The Greens’ tax and child poverty policy

By Seamus Hogan 19/08/2014

I spoke briefly on Morning Report this morning on the topic of the Green’s proposed policy to increase the income-tax rate to 40% for incomes over $140,000 and use the revenue raised to fight child poverty. Our brief pre-recorded interview covered a number of different aspects of the policy, of which they used my comment on the income-tax hike. The main points I made were as follows:

  • On the expenditure side, it is a laudable goal to seek to reduce child policy, but I have a couple of concerns with the proposed mechanisms for achieving this:
    • I would like to see more details on how replacing the In-Work Tax Credit with a general tax credit that doesn’t require 20+ hours worked each week would affect the incentives to work. I take Susan St John’s point (from the same Morning Report piece linked to above) that it is unfair to separate children in poor families into the deserving and undeserving poor based on the employment status of their parents, but the potential unintended consequences of creating new poverty traps needs to be acknowledged. 
    • I wonder about the evidence base to backup the suggestion that problems with child poverty eliminated by providing parents with more income support. More income may well be a necessary condition, but I am mindful that we live in a country with a shockingly low immunisation rate for children from impoverished backgrounds even though immunisation is free. 
    • To be fair, there are other aspects to the proposed policy than increased benefits (or reduced taxes) to poor families with children, and these may well be worthwhile, and I am not sure that the proposed income supplements wouldn’t be effective; I just feel that this is a hugely difficult area that is not well understood. I would feel a lot more confident in these proposals if the proposal were to experiment with a few different things and to collect good data on effectiveness before committing a massive expenditure that will be hard to reverse if the policies turn out to be ineffective or counter-productive. 
  • It is on the revenue side that I can’t take the policy seriously at all:
    • By all means seek to raise revenue by cracking down on tax avoidance, but this is a bit like trying to save money by eliminating inefficiency in the public service. In reality the revenue gains are probably small; realistic budgeting should assume gains of zero until the revenue actually materialises. After all, one of the reasons that it is possible for people to structure their affairs to avoid paying tax is that the tax system has complexities that have been put in place to achieve specific objectives; removing the complexities also implies abandoning those objectives. 
    • But this is just a detail. The kicker for me is the proposal to increase the tax rate to 40%, only for incomes above $140,000. This smacks heavily of offering the other kid’s bat–that is, asking people to feel good about alleviating child poverty without asking them to make any sacrifice themselves. Seriously, there is very little income earned above $140,000. Why not start the income threshold for the top rate at a much lower income level. That way, you would raise more revenue from the very rich (they pay tax on their first $140,000 of income, not just the incomes above that level), and you would be asking the comfortable middle class to contribute to the laudable goal of reducing child poverty as well. A politics that boasts that only 3% of tax payers will see their tax bill rise is a politics that assumes the average New Zealander doesn’t care at all (other than rhetorically) about child poverty. Greens’ co-leader, Metiria Turei was asked about this in a different segment of Morning Report this morning, but she evaded the question. 
Note: Matt at TVHE has posted on this policy as well and makes many of the same points and some others. In particular, his final bullet is spot on.