The Grimes proposals
Arthur Grimes has made some interesting proposals on tax. Grimes is the Chair of the Reserve Bank Board, but these are his personal proposals. He advocates:
- A 1% land tax
- Increase GST to 15%
- 0% income tax on the first $9,500 of income
- 10% income tax from $9,500 to $38,000
- 20% income tax on income over $38,000
Now what is the revenue affect on each proposal?
- New Land Tax – $12 billion more (costed by Grimes)
- Increase GST – $1.7 billion more
- Decrease Bottom Rate – $3.3 billion less
- Decrease Lower Middle Rate – $4.3 billion less
- Decrease Upper Middle Rate – $1.7 billion less
- Decrease Upper Rate – $2.9 billion less
The approximate loss of tax revenue is $12.1 billion against $13.7 billion in more tax, so it is definitely fiscally affordable. I’ve used the Treasury tax calculator but one should only use that for minor changes of 2% or 3% as it ignores some macro-economic factors. I suspect Dr Grimes has done more precise calculations. I suspect the loss on revenue won’t be as great as $12.1 billion because the desire to avoid the higher tax rates would diminish, and more income would be declared as taxable.
On the tax reduction side, I love the idea of a 0%, 10% and 20% structure. I like the fact that most of the money will go on reducing the lower and the lower middle rates. Imagine earning $35,000 and paying only $2,550 in tax or an average 7.3%.
The biggie of course is the land tax. I do share some of Dr Cullen’s concerns:
Finance Minister Michael Cullen, also at the meeting, questioned how people would pay the land tax if they owned property that was not earning an income, but he would not comment further.
A 1% land tax is pretty high. On an average urban property it would be several thousand a year. Of course almost all land owners would probably get more back from the tax cuts.
On the other hand, land tends to appreciate faster than 1% per year, so land would still be a good investment, just less so. The cashflow issue is more the problem. I’m not sure taxing ownership rather than activity is a desirable thing. Might start off on land but give the Greens a chance and you’ll be taxed for owning large easter eggs and non approved cars.
What I’d love to see happen, is for the Government to seriously investigate the proposal. Do a proper costing of the numbers. Produce scenarios on how it would affect people at various income levels and different levels of land ownership. See if there is a way to make such a package work as a win-win. Also most importantly see what effect it would have on increasing our economic growth and our national standard of living. It’s not just about how to divide the pie up, it’s about trying to grow the pie faster so we can keep up with Australia.