The Green Party’s alternative Budget, announced this week, would reduce the after-tax income of the average registered nurse. Photo / 123rf
The Green Party’s alternative Budget, announced this week, would reduce the after-tax income of the average registered nurse. Photo / 123rf
Analysis by Thomas Coughlan
Thomas Coughlan, Political Editor at the New Zealand Herald, loves applying a political lens to people's stories and explaining the way things like transport and finance touch our lives.
The new taxes would reduce the income tax burden for many low-income workers but increase it for others, including nurses.
The Green Party’s alternative Budget, announced this week, included such hefty increases to income tax that it would reduce the after-tax income of the average registered nurse.
The revelation comes at an unfortunate time – Labour, which on Wednesday refused to rule in or out any aspect of thealternative Budget from the Greens, their likely coalition partner, this week ran ads accusing the Government of cutting the pay of nurses with its pay equity reforms.
(Now, let’s be serious, there’s approximately zero chance of Labour hiking income taxes in the way envisaged by the Greens. Their hesitance to immediately rule taxes in or out is purely to avoid a mid-term scrap with their likely partner.)
While the pay equity reforms will mean fewer and less generous pay equity settlements, they will not reduce anyone’s pay, including nurses. The Greens’ tax changes, however, would do just that, reducing after-tax incomes for a lot of professions, including nurses. Thanks to a 2023 pay equity settlement, many nurses earn enough money to be stung by the Greens’ proposed changes to income tax.
A Labour advert this week accusing the Government of cutting the pay of nurses with its pay equity reforms. Photo / Instagram
These changes would increase the income tax paid by everyone who earns over $125,000 (the party’s documents say the plan would boost the incomes of everyone earning under $115,000 – they’ve sold themselves short, the actual figure is closer to $122,000). The party wants to introduce two new tax thresholds; income over $120,000 will be taxed at 39% and income over $180,000 will be taxed at 45%.
The most recent Health NZ data shows 10,346 senior nurses, enrolled nurses, nurse practitioners and registered nurses earn above $125,000, enough to be stung by the taxes.
However, those figures don’t include allowances, super payments, or any overtime. Health Minister Simeon Brown’s office supplied figures from Health NZ showing that when they’re included an average registered nurse earns $125,662 – meaning they would be hit by the relatively modest $3 a week tax rise.
Senior nurses, however, would contribute as much as $33 a week – $1700 over a year.
The focus on nurses exemplifies the challenge of the Green Party’s alternative Budget. When your plan involves $88.8b of new taxes (over the four-year forecast period), there’s a good chance everyone – and not just the super wealthy – will get hit. It’s a challenge for Labour, too. This isn’t the Green Party of old. This plan proposes one of the largest and most radical increases in taxation put forward by one of New Zealand’s main political parties.
The plan does the Government’s work for them. The people stung by the plan are not only super wealthy folk stashing away their billions in art and yachts, but nurses who would see much of their overtime – long, horrendous, overnight shifts – taxed at 39c in the dollar.
The $88.8b figure, the most widely-reported number for the Greens’ proposed tax rises doesn’t actually capture the full picture. An Infometrics’ analysis of the party’s costings, commissioned by the Greens and released to the Herald put the full cost of the party’s changes to the Crown’s revenue position at $99.11b, about $11b higher. To put that in perspective, National’s entire 2023 tax cut plan was a shade over $14b – meaning that alongside the Greens’ main costings is $11b in additional revenue from ETS revenue and reversing current Government transport spending.
Part of an Infometrics analysis of the Green Party's alternative Budget. Table / Greens-Infometrics
These figures here are quite remarkable and built on the party’s 2023 tax policy, which already pushed the boat out in terms of the levels of new taxes.
The $99.1b figure is 30 times more new tax than Labour promised in its 2020 tax plan (using figures adjusted for inflation) and nine times as much tax as Labour expected to gather from the 2023 wealth tax ($10.99b – again, adjusted for inflation).
The problem with what the Greens announced this week isn’t that it’s Marxism, as its critics joked (one wonders, with taxes this high, whether there would be any means of production left to seize), but that it’s not quite plausible.
Completely overhauling the tax system, the state, and the economy within a single Parliament in the way the Greens envisage in this plan isn’t plausible, and not just because Labour would never allow income taxes to rise as much as the Greens want.
As the Infometrics analysis notes, the Greens haven’t modelled any second-order effects, such as the number of people (including, yes, nurses) who would move to Australia to dodge the very high taxes – or the effect on businesses that would face the highest corporate tax rate in the Anglosphere.
This isn’t an oversight on the Greens’ part. Second-order effects are rarely (if ever) modelled in party fiscal plans. New Zealand has a proud tradition of implicitly forcing parties to cost out their policies and put them to the electorate. That imposes a hefty burden on parties, particularly small ones. It simply isn’t fair to ask parties to go a step further and establish their own mini-Treasuries to work out second-order effects.
That doesn’t mean second-order effects don’t matter, however.
Infometrics warned the Greens that the tax changes would result in taxpayers trying to “shift their taxable earnings into other vehicles, including companies, to avoid personal income tax – an economically rational and perfectly legal option”.
While the Greens have tried to bake anti-avoidance measures into the policy, Infometrics warned there was still considerable potential for tax avoidance, and the revenue assumptions “should therefore be viewed as a high-end estimate”. In other words, there’s a good chance they won’t get enough money from the new taxes to pay for all their promises.
Infometrics made a few warnings of this type, saying the party proposed “a large number of fundamental policy changes” not just to the tax system, but the welfare system and the wider economy.
“Some of the outcomes of the changes proposed could have interrelated and overlapping impacts for various fiscal outcomes. The large number of changes means that not every variation or permutation of different policy interactions can be considered in totality,” the review said.
“This caveat does not invalidate this fiscal review, but merely points out that the behavioural impacts of a number of policy changes are difficult to conceptualise in models, and overlapping behavioural changes are even harder to consider,” the report said.
It’s not that the whole plan is implausible.
Some parts, in isolation, would be hard work, but ultimately achievable. Other aspects of the plan might even be necessary. Infometrics reckoned the plan would see total Crown expenses rise to 46% of GDP – a bit on the high side for New Zealand – but not out of step internationally.
That might seem slightly on the wild side now, but it’s a level of spending New Zealanders may ultimately have to get used to. Treasury has repeatedly warned that superannuation and health costs will require adding a few percentage points of GDP to Government spending. That money is going to have to come from somewhere and the Greens have nicely, if unintentionally, laid out how difficult finding all that money is going to be.
The sad truth is that one day a Government will probably have to start rinsing the economy for billions of extra tax, but this won’t be in order to build the brighter, greener future the Greens want – it’ll be to start paying for the unsustainable promises of today.
Thomas Coughlan, Political Editor at the New Zealand Herald, loves applying a political lens to people’s stories and explaining the way things like transport and finance touch our lives.
