ACT has moved closer to the centre of the political spectrum with its tax policy. This has won it votes in the past. The question is whether it will do so in this election

By Julia Wiener

ACT has softened its tax cut proposals this year, while staying true to the small-government philosophy that has kept it relevant since 1996.

This year the party has proposed lowering the top tax rate to 25% - which would be paid by those earning $48,000 or more. Those earning between $14,000 and $48,000 would pay 15% and anyone earning under $14,000 would pay 10%. In reducing the bottom tax rate while increasing the top one (relative to its previous policies), ACT seems to be moving toward more progressive taxation, even within its own low-tax platform.

The proposed 3% reduction in company tax seems centrist compared with its proposal to reduce it to 12.5% in 2014. Perhaps moves like these will contribute to ACT lifting its share of the party vote above the dismal 0.69% it received last election.

As libertarian parties go, New Zealand’s ACT Party – born of Roger Douglas’ Association of Consumers and Taxpayers – is one of the better ones. Opposing regulation and nanny stating even where unpopular, ACT can be consistently relied upon to wave its flag for a rollback of government involvement in our lives. An upside of ACT is that its social liberalism allows it to reach across the aisle. David Seymour’s support for legalising cannabis and euthanasia bring the party closer to parties like the Greens than its economic conservatism would suggest.

The core philosophy of ACT is that you know how to spend your money better than the government does. This slogan is emblazoned on the party’s tax policy page, where a ‘See Your Tax Cut’ feature allows you to see exactly how much smaller your tax bill would be under ACT’s economic plan. If you earned $59,920, your tax bill would be $1,516 smaller under ACT. If you earned $96,300, your bill would be $4,124 smaller. It’s not quite bribery, but seeing the additional dollars you’d get back from the taxman under ACT is a strong incentive – in fact, the main incentive the party deploys – to vote for it.

ACT has proposed a range of tax cuts leading up to the general election. Higher earners would get bigger tax cuts proportional to what they pay today, with those earning under $14,000 a year being spared just 0.5% of their tax burden. Those earning $70,000 a year or more, by contrast, would see their income tax rate reduced by 8%.

With a tax cut for high earners that is 16 times larger than the tax cut for low earners, one can see why ACT has remained at the fringes. Kept in Parliament by National’s strategic absence in the Epsom electorate, it has not met the 5% party vote threshold required to bring list members into Parliament since 2002.

Likely angling to capture more of the party vote in the upcoming election, ACT has shifted its tax policy slightly away from the extreme end of the ‘low, flat tax; minimal government’ philosophy at the heart of its platform. While the tax cuts proposed in this year’s policy may seem radical, they are moderate in comparison with the cuts it has proposed over the last few elections.

For the last two elections (in which ACT captured 1.07% and 3.65% of the party vote, respectively), the party has kept close to its flat tax philosophy. It kept the same tax policy from 2008 to 2011, promising to reduce the top income tax rate to 15% for those earning $20,000 or more, and to 12.5% for everyone earning under $20,000. In 2014, it shifted to a more moderate tax goal, aiming for a slightly higher 20% top rate.

This year, ACT’s tax proposals have become more moderate still. With three tax brackets, a mere 3% reduction in company tax and a consequent reduction in government revenue, which is smaller than in any of its previous proposals, ACT has inched further away from its minimal flat tax goal.

In the past, ACT has received more votes when it has proposed a more moderate tax rate (i.e. relatively higher taxes). ACT won 7.14% of the vote and nine seats in Parliament in 2002, when it pitched its highest tax bracket at 28%. The dramatic drop in its share of the vote, from 7.14% to 1.51% between 2002 and 2005, accompanied its proposals for more severe tax – down to 15% and 25% from 18% and 28%. However, this is only a correlation, and does not mean that moderate tax proposals always translate into more votes. Other factors, such as a change in leadership or a position in government, could be responsible for the changes in ACT's popularity. For example, the party remained in opposition between 2002 and 2005, but its leadership changed from Richard Prebble to Rodney Hide. Its poor 2011 showing of 1.07% of the party vote may have had more to do with the unpopularity of Don Brash than the harshness of a top tax rate of 15%. Nevertheless, there is a consistent trend linking ACT's harshest tax proposals to its poorest election results. Judging by this year's policies, this is a trend it may have picked up on.

If this move back toward moderate tax proposals persists, we may see ACT regain some of the popularity it had in the late 1990s. Tax cuts are a simple way to win votes, but as ACT dampens its tax cut proposals, its whole platform becomes more realistic. It may even end up taking a few thousand more votes from National, on which it currently depends for its singular Parliamentary seat. However, the effect National has had of reducing its supporter parties’ share of the vote makes this unlikely. With creative policies – most recently, David Seymour’s End of Life Choice Bill – bringing ACT support from demographics other than tax-grumblers, it could approach a healthy share of the party vote – in one or two elections’ time.

You can read all political parties' Election 2017 policies in our comprehensive database here.

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