National Party finance spokesperson Nicola Willis says the party will reveal its long-awaited tax policy, which will be fully funded and focused on middle-income New Zealanders, on Wednesday.
It is expected to include an adjustment to income tax brackets, the return of interest deductibility for property investors, and four new "revenue measures" to help fund the lower income rates.
The announcement came after Labour cut $4 billion from its four-year budget to offset a short-fall in tax revenue, as high interest rates eat into corporate profits.
Budget 2023 included significant spending increases and were based on optimistic Treasury forecasts of the Government’s revenue which have not panned out.
The deeper deficits were likely to be revealed in Treasury’s pre-election economic and fiscal update (PREFU) and new forecasts could show Labour failing to meet its own fiscal rules.
To prevent that from happening, Finance Minister Grant Robertson has searched for savings that can be baked into the PREFU numbers and get the Crown accounts back into surplus.
Nicola Willis said the cuts were “far too little, far too late” and that National would put a stop to wasteful spending.
The opposition party does not have a public plan for how it would tax and spend if elected, but promised to release one within the week.
“To deal with your suspense, let me be clear. This week, we will be releasing our tax plan,” Willis told reporters on Monday.
“That tax plan is fully funded, which is to say it will not require a dollar of borrowing or extra spending.”
Finding funding
National has committed to correcting income tax thresholds by at least 11.5%, to account for some of the inflation that has occurred since the pandemic. That’s likely to cost about $2 billion per year.
It is also expected to reinstate interest deductibility for property investors and has promised to bring the bright line test back to two-years, at a cost of about $700 million.
This means Willis will have to find almost $11 billion in funding across the next four years, to cover the cost of the cuts. But this money need not come solely from spending cuts.
The finance spokesperson indicated some tax increases would be included in the soon-to-be-revealed plan, to ensure it was funded across the forecast period.
“We have itemised the reprioritizations that need to occur to fund it, as well as the targeted revenue initiatives,” she said.
When asked whether the tax plan would include any tax increases, Willis wouldn’t give a direct answer.
Instead she said the plan would be “heavily targeted towards the squeezed middle of working New Zealanders”. However, she ruled out any increase to income tax rates.
Why wait
Opposition parties in previous elections have released their fiscal policies earlier in the campaign, but National has waited until the last six weeks.
Willis said she wanted to give voters time to examine the tax plan and understand what it meant for their household.
“At the same time, we wanted to make sure that it was final, credible, fully funded and that it had been externally peer reviewed. And it is all of those things.”
While the tax plan will be fully funded, National will not finalise its fiscal plan until after Treasury’s PREFU on September 12.
Willis said she was unable to commit to delivering budget surpluses without having seen those forecasts.
“I remember in 2008 when Michael Cullen opened the books and left the Key and English government with a decade of deficits forecast. We’re playing that out all over again,” she said.
However, this is a mischaracterization. Cullen delivered nine consecutive budget surpluses as finance minister between 2002 and 2008; the longest unbroken run since the 1940s.
National was then able to run six consecutive deficits—after the global financial crisis and the Christchurch earthquakes—partly because Labour had paid down debt in the decade prior.
English only delivered three budget surpluses before the 2017 election, then Robertson provided two more before the pandemic hit.
Since then, Labour’s deficits have been large and net debt has jumped from 2% of GDP in 2019 to over 20% today. Those same numbers as net core Crown debt are 18.6% and almost 40%.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.