A guest post by a reader:
During the 2014 election campaign both Labour and the Greens told us how they want a ‘smart green’ economy that takes advantage of new technology to produce higher value products and lower carbon emissions. In addition, they want an economy that discourages speculation in housing, reduces inequality and puts more people in work.
These are admirable goals and not new. However, the irony is that the policies put forward by Labour and the Greens (and most of the other parties to be honest) are not smart or particularly green. Rather, their polices are dumb and dirty.
For the most part, both Labour and the Green’s economic policies rely on the assumption that the private sector is dumber than government officials. They assume the private sector is holding off investing in innovative green ventures or productive research until the government assists by giving a grant or tax incentive.
Their economic policies require a bureaucratic money-go-round. Some taxpayers pay more tax in order that other taxpayers pay less tax or receive grants in return for undertaking the deemed beneficial activities. Or it may be the same taxpayer paying less tax on income from favoured activities and more tax on other income! Such schemes are more likely to create a drag on the economy than boost it. That is unless you believe government officials are masterminds! Sam Morgan recently pointed out that if officials really had a superior record in picking winners, he’d hire them.
If one accepts the need for the government to raise more money, substantially raising the top rate of income tax for a small group of higher income taxpayers is not smart. People don’t like paying more tax, particularly a huge 40% of any extra income they earn as the Greens propose, so find ways to lower their taxable income. Raising the top tax rate inevitably raises less revenue than the relatively small amount mathematically possible.
The tax avoidance encouraged by higher rates of income tax also distorts investment. For example, the huge growth in tax loss generating rental properties in the 2000s was driven in part by taxpayers avoiding the fifth Labour government’s increase in the top rate tax to 39% for any income over $60,000.
However, a capital gains tax would do little to discourage the middle class from continuing to invest in rental properties. A capital gains tax is not payable until way into the future, if ever, in their minds so would cause them little immediate concern. Furthermore, with Labour’s version the CGT rate would only be 15%.
A more effective way to make residential property less attractive and raise revenue would be to impose a tax that immediately hits the pocket and is impossible to avoid. A land tax set at a small percentage of the value of land owned, payable annually or maybe quarterly, would do this. A tax free threshold of around $200,000 could exempt the land occupied by the average family home while discouraging the pouring of more money into low yielding property.
A land tax would be better at reducing inequality and do less to discourage productive activity than a CGT or raising income tax. Other taxes on the stock of capital such as inheritance and gift taxes have similar advantages. Such taxes were used in the past to break up big estates and reduce inequality. Any party serious about reducing inequality needs to consider using them.
On the supply side, if we really want innovative businesses and individuals to bring their ‘smart green’ ideas to New Zealand then we should stop trying to tax them on their worldwide earnings. New Zealand has to be more attractive than alternative destinations, and not trying to sweep all residents’ offshore income into New Zealand would be a good start.
The Greens would have us believe that a large increase in public transport spending at the expense of building new roads would also somehow be good for the economy and the environment. The reality is that it would largely be a waste of money and likely increase pollution.
The Greens are keen on ribbons of steel snaking across the land to support massively heavy and expensive rail carriages. Even so called light rail, which they also like, is still heavier, far more expensive and less flexible than buses. Unless there are constant large volumes of freight or passengers, rail never comes anywhere near paying its way.
Even using buses for public transport is efficient only for busy and peak-time routes. Having off-peak buses run around nearly empty (which is very common) is actually worse for the environment than everyone using cars. A bus puts out at least four times the carbon emissions of a car. Given buses follow a less direct route, it is likely that every bus with less than 8 passengers on board is emitting more carbon than if all those passengers were driving one car each! Electrified buses or trains, and all the infrastructure they require to operate, are substantially more expensive so even less viable. Anyway, a material amount of electricity generated in New Zealand comes from the burning of fossil fuels.
Those people who rely on off-peak public transport could easily be transported more efficiently in shuttle vans or cars. There are apps such as Uber that make taxis easier to use and more efficient. Software to efficiently route transport picking up multiple people going to the same location has already been developed. The conditions are therefore ripe for the development of new, innovative, cost effective off-peak public transport solutions that use small vehicles and technology – solutions that really would decrease carbon emissions.