Labour has finally unveiled its election tax policy. To be honest, I didn’t think that they would; they have already said that this is a COVID election and made it clear they were not going to announce much if any, policy before the election. But they were being called on, after borrowing literally billions of dollars in the COVID battle, to tell us how they were going to start a programme to repay the debt that is threatening to strangle us all.
Well, believe me, this ain’t going to go very far.
Labour proposes to introduce a new top rate of tax of 39% for all earnings over $180,000. This increase is expected to raise approximately $550 million per year. They have also ruled out introducing a wealth tax, which was part of the Greens tax policy.
I am relieved to see the wealth tax ruled out, because it is inequitable, and the first rule of taxation is that it is supposed to be fair. If you are expected to pay tax, you should also be able to expect to have the income to pay it from.
However, all I can say is that this is a tax policy from a party that needs to increase taxes, but is terrified to do so. As a result, it will solve nothing.
First of all, it will only affect salary earners who earn more than $180,000. Business people will mostly be able to get around the higher tax rate, by income splitting or paying company tax. There has been no suggestion that company rates will increase, and nor should they. Business is doing it hard enough as it is. So, it will only affect highly paid salaried workers, like corporate executives, MPs and people working for Auckland Council. These people will not be able to do much about it, and will probably have to just pay the tax.
It really isn’t that bad though. Someone earning $250,000 will only pay an extra $4,200 a year, while someone on $300,000 will pay an extra $7,200. These amounts are not huge, particularly when applied to salary payments made fortnightly or monthly. And the truth is, there really are not that many people in New Zealand who earn that sort of money. For that reason, I think the estimate of $550 million being raised by this tax rate might be a bit optimistic, particularly if business owners are able to structure their affairs to avoid the tax increase.
But that is not the elephant in the room, is it? The real problem is this.
The government has already borrowed more than $50 billion to fight COVID. Estimates vary, but it is likely that the government will eventually borrow somewhere between $120 and $150 billion to both fight the virus and stimulate the economy before the pandemic is over. That being the case, $550 million a year can only be described as a drop in a bucket, which is not going to solve anything.
Labour is the party of tax and spend. It always has been. They have spent up hugely, whether needed or not (mostly not), but their only solution at this point is to raise a relatively small amount of revenue and otherwise hope for the best… at a time when tax revenues are almost certain to fall significantly because of the pandemic, and their own policies to fight it. Contrast this with National’s policy of not increasing taxes, but instead growing the economy to meet the debt. It is a big ask at the moment, but they did it during the GFC, and they can do it again.
Labour is terrified of losing the election. They know that they should lose it. Re-election is the only thing that matters to them right now. They are terrified of losing the votes of middle earners, but what they fail to see is that they might get away with increasing taxes now, while the virus is still ravaging the world. They won’t get away with it in 2023, when we are buried in debt and everyone is hurting.
But it doesn’t take a rocket scientist to figure out that, if they win the election, there will be a lot more taxes on the way.
Otherwise we will become the Venezuela of the South Pacific.
Buenas dias.
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