Opportunity’s ‘tax reset’ could benefit many households – but does little for the poorest

Getty Images With the Opportunity Party on the cusp of the 5% threshold to make it into parliament after the November 7 election, its signature “ tax reset ” proposal deserves close attention.

The policy is essentially a universal basic income (or “citizen’s income”), with a range of supplementary payments replacing current welfare benefits and NZ Super, funded by a land tax.

Opportunity presents its reset as a solution to New Zealand’s welfare problems.

But is it really? Most universal basic income (UBI) proposals fall down on two major design problems.

They fail to provide enough income for all but the simplest household types.

And they typically require implausibly high income tax rates to pay it.

Opportunity’s policy aims to get around the first problem by including additional payments on top of the UBI.

As well as an annual tax-free income of NZ$19,400 there would be add-ons for disability ($6,000), housing (average $6,500 for singles, $10,500 families), sole parents ($9,500), over-65s ($10,000 for singles, $5,250 for a couple) and children ($6,750 to $18,250 each, depending on age).

The package would replace all existing main benefits, NZ Super, the accommodation supplement, Working for Families tax credits, Best Start and paid parental leave.

The proposal gets around the second problem of higher income taxes by funding the UBI and add-ons with a tax on the unimproved value of land: 1.75% annually on urban land, and 0.5% on rural land.

This means only relatively minor tweaks to the income tax schedule would be needed.

The top marginal tax rate of 39% would stay.

But there are drawbacks to both these solutions.

Little help for the poorest Although Opportunity downplays it, much of the existing welfare apparatus would still be necessary.