31 Aug 2023

National to propose new 'revenue measures' to pay for income tax cuts

11:50 am on 31 August 2023
Deputy leader of National Party Nicola Willis

National Party's finance spokesperson Nicola Willis. Photo: RNZ / Angus Dreaver

National's finance spokesperson Nicola Willis says their tax plan will include new "targeted revenue measures" to help pay for its income tax cuts.

It comes ahead of the party releasing its new tax plan, which Willis told Morning Report on Tuesday would let "working people, middle-income earners who are particularly squeezed, keep more of what they earn".

When announced, Willis said the view most New Zealanders would have is "gosh, why weren't those taxes already in place?".

She and party leader Christopher Luxon gave more details when speaking to reporters at Parliament on Tuesday, including confirming the tax policy would be unveiled on Wednesday.

Willis said it would include four new sources of revenue.

"We've put it together in a way so that it is self-funding, so that even if Labour as predicted leave the books in a total mess we can guarantee that working New Zealanders will get a tax break," she said.

"There will be four additional revenue measures in our tax plan. They will be specific, they will be targeted."

She also laid out a trio of self-imposed restrictions.

"There's three things you need to know about our tax plan: first it will put no pressure on inflation, second it requires no additional borrowing and third we can fully deliver it regardless of the state that Labour leaves the books in."

On Monday, the Labour Party had announced its plan to slash another $4 billion from government spending over the next few years if re-elected, which National called "too little, too late".

Willis told Morning Report it was nothing to celebrate.

"The government is spending around $1b more every week compared to when it came to office. And now what it's telling you is you should congratulate them for reducing their spending $1b a year."

Though not quite going so far as ACT's proposed $35b slash and burn, National wants to cut spending further than Labour. Willis would not rule out job losses in the public sector as a result.

"I won't rule that out. But what I expect is that there are a number of job vacancies across government which may no longer be filled and there are, of course, going to be some roles which won't be relevant when there's a change of government.

"For example, people working on the income insurance scheme, the jobs tax proposal that Labour has put forward… We want to be very careful to focus our spending reprioritisation on reducing the size of the backroom bureaucracy, but protecting front line services. And in particular, we've committed that we will be increasing funding for frontline health and education services every year that we are in office."

In addition to reprioritisation and potential headcount cuts, Willis said National's tax plan would find new revenue streams "which will allow us to responsibly fund our plan to reduce income taxes for the squeezed middle of working New Zealanders".

The previous National government did something similar under Sir John Key - cutting income taxes and raising GST, despite a campaign promise not to do the latter, in a move described at the time as fiscally neutral. National's current policy of tax cuts to adjust brackets for inflation has been costed at around $2b a year.

"We are a party of low taxes, particularly for working people who we think deserve to keep more of what they earn, especially in the middle of a cost-of-living crisis," Willis said.

"What we've identified is some areas of unfairness in the existing tax system, and we will be proposing some targeted revenue measures that will allow us to let working people, middle-income earners who are particularly squeezed, keep more of what they earn."

She denied this would mean cutting or restricting access to superannuation, nor introducing taxes on wealth, capital gains or inheritances.

Speculation over tax on charities, churches

Asked about a potential tax on charities, such as churches, Willis again told Morning ReportNational would unveil its tax plan shortly.

"As I said, I'm not gonna go into the details of our tax plan today except to say that our focus, our complete focus is that squeezed middle of New Zealanders who are being overtaxed, who have been hit hard by inflation and rising mortgage payments. They are crying out for relief, and National is gonna give it."

Labour leader Chris Hipkins said the possibility was not something he had given much thought to recently.

"You'd want to look at where the revenue would come from and what it's currently going to before you make call son that but it's not something that I'd rule out. But like I say, haven't looked at it.

"The National Party has been criticising every revenue-generating measure that this government has put in place, interesting that they're now coming up with some of their own.

The party's Finance Spokesperson Grant Robertson said it could be looked into in future.

"The issues around charities and the way that charities work is one that's had a number of looks - we've done reviews and reforms of the Charities Act. In terms of taxation we haven't looked closely at that since the [tax] working group, and it would be an issue to look at in the future but it's not one we've looked at."

'Never a good time to cut public services'

Labour's plan to cut spending includes instructing public sector agencies to cut 2 percent from their baseline budgets.

Agencies and areas off-limits for spending reductions included superannuation, benefits and KiwiSaver; loans, finance costs, tax receivables; frontline health and education spending; NZDF, Police, NZSIS and GCSB, Whaikaka the Ministry of Disabled People, and the Offices of Parliament.

Finance Minister Grant Robertson said this left 19 percent of government within scope.

Public Service Association national secretary Duane Leo said he was hopeful the cuts would not result in job losses.

"It's never a good time to cut public services. But, you know, we're in a situation economically where there's a $2b shortfall in Treasury's forecast. I mean, it's tough all over the world. You've just got to look at how tough it's getting at home. So it's a reasonably prudent move to tighten the belt.

"Now, in terms of the finance minister's statement yesterday, it's important for us that he said that they will work with unions and workers to find the savings, and it's the workers who know best - our members are the subject matter, experts in their jobs.

"So going to them, agency by agency and working out a plan to actually find these efficiencies, is important."

Leo appeared to have more trust in a Labour-led government to consult with the agencies than other parties.

"What we are worried about - and what our members are worried about - is the likes of Nicola Willis and National are basically going around touting 13,000 jobs will be lost in the public service. No engagement, no consultation, no discussion about where that figure has actually come from.

"We've actually gone out of our way to meet with Nicola and Simeon Brown and we couldn't get any detail from them."

The 13,000 figure appeared to relate to comments made by ACT leader David Seymour, whose support National would almost certainly need to form a government after October's election.

"What I'd say is in terms of the public service since 2017, the public service has grown the same proportion as the growth of the New Zealand workforce, Leo said.

"In terms of our public service, we spend a lower percentage of our GDP on the public service than Australia and the UK. We have a comparable public service to Australia and the United Kingdom.

"Our concern is that, where are these cuts going to come? … Are we talking about Corrections? Ministry of Justice? Oranga Tamariki?"

Spending cuts 'what responsible governments do'

Labour leader Chris Hipkins told Morning Report the spending cuts his party planned were "what responsible governments do", "responsible management" and part of the "responsible regular cycle of governing".

"Those who are saying we should go further need to be really clear - we've been very, very clear in detail. We're saying exactly where the money is being spent. Those who are saying we should cut billions of dollars more should actually say where they're going to cut."

He said it was the third round of spending cuts announced since he became prime minister in January.

Labour leader Chris Hipkins

Labour leader Chris Hipkins. Photo: RNZ / Angus Dreaver

"I indicated when I became prime minister that this would be an ongoing process that we would be moving past the pandemic response. That was not the time to be going and reducing government expenditure. Now that we are past that, you know, we can actually return to a more regular cycle of governing - and the responsible regular cycle of governing is that you always look for savings that you can make."

He defended waiting until now to prune expenditure on outside contractors, saying they were needed during the pandemic response.

"Now that we're through the pandemic, we are aiming to bring contractors back down to below what it was as a proportion when we became the government."

He said job losses in the public sector were likely to be "minimal", and it was more likely existing vacancies would not be filled.

As for National's promise of new revenue streams, Hipkins said National needed to be upfront about what they were - noting last time they increased GST, "which means people pay more every time they go to the supermarket or every time they fill up the car".

"What are the new taxes going to be and who's going to pay them? We've been very clear about where our money is coming from. We've been very clear about our tax policy. It's all out there now.

"New Zealanders can see that the National Party still seem to be running a smoke and mirrors exercise of saying to New Zealanders they can have everything and no one needs to pay for it."

Labour did not reverse National's GST changes, but has promised to take it off fresh fruit and vegetables, a policy roundly criticised by tax experts.

Hipkins said more cost-of-living measures were to come from Labour ahead of the election.

"What we're doing is making sure that the books balance in terms of the manifesto commitments that we put forward before the electorate in this forthcoming election.

"We've been clear, it won't be a big spending election. There'll be targeted measures that are carefully designed to meet New Zealanders' needs whilst not significantly increasing government spending at this time. Now is not the time for a big spend-up."

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