Gareth Morgan says NZ's wealthiest 20% would pay more

Wednesday 07 December 2016 01:35 PM

Gareth Morgan says NZ's wealthiest 20% including Key would pay more under Opportunities Party tax policy

By Fiona Rotherham

Dec. 7 (BusinessDesk) - Prime Minister John Key would pay an estimated extra $150,000 in tax a year on his Auckland home under a new tax on equity policy released by wealthy economist Gareth Morgan’s new Opportunities Party.

In a media conference staged opposite Key's Parnell mansion, Morgan said his own asset portfolio would incur an extra $350,000 tax a year under the flagship policy aimed at making the revenue system fairer.

The tax policy, first proposed in a Morgan Foundation report on tax released in April, proposes expanding the definition of annual taxable income to include a minimum rate of return an equity owner gets from their productive assets, including houses, farms, equipment, cars and even intellectual property in a business. Those that already declare at least that level of income will be unaffected and those that don’t will pay more.

The only exemption would be financial assets such as shares, deposits and bonds which already have tax paid on them. It’s an extension of what the government already does under the Fair Dividend Rate regime for New Zealanders who own shares overseas, Morgan said.

“Government is already doing this policy but only to a select few. No-one wants to go near housing,” he said.

Morgan stressed the policy wasn’t a tax grab. Overall, the fledgeling party’s package would be tax neutral, with every additional tax dollar collected given back via income tax cuts, which Morgan said he would make bottom-ended so those on lower incomes get more.

When questioned whether the policy would be a hard sell to house-owners, Morgan said “I’m going to give you more money back in tax cuts than you have an increase in rates. You’re better off. Only 20 percent of people won’t be better off and they will hate me.”

The level of the minimum rate of return would be up to the government of the day, but in his view, 5 percent, the same rate paid on foreign shares, would be appropriate.

Morgan said winning over the public rather than politicians that the tax policy is a good idea, would give his new party leverage if it gets sufficient votes in the next election.

“We want to be the tail that wags the dog, whoever the dog is in parliament,” he said. “We want to stay on the cross benches and we’re for sale basically to the highest bidder in terms of who makes the most of the seven policies we’ll be putting out.”

Morgan said the current tax system is biased with wage earners paying too much of the tax bill while the radical policy he’s proposing addresses the fact the trickledown promised under Rogernomics still hasn’t happened 30 years later. Income inequality in New Zealand has gone up markedly since the early 1980s.

Despite the fact Key is a nice guy, Morgan said, “I think his legacy will be inequality went up yet again under his reign. And the biggest riser of inequality over this latter period has been the increase in housing costs.”

Since 2010, the country with the strongest rise in house prices relative to income has been New Zealand.

“When my wife and I bought our first house the average house price to income was about three to four times - it’s now seven times and it’s a hell of a lot higher in this town. That chews people’s income in one form or another and central to what we’re doing here is a policy to improve the affordability of housing.”

The new tax would immediately take out excess demand for property and deter people from land-banking and “holding Auckland to ransom”, he said.

It would change the way businesses perform with a raft of companies currently earning less profit than investors could get from the bank with no risk. “They’re not really businesses are they. What they are are lifestyle choices, they are tax dodgers and they will get caught by this tax,” Morgan said.

It will also see less money going into property speculation in favour of savings and investment that would reduce New Zealand’s reliance on foreign capital to help businesses grow, he said.

The policy would have to be phased in to avoid a collapse in house prices, Morgan said.

He proposes stepping the required minimum taxable earnings rate up over a few years so asset owners have time to adjust and there is no crash in house prices. It would allow pensioners who own their homes to pay the tax via a mortgage with the Inland Revenue Department, payable on a change of ownership, and for businesses facing a temporary downturn to defer paying their minimum income tax for up to three years, with use-of-money interest to be charged.

The party said further tax policy on following Britain and Australia’s lead in dealing with tax avoidance by foreign corporations immediately will be released in the lead up to Christmas. Morgan said it would be based around foreign firms having no expenses deductible unless they can prove they are genuine and done on genuine commercial terms.

“That should make them sit up. It’s about making the tax system fair,” he said.

(BusinessDesk)

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