30 Aug 2023

The sticking points - how does National's tax plan stack up?

7:20 pm on 30 August 2023
Christopher Luxon

National leader Christopher Luxon says someone on the minimum wage will get an extra $20 a fortnight, "that is $20 more that they will get under National than Labour". Photo: RNZ / Samuel Rillstone

Power Play - The headline figures National is offering to New Zealanders are enticing and would stack up for many families.

The opposition party is offering up its tax cuts and other changes within its "Back Pocket Boost" package, aimed at what it calls the "squeezed middle". On the face of it many New Zealanders, particularly families and households earning around the $120,000 a year mark, could benefit substantially.

However, dig a little deeper and there are some fishhooks that may take off the some of the gloss - namely, scrapping half price and free public transport and little extra direct support for low income families.

The package also has to be viewed alongside what people would not be getting - as a counter-factual - that could make a serious dent in that extra income.

The most significant change - one certainly not highlighted in the document or presentation - is the removal of all public transport subsidies; that would also apply to those on low incomes or with disabilities. If a family relies on the bus and has a couple of kids travelling to school and back, those extra costs would eat into any tax relief delivered through threshold changes, and low income whānau would be particularly hard hit.

Of course the impact is going to be different for different households or families; National is presenting it as a package because the tax cuts themselves don't deliver significant savings. The Independent Earner Tax Credit (IETC), Working for Families and its proposed childcare rebate are used to target resources at those average income New Zealanders, and it sounds a lot better when all added up.

This is also to blunt accusations National is looking after the wealthy; by capping the threshold changes and using those other mechanisms, those on higher incomes will benefit from the higher tax brackets but in a limited way - for example, a household on a combined income of $200,000 with a couple of kids would get $40 a week more.

On the flip side the package doesn't deliver a lot for low earners; anyone earning less than $45,000 a year gets only $2 a week in tax relief, and nothing extra from the IETC for those below a certain income.

When challenged about the offering for those New Zealanders, leader Christopher Luxon pointed to someone on the minimum wage as getting "$20 a fortnight of relief, that is $20 more that they will get under National than Labour".

"It's certainly a lot more than two cents on some carrots and some beans."

While the package highlights the taxes National would get rid of - and there is a long list - little mention today of what it would levy instead.

The clearest example is the stated promise to remove the Auckland fuel tax and cancel Labour's planned excise hikes. What was not reiterated was a National government would quickly legislate to allow congestion charges in major cities, look at moving from petrol taxes to road user charges and use tolling to raise revenue for transport projects.

Controversy over climate funds

Green Party Co-Leader James Shaw

James Shaw Photo: RNZ / Cole Eastham-Farrelly

Cutting through the economic talk was Greens co-leader James Shaw expressing frustration about National's plans for climate funding.

It's promising a "Climate Dividend" National says would "return ETS revenue back to New Zealanders... [to] allow people to make their own choices".

"$590 million on average per year Climate Dividend, returning taxes raised on climate polluters to Kiwi families rather than giving subsidies to large corporates."

However on closer reading, that money is not listed as part of the fortnightly, extra income people could expect, but rather as a "saving" - to help fill the hole created by delivering tax cuts.

That was "extremely misleading", a "pissed off" James Shaw told reporters. "It incenses me because it's completely irresponsible, and it co-opts the language of action on climate change to fund their tax cuts."

Taxing foreign buyers

There are some clever politics in the plan - raising revenue from taxing offshore, online gambling and taxing foreign buyers purchasing houses worth more than $2 million.

The foreign ban on buying existing homes introduced by Labour would largely remain, but it would be open season in the over $2 million market, houses that would predominantly be in Auckland and the likes of Queenstown.

Finance spokesperson Nicola Willis says that would result in "fewer than 2000" sales, and the prospect of a tax would tip the balance towards prospective New Zealand purchasers, raising about $700 million a year.

However, the costings are being strongly questioned by Labour's finance spokesperson, Grant Robertson, as "heroic" in terms of how much such a tax would actually raise.

Also under fire are National's plans to save just under $600m a year through spending cuts on "back office" functions in the public service.

"It's going to mean enormous cuts to public services and it means that there will be no action on climate change the biggest issue facing future generations and the New Zealand economy," Robertson says.

"It's a voodoo plan. It's a fantasy plan. It doesn't add up and National do have a track record here from the last election.

"Then... the housing market, which National will be pouring petrol on, they will lock first homebuyers out and they are relying on an increasing number of foreign buyers to come in and buy a dwindling number of houses. It simply doesn't add up," he says.

Willis had already pre-empted such criticisms, pledging spending on health and education would not be cut, dismissing any accusations to the contrary from Labour as "disinformation".

Grant Robertson and Nicola Willis

Grant Robertson and Nicola Willis are at odds over the figures in the tax plan. Photo: RNZ / Angus Dreaver

Will restoring landlord tax breaks lower rents?

Another part of the plan sparking interest is confirmation National would restore a tax break for landlords over the next few years, arguing its removal by Labour had helped to hike up rents. It would also roll back the brightline test, that sets the rules for taxing capital gains on houses other than the family home - bringing it back from 10 years to two.

When asked whether he would expect rents to drop once the tax break was fully back in place, Luxon said a National government would "expect downward pressure on rents"; but of course he was unable to give any guarantees to those who see much of their income gobbled up by accommodation costs.

New Zealand is battling inflation and the monetary weapons being deployed are costing households a great deal of money through higher interest rates. Pumping more money into the economy is generally seen to make that problem worse, but Luxon insists the tax plan would not put more pressure on the economy as the savings made are greater than the amount being spent.

That is one just one potential consequence of National's plan that will come under scrutiny as the dust settles, and assertions will be tested.

To be able to truly judge this package alongside all of National's other policies, voters need to see the full picture through a complete fiscal plan.

Another crucial element will be the true state of the economy and whether National's plans can hold up under worsening economic conditions and falling tax revenue - questions that won't be answered properly until the government books are opened up on 12 September ahead of the election.

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