Greens would lower debt faster than Labour

Greens would lower debt faster than Labour

By Pattrick Smellie

Sept. 18 (BusinessDesk) - The Green Party would reduce net Crown debt more quickly than the Labour Party and would continue to run Budget surpluses over the next four years, if it were the government, according to a costed fiscal plan released by the party's leader, James Shaw.

The costings are highly reliant on high-income earners not dodging a new top tax rate of 40 percent on income over $150,000, no drop-off in sales of investment property after introduction of a capital gains tax, and social welfare beneficiaries spending no longer on benefits in the absence of work tests and sanctions that the Greens argue are discriminatory.

An independent economics consultancy, Infometrics, vetted the party's figures at its request and warned that in each of the three areas above, there is a risk respectively of greater tax avoidance, fewer property sales, and people spending longer on benefits.

New tax measures are important to the Greens' costing, with the 40 percent top tax rate forecast to raise $163 million a year, alignment of the tax rate for trusts to the top rate to bring in another $455 million a year, and a capital gains tax is seen as raising $216 million in its first year, rising to $671 million by the third year of implementation.

The Greens would also replace the emissions trading scheme with a carbon tax at $30 per tonne of carbon emitted, rising to $40 a tonne in 2019/20, to raise $1.7 billion annually. A nitrate pollution levy would raise $125 million by its third year of operation, although revenue from this source is presumed to fall as farmers would reduce nitrogen runoff.

The other major revenue move delivers around $2 billion a year by not implementing the National Party's tax cuts, which come into force on April 1 next year.

On the spending side, the largest single item is the Greens' 'Mending the Safety Net' package, which would raise core social welfare benefits by 20 percent and remove sanctions intended to encourage beneficiaries into paid employment. The annual cost of that policy is forecast at $2.5 billion by 2020/2.

The party's Climate Protection Plan is costed at $1.7 billion a year by 2020/21. By 2020, it's envisaged the plan would be paying a 'climate dividend' to every New Zealander of $250 annually.

The plan also sets aside $600 million annually as a spending allowance to meet unexpected additional costs or revenue shortfalls, the party's document says.

Using as its benchmark the Treasury forecasts contained in last month's Pre-Election Fiscal and Economic Update (PREFU), the Greens forecast their Budget surpluses over the next four years would be only $700 million smaller than those forecast by the Treasury, based on current government policies.

The Greens would also lower net Crown debt slightly faster than under Labour's fiscal plan, with net debt forecast to be 19.1 percent of gross domestic product in 2020/21, compared with 21 percent of GDP under Labour's plan and 18.8 percent in the PREFU.

Infometrics says it "performed a high-level sense test of the magnitude of these costs" although detailed costing was not part of its brief and it "does not attempt to calculate ... the flow-on effects of projected differences to economic and fiscal tracks", meaning the PREFU forecasts are assumed over the next four years.

The fiscal plans "broadly adhere to the Budget Responsibility Rules" that the Labour and Green parties jointly signed up to last year, said Infometrics. The BRRs were part of a strategy both to blunt political attacks on the parties' economic credibility and to demonstrate their capacity to work together in government.

However, Infometrics cautioned that changes to the top income tax rate in 1999, 2008 and 2011 all had "a stark impact on the amount of declared income reported by taxpayers".

"If taxpayers consider the impact large enough, they will shift their taxable earnings to other areas - including through companies - to avoid personal income tax - an economically rational and perfectly legal option," Infometrics said, although aligning the trust tax rate with the top personal tax rate was designed to reduce such opportunities.

(BusinessDesk)

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