The political maths of tax is shifting

New Zealand's biggest political assumption is that a tax on property or capital gains is an electoral non-starter. Bernard Hickey argues a growing number of young renters who vote may change that.

Comment: The Opposition Leader Jacinda Ardern tried to leave open the option of a capital gains or land tax before the election last September, but the political reaction from property owners fearing a change to the status quo was enough in the final 10 days of the campaign to force her to close off the option before 2020.

There weren't enough young renters who vote to change that political mathematics, largely because they were not enrolled, or if they were they then voted at much lower rates than older voters, who are much more likely to be property owners. This chart shows the lower voting rates of younger enrolled voters. It misses out those who have not enrolled in the first place, which means the voting rate for the youngest cohort is at least 20 percentage points lower than those over 50.

But those low enrolment and voting rates among the young may be changing.

There appeared to have been a slight youth tremor at the last election where un-enrolled young voters turned up at voting booths in shopping centres, libraries and universities to enrol and vote for the first time in the one place.

Queuing to cast advance votes at Westfield Manukau during the last election. Photo: Lynn Grieveson

Those votes were counted as special votes. Labour and the Greens each won an extra seat from special votes and that was enough to tip them into power with the help of Winston Peters. The chart immediately below shows the number of advance voters increased by more than half a million to over 1.2 million during the election, in part because the Electoral Commission was much more active in putting booths in shopping centres, universities and libraries.

Without seeing the post-election survey of voters, it's hard to know for sure that the extra special votes came from young first-time voters who enrolled and voted at the special booths. But pre-election surveys of young renters showed they were more likely to vote for Labour and the Greens.

The chart of enrolment rates by age cohort at the top shows that if 18-35 year olds increased their enrolment rates and voting rates they would quickly overwhelm the 45-65 age group. That more bottom-heavy (or at least less top-heavy) structure of the voting population has the potential to change the electoral map for a generation if one or more party can get the young into the voting booths to vote for them.

One of the least known facts about New Zealand's demography is that it is much younger than many think. That's because our natural population growth is much faster than in 'older' European and Asian countries, and because our migration rate of younger people has been two to five times faster than places such as Britain, Australia and the United States over the last four years.

Labour and the Greens will hope they can mobilise enough of those young renters to enrol and vote before the 2020 election to change the electoral mathematics that currently make any tax reform on residential property electorally difficult.

How the pressure will build

The Tax Working Group paper detailed the problem looming over this younger generation of voters. As the baby boomers retire and start queuing up for hip operations, the fiscal costs of this older cohort will overwhelm the ability of young renters to pay-as-they-go.

The Government's budget deficit is expected to rise to a structural deficit of four percent of GDP by 2045 if the current settings for taxes and spending are not changed.

The political pressure from the increasingly numerous and restive group of currently young voters approaching middle age without property or security will be immense. They face having to put up taxes on themselves to pay for the pensions and hip operations of people who are vastly wealthier than they are, and who will be collecting a pension and free health care on top of that.

The Group's report included some stunning charts on how the wealth is currently spread, both towards older voters and the wealthiest voters.

Just imagine a 40 year old renter in 2040 having to pay a higher income tax or GST rate so that a 75 year old still working and earning a big salary can be paid a superannuation benefit on top of that. Just imagine how they'll feel when these semi-retired High Court Judges or Deputy Prime Ministers rock up to a hospital for a hip replacement costing $30,000 and expect this poor renter to pay.

The political pressure will grow for measures such as means testing of pensions and health care, with pressure for pure wealth taxes. 

The Tax Working Group essentially argued in its paper that an already wealthy older generation of property-owning voters agree to some form of wealth tax now to avoid a much uglier backlash in the 2020s and 2030s as those in the younger cohorts work out the unfairness of their situation and start voting for their own interests.

Without reform now, the unspoken fear is that a young form of populist party will be created as a mirror image to New Zealand First. It would be able to capture a slice of angry young voters willing to punish older and richer voters.

That policy platform would include, in theory, a much more aggressive form of wealth tax that covers the family home, means testing of pensions and health, and subsidies for rental accommodation and public transport.

This is the second in a series of three reports on the tax debate. The first looked at how a lack of a tax on capital gains has screwed the scrum of the economy. The third looks at why a land tax to fund housing infrastructure is a better option for reform than higher taxes on income, corporate and GST.

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