of the Treaty settlements. Many farmers will be forced to sell up and walk off their land but iwi are exempt. Fair? You be the judge.

That's the trouble with introducing complex tax policy for ideological reasons without thinking things through. What starts off as an easy concept quickly morphs into an impossible challenge and suddenly you are in corner you don't want to be in.

The Prime Minister may find the idea of a wealth tax superficially appealing but given her experience from the CGT debacle she should be treading very carefully. Until Labour clearly and concisely rule out a wealth tax as part of any coalition agreement with the Greens, we should all be very concerned.

- Troy Bowker is executive chairman of Caniwi Capital