National’s tax policy aims at the squeezed middle but needs closer scrutiny

National Party Leader Christopher Luxon: Tax cuts and other incentives to boost the back pocket boost

Analysis by Jane Patterson
Wellington, August 30, 2023

The headline figures that the National Party has offered (in its Tax Policy) 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 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 counterfactual – that could make a serious dent in that extra income.

Winners and losers

The most significant change, certainly not highlighted in the document or presentation, is the removal of all public transport subsidies; which would also apply to those on low incomes or with disabilities. If a family relies on the bus and has a couple of children travelling to school and back, those extra costs will 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 do not deliver significant savings.

The Independent Earner Tax Credit (IETC), Working for Families and its proposed childcare rebate is used to target resources for average-income New Zealanders, and it sounds a lot better when all added up.

This is also to blunt accusations that 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 children would get $40 a week more.

On the flip side, the package does not 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 than they will get under National than Labour.”

“It is certainly a lot more than two cents on some carrots and some beans,” he said.

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 that 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.

Green Party Leader James Shaw: Frustration over Climate Funding

Controversy over climate funds

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

“It is promising a ‘Climate Dividend’ that National says would “return ETS revenue 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,” he said.

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. It incenses me because it is completely irresponsible, and it co-opts the language of action on climate change to fund their tax cuts,” Mr Shaw said.

Taxing foreign buyers

There are some clever politics in the plan – raising revenue from taxing offshore, and 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.

National Party Finance Spokesperson Nicola Willis said that would result in “fewer than 2000” sales, and that 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 raise.

Also under fire are National’s plans to save about $600 million a year through spending cuts on ‘back office’ functions in the public service.

“It is 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. It is a voodoo plan. It is a fantasy plan. It does not add up and National has a track record here from the last election,” Mr Robertson said.

“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 said.

Two sides of different coins: Labour’s Grant Robertson and National’s Nicola Wills are at odds over the Tax Plan (RNZ Photo by Angus Dreaver)

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

Will restoring landlord tax breaks lower rents?

Another part of the plan sparking interest is confirmation that National would restore a tax break for landlords over the next few years, arguing its removal by Labour had helped to hike up rents.

The Brightline Test

It would also roll back the Brightline test, which sets the rules for taxing capital gains on houses other than the family home – bringing it back from 10 years to two years.

When asked whether he would expect rents to drop once the tax break was fully back in place, Mr Luxon said that a National government would “expect downward pressure on rents.”

But he was unable to give any guarantee 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 Mr 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 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 will be answered properly until the government books are opened up on September 12, 2023, ahead of the general election on October 14, 2023.

Jane Patterson is the Political Editor at Radio New Zealand. The above Analysis and pictures have been published under a special agreement with www.rnz.co.nz

Share this story

Related Stories

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Indian Newslink

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement