Expert costing of Green Party wage policy

The Taxpayers’ Union is today releasing independent research from former NZIER Principal Economist, Dr Michael Dunn, which raises significant questions about the Green Party’s election costings.

Dr Dunn’s analysis of the Green Party’s “Fairer Reward for Fair Effort” policy document shows that the Party’s taxation forecasts are incorrect and instead of generating tax revenue, will actually result in a net loss in revenue.

The Greens say that their policy will mean increased revenue to the Government of $800 million per year, our independent expert says the actual cost to the Government is at least $110 million. That is a massive difference of more than $900 million in the one policy and suggests the Greens' costings are fundamentally flawed.

On top of the drop in tax revenue, Dr Dunn estimates that the policy would increase government expenditure on employee wages and contracts for services by around $1.1 billion over 3 years.

The Taxpayers’ Union repeats our offer to allow our independent expert to confidentially cost any political parties' policy before they are released so that the public can have confidence in how much a policy will cost or benefit taxpayers.

The report's author, Dr Michael Dunn, has told media:

The Greens' costing completely ignores the reduced taxes from companies due to the higher wages. They appear to assume that businesses can magically generate more money to fund higher wage bills. It doesn’t happen like this in the real world.

Expected slower employment growth will also adversely affect tax revenue.

Under this policy the Governments' primary fiscal balance would be reduced, by at least the direct costs already acknowledged by the Green Party, as the incremental tax revenue yield would be minimal, if any. In addition social transfer payments linked to wage rates would be increased.

This isn’t some Taxpayers’ Union hack calling into question the Greens' costings. Dr Dunn led the team at IRD that costed revenue policy and produced budget revenue forecasts for 12 years. He has advised both National and Labour led administrations. We've engaged him to review numerous party costings and provide the information for our Bribe-O-Meter.

UPDATE: Our expert, Dr.Dunn, wishes to thank a reader who pointed out that the proposed October 2014 increase in the minimum wage would be only 75 cents per hour, and that would have a reduced cost and impact. He has recalculated his figures accordingly, but the conclusions are unchanged. The updated report is available for download here.