On Gareth Morgan’s ‘new’ tax, and the UBI gone

Gareth Morgan’s The Opportunities Party yesterday (re)announced its first policy, Morgan’s long-standing plan for a comprehensive capital income tax. In effect, the policy argues that all forms of wealth generate – or should generate – income, just like savings accumulate interest, and that this income should be taxed, just like interest is.

Most controversially, the policy argues that people’s houses effectively generate an income, in the form of the money they save by not having to pay rent. Thus, housing should be taxed.

I broadly support the policy, because it increases equality by taxing all forms of income, not just those currently covered, and because it brings into the tax system large numbers of people who are currently probably paying very little tax. It would probably also lead to wealth being better used.

Personally, I would make the tax progressive, so that people with more wealth paid a large percentage, as Thomas Piketty advocates, because this would act even more strongly against inequality, and because (as Piketty shows) larger fortunes generate larger returns.

I also wonder about whether we want to treat people’s houses this way. Of course houses are technically assets; indeed owner-occupied housing is probably around 40% of all household wealth. But houses are, much more importantly, places to live – places where people nurture their dreams and bring up their families, places steeped in memories and stories. In the modern world too many things are already valued in monetary terms. Do we really want to further emphasise the financial aspect of that most important part of human life, the house?

On those grounds, I would think about exempting owner-occupied housing, although this would take a huge amount of wealth out of the tax net, or least exempting the value of the house above a certain level – say, the average house price – so as to try to separate out the basic shelter element (which, as above, should perhaps not be taxed) – from the investment element, which should.

UBI gone – for now

Almost more significant than the tax announcement, however, was Morgan’s admission that he would not be arguing for a universal basic income, at least for now.

It’s not absolutely clear why – except that Morgan obviously feels it’s not politically viable. When I asked him about it on Twitter, he said: “UBI can’t be funded until we have integrity in tax base. Our work on a modest UBI & funding says fix the hole first.”

But the capital income tax doesn’t “fix the hole” in New Zealand’s tax system, because the policy explicitly says that any money it raises will be offset by income tax cuts.

Morgan also said: “Financing that [the UBI] is a real challenge. There’s a way but it would be a step too far at this time.” I’m not sure what that “way” is. But at any rate, the UBI won’t be part of “phase 1” of TOP, however long that lasts.

I think this is significant because it contradicts Morgan’s two claims on launching TOP: that it would radically shake up a middle-of-the-road political establishment, and that it would be evidence-based.

The UBI is one of Morgan’s signature policies, and one of his most radical. (I have reservations about it, but that’s beside the point here.) To drop it, or least put it in the deep freezer, because it would be “a step too far” is exactly the kind of realpolitik-style, unadventurous incrementalism that he has attacked in the existing parties.

The UBI is also, for Morgan at least, evidence-based: he has spent a lot of time arguing that the evidence shows how well it would work. Again, putting it off seems difficult to justify, given his stated aims.

Morgan would, with some justification, probably argue that the capital income tax is quite radical enough already, for the average New Zealander at least. But I’m not sure you can have it both ways, that you can claim that you are going to “light a fuse” under parliament, then back away from one of your signature radical steps because you’re not sure it’s politically achievable.

As a final note, part of the reason the UBI is currently out of bounds for Morgan is that he seems determined to maintain New Zealand’s tax take at its current level, albeit switching some wealth and income taxes. But it’s hard to see why he takes that stance. New Zealand has one of the lowest tax takes in the world, and there’s a very strong (and evidence-based!) argument that we need a bigger tax take to bolster struggling public services (such as health, which has had inflation-adjusted funding cuts of $1.7 billion in the last few years) and improve our economic and social infrastructure.

Sticking to the current tax take isn’t a radical or evidence-based position: it’s a cautious, centrist one. And unless you think that opportunities can be generated for free, or there is currently massive waste in New Zealand public spending, I’m not sure where Morgan will find the money to pay for the other opportunity-generating policies he is presumably going to launch.

So, in short, while I support quite a lot of the policies that Morgan advocates, I’m not sure that his party is going to be able to achieve what he wants it to.