Understanding the Green Party's 2023 Tax Policy: Implications and Considerations

Introduction:

At Ross Holmes Virtual Lawyers Limited, we aim to keep our clients informed about significant developments that may impact their financial well-being. In this blog post, we will delve into the Green Party's 2023 tax policy.

It is important to note that the New Zealand Labour Party's previous consideration of a capital gains tax was met with strong opposition resulting in their abandonment of that policy. On 15 August 2017 then Labour Party leader Jacinda Adern announced that any capital gains tax imposed by Labour would not apply to the family home. On 17 April 2019 then Labour Party leader Jacinda Adern abandoned plans to impose a contentious capital-gains tax on investment properties, shares, and business assets.

As the Green Party is a minor part of the current coalition government and lacks the necessary political influence, their proposed policy is unlikely to come to fruition.

An overview of the Green Party's 2023 Tax Policy:

The Green Party has announced an income guarantee policy which they propose to by implementing changes to the tax system. The key elements of their tax policy include:

1. Wealth Tax: A 2.5% wealth tax on assets exceeding $4 million (minus mortgages and other debt) for couples, and $2 million (minus mortgages and other debt) for individuals. They say that this tax is not expected to affect most family homes or retirement savings.

2. Trust Tax: A 1.5% tax on assets held in trusts to prevent individuals from moving their money into trusts to avoid the wealth tax.

3. Top Rate of Income Tax: The introduction of a new top rate of income tax at 45% for individuals earning over $180,000, aiming to increase tax contributions from high earners.

4. Corporate Tax Rate: A new corporate tax rate of 33%, reverting to the rate before National came into government in 2008.

Implications and Concerns:

It is essential to consider the impacts of these taxes on various individuals and sectors. Here are some important considerations:

1. Unintended Consequences: Not everyone affected by the proposed taxes is wealthy. Individuals who have placed assets in trusts for legitimate reasons, such as protecting family inheritances, may face substantial additional tax burdens.

2. Asset Valuation Challenges: Implementing a wealth tax based on unrealised capital values requires frequent asset valuation, leading to increased costs and potential disagreements with tax authorities. This would create a significant administrative burden for individuals, retirees, and businesses.

3. Impact on Farmers: Farmers, including dairy, sheep, and beef farmers, will face additional tax burdens, affecting their already challenging financial situations. The Green Party's tax policy will further strain the agricultural sector, which plays a vital role in New Zealand's economy.

4. The Limitations of Tax-Based Solutions: While the Green Party aims to address poverty through increased government spending, it is important to recognise that simply raising tax revenues does not guarantee poverty eradication. Previous attempts by other parties to solve poverty through increased government spending have had limited success, raising questions about the effectiveness of this approach.

Let's illustrate the impact of these policies through the stories of some New Zealanders with their names changed:

1. Laura, a hairdresser from Christchurch: Laura owns a hair salon downtown and she's done well for herself. She owns a one-million-dollar home with a mortgage of $200,000, which she placed in a trust to protect her children's inheritance. The Green Party's proposed tax policy means that Laura now pays an extra $12,000 a year in Trust tax with no way of paying it. This is a significant amount for someone who doesn't consider herself "rich". The tax makes no sense as if she owned the house herself she would pay no tax.

2. Derek, an electrician from Auckland: Derek is a seasoned contractor who's been smart about his money. He owns his own home and a rental property, together valued at $3m with a $500,000 mortgage remaining. He's put his assets in a trust for the security of his children. Due to the new policy, Derek now faces a $37,500 annual tax on the value in his trust. Even if he moves his assets out of the trust, he's still faced with an annual wealth tax of $12,500.. These taxes will affect his standard of living dramatically as they are taxes on capital aseets.

3. Emma, a widow from Wellington: Emma lost her husband to cancer last year, leaving her with a home, worth $1,5 million a holiday home, worth $500,000, and savings of $500,000 getting a 5% return (of $25,000 p.a.), a total of $3 million. Now, under the Green Party's tax policy, Emma finds herself paying an extra $45,000 a year in tax as her assets are in trust. If she takes them out of the trust, she still faces an additional $25,000 a year in tax which will take all of her interest earnings. She will either have to live on her superannuation and dramatically reduce her standard of living or sell her beach property which she and her late husband had enjoyed for many years.

4. Fred and Judy, Dairy Farmers from Waikato: Fred and Judy own a freehold dairy farm valued at $5.25 million. On top of their rising farm expenses, the Green Party’s new policy imposes an additional annual tax of $81,250 on them, which they have no way of paying. Furthermore, the couple is unsure how the tax will apply to the livestock and farming equipment they own. They would be forced to sell their dairy farm.

5. Alan, a Sheep and Beef Farmer from Canterbury: Alan's farm was inherited from his parents, and has been in his family fro many gnerations. Despite rising farm costs, the farm made a profit of $123,000 in 2022. Now, because the farm is worth $3 million and held in a family trust, Alan is looking at an additional $45,000 annual tax bill due to the Green Party's new tax policies. He has no way of paying that tax,

These scenarios bring to life how the new tax policy will impact a diverse range of New Zealanders, many of whom would not consider themselves part of the "wealthy elite". The Green Party's intent may be to target those at the very top, but the ripple effect of their policy hits ordinary, hard-working individuals and families as well.

Conclusion:

Our nation's culture, often celebrated for its virtues, does bear an unfortunate characteristic known as the tall poppy syndrome. What the Green Party might not fully comprehend is that their tax policies, rather than only impacting the "tall poppies," are also affecting "medium-sized poppies". It's important to understand that not all individuals who have their assets in a trust, or those who would be subjected to the Greens' wealth tax, are affluent. In fact, many are far from it.

The Green Party's 2023 tax policy proposals if implemented will have consequences that will adversely affect individuals, businesses, and sectors such as agriculture.

Ross Holmes Virtual Lawyers Limited will continue to monitor any updates or developments in tax policies that may impact our clients.

Disclaimer: The information provided in this blog post is for educational and informational purposes only. It does not constitute legal or financial advice. Please consult with a professional advisor for guidance specific to your situation.

Reference: Green Party's 2023 tax policy.