COVID-19 crisis provides once-in-a-generation opportunity for systemic tax & welfare reform, now is the time for brave action
Wellington – 4th May 2020: The Opportunities Party (TOP) is calling for an annual $13,000 Universal Basic Income (UBI) for all Kiwis as part of its UBI Policy, launched today, to make New Zealand’s tax and welfare system modern, simple and fair.
In addition, TOP would introduce a flat rate of income tax at 33 percent. Coupled with the UBI, this would leave every working Kiwi with at least $3,920 more in their pocket after tax. Full-time minimum wage earners would be $6,285 better off.
TOP Leader and former Treasury economist, Geoff Simmons, says that immediately implementing a UBI and flat tax would provide a stimulus response to the COVID-19 pandemic. It would also simplify and modernise New Zealand’s complex welfare system, and begin the process of a brave, once-in-a-generation tax reform.
“As the economic fallout of the coronavirus pandemic deepens, many Kiwis are facing unparalleled financial insecurity. The UBI addresses many weaknesses of our current tax and welfare system, laid bare by the pandemic,” Geoff Simmons says.
“Under our most optimistic scenario planning, the UBI and flat tax reform alone may be sufficient to stimulate the economy back to life because of the significant social benefits the UBI generates. Our complete policy package has a neutral impact on the Government’s books under our most conservative scenario planning.”
TOP is proposing a fundamental overhaul of the tax and welfare systems in New Zealand, by introducing three key changes:
- A universal basic income (UBI) for both adults ($13,000 annually) and children ($2,080 per child annually),
- A 33 percent flat tax on all income, and
- Phasing in a risk-free return method (RFRM) tax on assets.
“The coronavirus pandemic is placing unprecedented pressure on government departments as Kiwis seek welfare support. By simplifying our welfare and tax system we estimate we will save $800m per annum in reduced government bureaucracy, money we will hand back to taxpayers through a UBI.”
New Zealand has one of the least affordable housing markets in the world, highlighting the need for a new approach to support a fair society where those on lower incomes aren’t left behind. That is what the RFRM would provide.
“Our tax system for housing is the most distorted in the world, and fuelled by property speculation, which has resulted in progressively higher house prices and rents,” says Simmons. “The lack of a fair tax on housing has seen property become a tax-favoured asset, dramatically increasing poverty and skyrocketing house prices.”
TOP’s UBI Policy in detail:
Universal Basic Income
TOP proposes a universal basic income (UBI) of $13,000 per year be paid to all New Zealand citizens and permanent residents over the age of 18, replacing benefits of lesser value such as the Jobseeker or Supported Living payments. Children would receive $2,080 per year, paid to their caregivers’ bank account.
“The UBI allows for someone to take on additional work without it affecting their entitlement, unlike the Jobseeker allowance,” says Simmons. “Implementing a UBI would result in those receiving this benefit being able to take additional temporary or part-time work where available, as there is no risk of reduction to income. Our current model incentives people not to get a job and keeps them in the welfare poverty trap. This is economically crazy and does not support an individual’s rangatiratanga – their autonomy or dignity.”
Within TOP’s UBI policy it is noted that it should extend to communal living situations. The policy states that hapu would be entitled to pool the UBI of 20 or 30 people ($240,000 to $360,000) to cover costs on communally owned land with subsistence farming if the group decides they would like to do this.
“Let’s give the power back to people on how to best spend in our society,” says Simmons. “UBI is the only fair, indiscriminate approach to encourage spending and empower Kiwis across the board to have financial freedom of choice.”
Flat tax rate
TOP’s UBI policy states that income should be taxed at a flat rate of 33 percent – a significant simplification of the current tax system which has a graduated curve.
Coupled with the UBI, this would leave every Kiwi with $3,920 more in their pocket after tax. Full-time minimum wage earners would be $6,285 better off. The UBI effectively makes the first $39,000 of earned income tax-free.[i]
“The improvement in income after tax will improve the lives of the working poor – Kiwis who are employed but are still in poverty,” says Simmons. “Coupled with the UBI, it boosts the minimum wage to be finally above the living wage, a necessary amount to ensure all kiwis are living above the poverty line.”
Under the current system, the differing tax rates for different entities such as individuals, trusts, and companies, creates an incentive for tax planning.
“New Zealand has well above OECD averages of trusts and companies, and a common tax rate removes the advantages of using these entities to undermine the system,” says Simmons. “It is imperative to fix this, and to create a level playing field for all Kiwis.”
Risk-Free Rate Method (RFRM) Asset Tax
TOP would introduce an RFRM tax to be applied to the equity on each property owned. A long-term, risk-free rate of three percent would be used to determine the deemed income on the equity in the property, and the 33 percent tax rate applies to this income. This effectively works out at a tax of one percent of the value of the equity in all property to be paid quarterly (like rates). Properties already generating a taxable return of more than this would be unaffected. Asset rich but cash poor retirees would be able to defer tax, so it becomes a duty on their estate when they die.
“Though the RFRM tax is likely to have a calming effect on house prices, its main purpose is to spread the tax base wider and to encourage investment in productive assets that will grow the size of the NZ economy,” says Simmons. “Our current tax system encourages investment in housing and diverts capital away from productive businesses that create exports and well-paid jobs. Houses should be for living in. Let’s encourage those with the income to invest to support New Zealand’s many creative, high-tech, fast-growth companies with the promise to deliver great returns.”
Costing out the policies
TOP has conservatively costed these changes[ii] using a publicly available tax and income data, which end up broadly tax neutral overall. In particular, TOP would significantly reduce the bureaucracy within government departments and the paperwork for many Kiwis.
Simmons notes that the conservative costings of these policies don’t factor in the potential surplus generated by the improved social outcomes of a UBI.
“Education, health, incarceration and social outcomes all track to significantly improve under a UBI approach, a key point which we haven’t factored into our costings,” says Simmons. “These outcomes can generate massive surplus when supported by UBI, a surplus which our estimates show to be up to potentially $10 billion.”
“The saying goes that if it ain’t broke, don’t fix it,” continues Simmons. “But clearly our current system is as broken as can be. COVID-19 has shown us the desperate need for change is more apparent now than ever.”
About The Opportunities Party:
TOP’s vision is to create the greenest economy in the world through science, technology, and innovation. TOP believes in our younger generation regaining access to our housing market. TOP believes in preserving and regenerating our extraordinary environment, so we are once again known internationally as the place talent wants to live. TOP believes it is time to enshrine our democratic freedoms with a constitution, and to safeguard our independence from foreign influence.
The days of an economy based on selling houses to each other, with the profits exported directly to the Australian banks, or where we continue to exploit the environment and watch carbon emissions rise along with the world’s sea levels, have to end.
So how does any Beneficiary live on $13k?
This doesn’t factor in the pending depression ahead and the 16%-20% unemployed about to hit the books. Its more than halfway there already with more than 359,000 recipient’s of a benefit of some kind.
You won’t get more out of the system unless you can fundamentally change the system from profit driven to a post scarcity society that would be indistinguishable from magic, where energy and matter are interchangeable.
I assume that since the GST is a tax, their proposal is that GST is completely removed. I would also hope that if a basic (or minimum) wage is necessary, there should also be a maximum wage. I cant see any reason why any person needs more than $200,000.
The UBI depending on how it is funded is an excelent idea though there’s nothing new about it. It’s Social Credit. But the capital gains tax cancels it out entirely.
The chaos in the housing price caused by QE as much as anything is a problem that needs adressing at it’s cause ie the money supply and its regulation , or rather the lack thereof. And the complete lack of currency control between currencies and money flow across the border. In 2017 our imports were about 60billion + and exports just over 70 billion, so 130 billion of trade in the year. Our currency is traded at the rate of 100 billion per DAY. So how can our trade environment have any influence on it at all? It is entirely determined by speculators and our lively-hoods all depend on it.
The CGT will destroy the farming sector as land has always been priced at a level that makes return on investment pitiful. A 3% CGT would send many if not most NZ farmers to the wall. Again it is not active farmers that drive this price up.
The CGT is simply a tax on inflation , the incentive for it is to do with a problem with the money supply, not a problem with real estate which remans essentially the same over time. Manage the money supply properly and target the illness instead of the symptom.
D J S
As long as people have revenue they’re safe. The banks and finance sector don’t give a fuck, as long as there’s a bit of money moving around Yknow they really have nothing to complain about. Yknow as long as normal people get a bit of many they’re safe and so on and so on. All the UBI is is diverting a bit of production like 1% of new production into consumption. Producers have enjoyed good terms of trade and have taken the last 20 years of growth at 3 or 4 percent and said thanks.
Now what TOP and a bunch of others want to do is create Yknow and extra 1-2% GDP growth through an IT revolution in broadband so we can give one percentage point or 20-30 billion a year to UBI recipients and what ever is left over Yknow that’s straight. We can argue about the detail but any surplus is just going to get ploughed back into productivity no matter what we say to the contrary.
“As long as people have revenue they’re safe” If their revenue does not cover expenses and the 3% tax on property for which there is no revenue to provide they are not safe. They will fall behind constantly. And some overseas billionaire will buy their farm for a trophy and play on it in the holidays. Or build a nuclear shelter on it or whatever. It will probably go out of production.
D J S
Well yeah. Revenue is doing to be really tight this month and next month land lords are going to be in deep trouble so rental income won’t be as glorious as it once was, retail is gone anyway.
Yknow those who got in cheap on the grocery side of things will be doing well and then only buyer in town is Treasury or the Reserve Bank. So it’s really up to the public to decide collectively well what is an economy? Yknow do we want an economy that gratifies the rich or do we want everyone to be successful. Really though the choice is obvious. It’s well with in the power of the people to decide what’s good.
I should also have pointed out, though it’s not made clear from the article, that the tax is only payable if the profit from the property is less than 3%. If that situation exists then the amount to be taxed is 3% less the actual profit from the property. Otherwise the owner simply pays the tax that he would normally have paid on whatever the return was from the property.
Top is not proposing a 3% CGT. What they are proposing is a 1% tax on equity. (ie 33% of 3% of equity). Equity includes capital gain but excludes mortgage debt.
@ David Stone
in this article it appears as though the “cgt ‘ is replaced with “rtma ‘ equating to a 1% tax on property .
and importantly “asset rich but cash poor retirees would be able to defer tax , so it becomes a duty on their estate when they die ‘ .
I take your point, it is a wealth tax and irrespective any identifiable source of revenue associated with it. That makes it exponentially worse in terms of crippling enterprises associated with land. Presumably the share market will continue it’s un hindered aggregation of wealth fuelled by more QE no doubt . So those that do nothing but speculate carry on laughing all the way to the bank.
This kills the UBI which is a good idea, but with this lassooed to it it will never get off the ground.
D J S
The farmer is probably no worse off under TOP’s scheme than he would be be if he was leasing his land and paying rent.
I think that the UBI idea is worth investigating. But it would have to be deemed to those who are both NZ citizens and actually have lived here most of their lives, otherwise the Peter Thiels, the citizens who have never lived here https://www.stuff.co.nz/national/121302846/colour-drained-from-real-estate-agents-face-as-he-realised-hed-been-defrauded-of-120k-in-sim-hijacking-scam and the satellite families will all be signing on to even more NZ benefits without contributing to NZ taxes.
I also am not against a small charge on a person’s house if it could be offset by other taxes earned… aka encourage people to not over reach on housing and make income off properties…. but whenever a housing tax in NZ is proposed you seem to find somehow the richest don’t have to pay as it goes on to taxable income which the rich and dual residents can manipulate their taxable income as many do not have to legally pay taxes in NZ these days.
You should also have to pay more tax if you don’t own a house in a private name but trust or business name. That encourages transparency of home ownership as well as collecting money from those who use their house as a business or trust.
1% is too high though, because if an average house is worth 1 million dollars in Auckland then that is $10,000 per year on top of rates per year of approx $2,500. Should be 0.0025% of value, aka around $2500 p/w on top of rates… aka approx $5000 and the family home is not exempt so people can’t just live in a giant McMansion and claim it as their family home and untaxed.
My concern though is that our government loves proposing collecting taxes, but is not prudent at spending the money, aka most expensive roads in the world, and throwing money around to people who don’t deserve it. For example the wages subsidy should have been a UBI – or at the very least as they originally proposed limited to $150k (before big business got their claws into government and they made it unlimited, hence 8 million payouts to retailers and socially and morally questionable businesses)
Coronavirus: Wealthy liquor store barons claim $550k Covid-19 wage subsidy
https://www.stuff.co.nz/business/121359471/coronavirus-wealthy-liqour-store-barons-claim-550k-covid19-wage-subsidy
No wonder no money for the health system, sunset low wage industries – your next corporate welfare cheque is in the mail while complaining about the lazy kiwis propping their multimillion businesses up!
Politicians spend far too much time on collecting taxes and not enough time on being prudent in how they spend the money and who is receiving it, and is it fair.
Government pension policy needs to be change to living in NZ at least 50% of your life to claim a state pension, not 10 years.
The NZ pension should not be making the current user pays generation who has already paid, support 100,000 pensioners who just got here in the last decades of their lives.
Overseas based pensioners retiring in NZ, should have enough money to retire here without NZ support and bring their own pension, not bankrupting the younger generations of Kiwis.
Likewise pensioners who did not spend much time living in NZ should have to pay their own retirement home costs and health care if they retire in NZ without living here 32.5 years (aka 50% of their lives). Instantly this rule would free up a lot of money being wasted in NZ, and be a lot fairer to subsequent generations.
Property tax has to be be paid in NZ; so anyone who is able to manipulate other tax liabilities would nevertheless not be able to manipulate their way out of paying any tax due on property. This would be one of the advantages of such a tax.
The tax on a $1,000,000 property would not be 1% of the total value, but 1% of the property owner’s equity. (Equity = total value less any outstanding mortgage liability.)
As far as trusts are concerned, a flat tax of 33% on all income, including trust income, would probably solve that problem..
TOP have got it all wrong here;
“$13,000 annual UBI for every Kiwi & more take home pay: TOP UBI Policy and COVID-19 stimulus”
Then in their policy laid out it says this;
“TOP is proposing a fundamental overhaul of the tax and welfare systems in New Zealand, by introducing three key changes:
A universal basic income (UBI) for both adults ($13,000 annually) and children ($2,080 per child annually),
So first they say EACH KIWI GETS $13000 ANNUALLY
THEN THEY SAY “FOR BOTH ADULTS ($13000)”
IF THESE GUYS CAN’T SEE THE FINANCIAL ERRORS HERE, I WOULDN’T VOTE FOR THEM AS RUNNING OUR COUNTRY; – WOULD YOU?
Yep it is just more of the relationship rules bullshit.
Screw the 33% flat tax.
Leave the tax levels as they are bring in a 40% tax rate at $250,000
Bring in a FTT tax of 2% as Social Credit suggest ON ALL TRANSACTIONS within the country and money being transferred out of the country.
Plus a UBI of $400 and ditch the gst.
The mistake is a grammatical one rather than a financial one. It’s pretty clear that their intention is that a couple should receive $13,000 each; ie $26,000 between them.
Many people put their home into a trust to safe guard it from the Relationship Property act or the family protection act, both of which can place a home in jeopardy in several common circumstances.
For a pensioner to set up a safe home in a trust to have it then taxed heavily as TOP suggests, would leave little money to live on.
Speculator’s properties and rental properties are a different matter but homes should be left as no profit is made from them usually.
Rates are bad enough with Councils spending on project to foster more commercial activity and private profit.
Top’s proposal is not an improvement for the average Kiwi. UBI can be implemented without TOP.
When the UBI is paid universally then wages will be less and the employer can be taxed to retrieve that saving into the government coffers. UBI and lower wages are not for employers profit.
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