Simon Wilson's election diary: Why is the Greens' wealth tax so terrifying?

Green Party MP Julie Anne Genter with Labour's Stuart Nash: If the two parties get to negotiate the terms of a new government, neither of them will be dictating the bottom line. Photo / Mark Mitchell

COMMENT:

Green MP Julie Anne Genter said this week her party's wealth tax would be a "bottom line" in any negotiations to form a new government, and the first thing to say about that is: she doesn't get to decide. The second thing to say is that Stuart Nash, Labour's revenue minister, who said a wealth tax is "off the table", doesn't get to decide either.

Genter and Nash getting all headstrong, though, is neither here nor there. It's an election: every politician wants to get noticed. Greens co-leader James Shaw called the tax proposal a "priority", and noted the party has several of those. Which sounds far more like how negotiations really work.

But there's something else to note about that stoush and it's much more serious. The party's wealth tax proposal continues to be misreported.

National's finance expert Paul Goldsmith set the tone in June with a blunder that has been repeated many times since, including in coverage of Genter's comments this week. Goldsmith said someone owning a $1 million house and $1 million business would be paying 2 per cent tax, on the combined $2 million of assets.

That's not true. In several ways. To start, the tax applies to wealth above those limits. Also, it's a net tax, so it excludes mortgages, loans to the business and so on. And it's an individual tax, so if a couple has shared ownership of the house and the business, say, they're liable for half each.

Julie Anne Genter: Unlike the other parties, she's talking about tax reform to help address inequality. Photo / Mark Mitchell

Take Goldsmith's example: each partner would have $1 million of assets, so neither would be liable for the wealth tax. If there was a mortgage or any other debt attached to the assets, they wouldn't even be close to paying it.

And there's more. Household assets worth less than $50,000 are excluded. The tax can be deferred: if you live in a valuable mortgage-free house but don't have much income – the reality for many older people – you can hold off paying the tax until the house is sold.

This is not a punitive tax and the Greens calculate it will apply to only 6 per cent of the population. Mainly, that's the wealthiest members of a generation that has benefited enormously from a tax regime that props up ever-rising property values, directly at the expense of those who've come after. It's not a lot to ask.

There's another factor to remember: assets classes like property, art and the sharemarket have done extremely well this year. The uncomfortable reality of the pandemic – I hope it's uncomfortable – is that it has, on the whole, been hardest on the poor and increased the wealth of the already wealthy.

Even before Covid struck, the Government's own Welfare Expert Advisory Group set out the reasons our welfare system is "no longer fit for purpose". The Government accepted the argument but, although the group proposed a raft of reforms, very few have been implemented.

National Party finance spokesperson Paul Goldsmith: Misrepresented the Greens' policy back in June. Photo / Mark Mitchell

The purpose of the Greens' wealth tax is to help fund two big reforms. One: a guaranteed minimum income (GMI), giving everyone not in fulltime work a basic income of $325 a week, with top-ups for children. Two: a new ACC, called the Agency for Comprehensive Care, that will cover illness as well as injury.

Perhaps the biggest thing of all to say about these ideas is wow, look who's running scared.

Goldsmith had the grace to apologise for his mistake. But National's approach to tax and welfare reform is income tax cuts that will benefit high earners the most and will hardly help poor people at all. Act also wants big tax cuts.

Labour, like the Greens, proposes a new tax bracket for high earners. But it says no to any other change to taxation.

These things on their own are not meaningful tax reform. They're tinkering. For an idea of the relative scale of the proposed changes, Labour says its new tax bracket would generate an extra $550 million in revenue per year. The Greens say their proposed new tax brackets would raise $1.3 billion and the wealth tax would raise a further $7.9 billion in its first year.

The Greens' policy has generated some interesting responses. Economics commentator Brian Fallow called the need for more tax revenue "inescapable", although he was not convinced the best answer is taxing assets. Economist Cameron Bagrie said much the same. Pattrick Smellie, from BusinessDesk, neatly set out the arguments for a wealth tax, without specifically committing to the Greens' version.

Perhaps the proposal won't, in the end, be the best way to create a more equitable tax system. But the most common objection, that it would be too hard to implement fairly, has already been addressed by the Greens. They say Inland Revenue now has a substantially improved capacity to stop tax avoidance.

Beyond that, the underlying problems a wealth tax addresses are widely accepted as real: the tax base is too small and the current tax system generates inequality.

Green Party co-leaders James Shaw and Marama Davidson: Tax reform is a "priority" not a bottom line. Photo / Mark Mitchell

The OECD says this: "Wealth inequality is far greater than income inequality, and there is some evidence suggesting that wealth inequality has increased in recent decades. In addition, wealth accumulation operates in a self-reinforcing way and is likely to increase in the absence of taxation."

Elsewhere, taxing wealth and reforming the economy to lift people out of poverty and reduce inequality are mainstream ideas. Here, the Greens are the only party that wants to talk about them.

Why doesn't Labour? Not, it seems, because a wealth tax might be wrong. Stuart Nash made that pretty clear this week.

"As the Revenue Minister," he said, "I have had a look at a wealth tax and I think it is very, very difficult to implement. It's on unrealised gains, which make it very difficult for people to pay who are asset rich, cashflow poor."

That's a problem which doesn't even exist. See above: the Greens answered it in their policy in June.

Julie Anne Genter with Stuart Nash: She wasn't wrong to say tax reform is important. Photo / Mark Mitchell

Labour's real worry is that a wealth tax might be politically dangerous. Votes to be lost. And that points directly to the value of what the Greens bring to the table. Shaw says it won't be tax reform presented as a deal breaker. Julie Anne Genter was wrong about that.

But getting real about inequality? She was quite right to highlight how important that is.