Morgan’s Tax policy

The Herald reports:

The first policy of Gareth Morgan’s new Opportunities Party has been released this morning – repeating a call he made earlier this year for a tax on equity to make the revenue system fairer.

The tax policy, which matches the content of a Morgan Foundation report on tax released in April, proposes deeming a minimum rate of return on all productive assets, including housing and land.

Those that already declare at least that level of income will be unaffected and those that don’t will pay more, the party’s tax policy statement said.

It said about 80 per cent of adults will be either unaffected or pay less tax as a result of the suggested tax reform and 20 per cent would pay more. “But don’t fret, we can afford it,” said the wealthy Morgan. “I will pay considerably more tax, so will John Key.”

It would mean people could be taxed for owning the house they live in or even for an expensive car.

Overall, the fledgling party’s package would be tax neutral, with every additional tax dollar collected given back via income tax cuts, it said.

The full policy is here. Somewhat annoyingly it doesn’t give any details of what rate would apply for this asset tax, and what reductions in income tax would be to compensate. Only then can you assess the impact at an individual level.

But let’s look at the policy from a macro level.

The good

• Designed to be revenue neutral, income tax would be cut to compensate
• Fits well with best practice of broad base, low rate
• Has no exemptions, minimising gaming
• Would reduce tax on income incentivising work

The bad

• Taxing assets, rather than gains on assets, could be very harsh on some. Say your KiwiSaver account has a bad year and loses 10% of its value. To add insult to injury you then get whacked a tax on the account, despite having had losses.
• Very tough on asset rich, income poor households, such as the retired.
• Will discourage assets and savings. Not a problem if was a tax on land only (as supply is fixed)

The ugly

• Every taxpayer will have to prepare a balance sheet as well as a tax return
• Likely huge work for accountants with people trying to devalue their asset worth