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National’s Tax Package Makes an Impressive Headline
The National Party finally released its tax policy on Wednesday. While some economists have expressed scepticism about the affordability of tax cuts while the government runs a $6 billion deficit, they barely deserve to be called cuts. National has really announced a tax policy that shifts income streams to fund threshold adjustments and expand the welfare state.
National’s $14.6 billion package makes an impressive headline, and there are aspects which I certainly support. Adjusting tax thresholds for inflation is an eminently fair proposal that eliminates the crazy situation in which a person on the minimum wage working 40 hours per week faces paying 30% income tax on any overtime hours. However the last time income tax thresholds were altered was in 2010. Cumulative price level changes in New Zealand since 2010 are the equivalent of 40 cents in the dollar but the threshold changes proposed by National are just 11.5%. To fully recover the income wage and salary earners have lost to inflation would cost up to $35 billion over four years.
| Income Tax Threshold Adjustments | |||
| Current Threshold | Threshold Rate | National’s Proposal | Inflation Adjusted to 2010 |
| $14,000 | 17.50% | $15,600 | $19,600 |
| $48,000 | 30% | $53,500 | $67,200 |
| $70,000 | 33% | $78,100 | $98,000 |
| $180,000 | 39% | $180,000 | N/A |
The other tax reduction proposals are essentially a reversal of policies implemented by the current Government and include the cancellation of the 10.5% Auckland fuel tax, restoring interest deductibility for rental properties, changing the bright-line test on capital gains on property from ten years to two years and cancelling the planned fuel tax increases over the next three years. The final policy isn’t a cut at all; it’s just stopping a proposed increase.
The partial funding of the tax package through reductions in government spending is too moderate and optimistic, with nearly $1 billion coming through re-prioritising funding of back-office functions in “non-core” agencies to frontline services and reducing spending on consultants to the tune of $400 million. If you’ve ever paid attention during local elections in Auckland you know that proposals to reduce spending through eliminating waste should be treated with cynicism.
National has also released a number of alternative new tax streams and diversion of existing revenue to fund their proposal, which includes using the revenue raised through climate pollution charges to fund the income tax adjustments. Additionally National will allow foreign buyers to purchase existing homes worth over $2 million but charge 15% tax on the sale price, stop businesses claiming tax breaks for building depreciation, increase charges on visa applications to make them user pays and ensure offshore online gambling businesses pay income tax in New Zealand. Using foreigners to fund tax reduction will appeal to mainstream New Zealanders but I don’t believe attempts to extract higher tax payments will be anywhere near as successful as National hopes.
This tax policy also contains plenty of ‘bait and switch’ welfare policies which provide misleadingly named rebates to New Zealanders with children while those who choose not to reproduce get nothing. That isn’t a rebate; that is increased social welfare. National’s FamilyBoost rebate worth up to $75 per week for families with children using early childhood education facilities replaces Labour’s extension of 20 hours per week free ECE to 2-year-olds. Additionally, the Working for Families in-work tax credit, another welfare handout for families, will increase by $25 a week from April 2024, which replicates Labour’s policy.
National’s tax policy switcheroo promises that a couple with preschool children earning $120,000 will be $3900 better off per year, while a household without children earning the same amount is $2600 better off. Full-time minimum wage earners will keep $520 more of their income each year while superannuitants receive $676.
Compared to Act, which is likely to be National’s junior coalition partner, this tax policy is tired and uninspiring. Act’s proposal to reduce the marginal income tax system from five thresholds to two would see all income below $70,000 taxed at 17.5% and anything above this taxed at 28%. By implementing low and middle-income tax credits and giving tax refunds from the Emissions Trading Scheme, every New Zealander would pay less tax. The party’s 2023 alternative budget would reduce taxation by $12.5 billion per year from 2026/27, make $10 billion in operating savings and would have returned the budget to surplus by 2024/25 were it not for the deteriorating revenue income from reduced corporate tax receipts that has become evident last month. Still, I have little doubt in their ability to find additional spending cuts to deliver a balanced budget on schedule without reducing tax cuts.
National may be boring but it beats the alternatives that could be on the table should the ‘Coalition of Chaos’ somehow win a third term for Labour in coalition with the Greens and Te Pati Maori. Labour’s policy of removing GST on fresh and frozen fruit and vegetables will create windfalls for accountants and lawyers while delivering about $234 in annual savings for households, which won’t compensate them for a planned 12 cent increase in fuel taxes over three years. Chris Hipkins may have ruled out a raft of taxes advocated by the Greens and Te Pati Maori but given his only hope of remaining Prime Minister depends on this three-headed hydra, we cannot be confident that a wealth tax, an increase in company tax or a beefed-up capital gains tax stay off the agenda. For centre-right voters, there is a risk that Winston Peters may be needed to prop up a National-led Government and that brings similar problems including New Zealand First’s policy to remove GST from “basic foods”.
Despite National releasing a tax policy that is blandly vanilla, it is still a relief that the major parties will fight this election on taxation and New Zealanders can genuinely hope for a tax cut for the first time in man
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