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Green Party scores massive own goal

Green Party scores massive own goal as their own policy auditor criticises their fiscal plan

August 21, 2014. 8:00am

“The Alternative Budget released by the Greens does not even stack up in the eyes of their chosen auditor – Infometrics,” said ACT Leader Dr Jamie Whyte.

"Infometrics' review of the Greens' fiscal plan found revenue estimates to be very much on the high side and said it would be much more prudent to estimate considerably lower revenue from the party’s tax hikes.

"The revenue forecasts of the Greens simply did not take into account quite predictable behavioural responses to the massive increase in both the top tax rate and the trust tax rate that is paid by hundreds of thousands of small businesses and family farms in New Zealand. Infometrics had to call the Greens out on this."

To quote the relevant passages in full, so there is no mistaking the dodgy numbers in the Greens' Alternative Budget:

“Our second more substantial concern is that the estimates make no allowance for behavioural responses to the tax change. The type of impact is demonstrated in Figure 1, which presents the way that declared income evolved following the introduction of a 39% tax for incomes over $60,000 in the early 2000s. The majority of post 1999 income growth occurs at income levels below $60,000. In particular there is the development of an income spike precisely at $60,000 – a spike that did not exist prior to the tax change in 1999."

“If the incentive is large enough people will rearrange their affairs to reduce their tax exposure. The Green Party proposals to change the tax rate for trusts and to increase tax enforcement activities reflect an awareness of this propensity, but the revenue estimates do not reflect this awareness. Tax avoidance is not necessarily illegal, but usually reflects a combination of people perceiving that the system is not equitable and an overly complex tax system. The former creates the incentive, the latter the means, for tax avoidance. Taxpayers will be surprisingly fast at changing their affairs, and most changes will be quite legal."

"The Green Party tax revenue estimates take no allowance for a decline in the tax base and as such must be viewed as high-end estimates. We think it would be prudent to base fiscal estimates on considerably lower revenue estimates.”

The full review can be read here: https://www.greens.org.nz/sites/default/files/Appendix-Infometrics-ReviewOfFiscalImpact.pdf

“The Greens cannot with any credibility claim that putting the top tax rate up to 40%, and putting up the trust tax rate to 40%, which affects hundreds of thousands of small businesses and family farms, will have no behavioural effects,” said Dr Whyte.

“The Greens cannot have any credible claim to a senior ministerial portfolio after putting out so naive an alternative budget.

"On one hand, the Greens' proposals for a carbon tax are pointless unless there are behavioural changes – people will buy less carbon intensive products. But the Greens then go blind to the obvious behavioural effects of large tax increases when trying to hide their ropey economic analysis and ideological hatred of success, choice and personal responsibility.

"The Alternative Budget of ACT explicitly took account of behavioural of responses of taxpayers to cuts in the top tax rate to 24% and cuts in the company tax rate to 12.5%. Some of the revenue offsets from these behavioural changes are immediate increases – to the order of 10% of revenue.

"The ACT party looks forward to a prosperous New Zealand.

"The Green party wants to tax and regulate New Zealand into poverty."


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