By Jonathan Barrett & Lisa Marriott*
The National Party’s tax package makes a clear and politically prudent play for the middle-income vote. Proposing to alleviate the financial pain of this “squeezed middle”, it may be key to determining who forms the next government.
The package attempts to provide some tax relief without fuelling inflation. To pay for the proposed tax cuts, the party would introduce new “revenue measures”. Just what these might cost to set up and administer may be a missing element of the picture.
National has announced four key initiatives as part of its tax plan, with implications for those on middle incomes, as well as those at the top and bottom of the income spread:
• shifting income tax brackets to compensate for inflation
• expanding tax credits to reach more modest income earners
• introducing the “FamilyBoost” childcare tax credit (while ending Labour’s extension of 20 hours’ early childhood education for two-year-olds that was scheduled to start in July 2024)
• increasing Working for Families tax credits for working families (from July 2024).
Relief measures aimed at superannuitants include promising to increase NZ Super annually – although that already happens under the current scheme – and to keep the Winter Energy Payment.
Environmental measures are a mixed bag. The Clean Car Standard or “ute tax” will be abolished, as will the Auckland Regional Fuel Tax. National has also promised not to increase fuel levies in its first term.
The party’s plans for the Emissions Trading Scheme are vague, but polluters will be expected to pay more for the damage they cause in the future. As the tax policy makes clear, short-term concerns about the cost of living trump longer-term considerations about climate change.
#BREAKING | National leader Christopher Luxon and finance spokeswoman Nicola Willis say their tax policy will deliver $14.6 billion of tax cuts - higher than expected.
— nzherald (@nzherald) August 29, 2023
🔗 https://t.co/mxyZRNfZ0P pic.twitter.com/o9LbWJIoHu
Revenue neutral means new taxes
To ensure the package is revenue neutral, four new taxes will be introduced. If the policy is aimed at those who vote, then three of the new taxes are aimed at shifting the tax burden to those who cannot vote.
The Foreign Buyer Tax (FBT) will be levied at a flat rate of 15% on residential properties worth more than NZ$2 million bought by non-residents.
A second stream of revenue will come from a tax on offshore gambling.
And a third will be from cost recovery from immigrants to cover public spending on the immigration system. To be competitive, charges will not exceed 90% of corresponding Australian immigration charges.
The last seems to be least problematic, although questions might be raised about barriers to overseas student entry.
While there are overseas examples of the FBT, National could face logistical hurdles in introducing something similar here. The Vancouver FBT, for example, piggybacks on the state transfer tax (stamp duty) and so there is an existing administrative structure.
It would be interesting to see whether a low-cost new tax can be introduced without existing infrastructure.
The casino tax seems most problematic. According to this new policy, a National government would establish a “regulatory regime” requiring foreign online betting operators to report their New Zealand income. This proposal seems fanciful.
It is also interesting to compare this initiative with the proposal to scrap Labour’s proposed extension of GST to providers of platform-based services, such as Airbnb. Both proposals are aimed at offshore services but Labour’s seems far easier to implement.
Generally, two of the new proposals appear to gloss over the massive IT costs that tend to accompany new taxes. Establishing a new bureaucracy to chase offshore companies also goes against the reduction of the public sector espoused by ACT, National’s likely partner.
The fourth proposal to scrap depreciation for commercial buildings, introduced during the COVID-19 pandemic, is the least National-like initiative. It seems to jar with the reinstatement of favourable tax treatment of rental properties.
Questions remain about where National will get 'billions of dollars from' to fund 'expensive' tax policy https://t.co/mZz1djHXiV
— Newshub Politics (@NewshubPolitics) August 29, 2023
Safeguarding the ‘un-squeezed top’
If National’s package is aimed at helping the “squeezed middle”, it is likely to go some way to achieving that goal – and secure votes. What the package does not do is engage with the problem of tax-free wealth.
Just this week the International Monetary Fund once again urged New Zealand to introduce a comprehensive capital gains tax. National’s package favours “the un-squeezed top” by reinstating tax deductions for rental properties, reducing the brightline test to two years, and leaving capital gains untaxed.
And the bottom? National would increase Working for Families tax credits. But as the Child Poverty Action Group have consistently observed, the discrimination against the children of non-working welfare recipients is unjustified and unfair.
Moving the income tax thresholds and extending eligibility for the Independent Earner Tax Credit are welcome. But these will make little difference to the lowest income earners.
Take a single person with no children earning the minimum wage of $22.70 per hour, working 37.5 hours per week ($44,265 a year). They gain around $1.30 a fortnight from the extended Independent Earner Tax Credit, and around $4.30 a fortnight from the income tax threshold movement.
So, roughly $5.60 a fortnight – not enough for a café coffee, let alone that lower priced tank of petrol the National Party policy also promises.
Contrast this with a single person without children who earns $180,000 per year. This person benefits to a greater extent from the movement of the income tax thresholds and gains $40 per fortnight – roughly seven times the gain of someone on minimum wage.
Combined with policies like the removal of the Community Connect public transport subsidies (targeted at young and low-income people) and stopping Fair Pay Agreements, there isn’t a lot here for the least well off. But these are probably not the voters National is after.
*Jonathan Barrett, Associate Professor in Commercial Law and Taxation, Te Herenga Waka — Victoria University of Wellington and Lisa Marriott, Professor of Taxation, Te Herenga Waka — Victoria University of Wellington. This article is republished from The Conversation under a Creative Commons license. Read the original article.
80 Comments
Should be quite popular with the voting public.
Not quite sure what the authors are implying by “the problem of tax-free wealth”. One thing is for sure though, taxing wealth instead of income is fundamentally flawed, unfair and profoundly unpopular. Quite recently the NZ Tax Working Group dismissed wealth tax as “a complex form of taxation that is likely to reduce the integrity of the tax system”. I know that at least one of the authors of this article is in favour of wealth tax based on her other articles.
Practically speaking 2 year bright-line test is a capital gains tax. And the rental interest deductibility change introduced by Labour made no sense whatsoever.
I think the interest deductibility change is great, but also agree with you on it making no sense. I would have preferred to see it remain but extended to owner occupiers. Then governments have an incentive to prevent credit fueled property bubbles as the ensuing interest rates increases would make a sizeable dent to tax revenue.
I think accumulation of properties through equity leverage should be addressed. It's not *really* a 35% deposit if you've borrowed it. The issue is making things a bit more equitable. Investors and FHB often competing for the same slice of pie, except one has a massive advantage over the other.
re ... "I think the interest deductibility change is great, but also agree with you on it making no sense."
I concur. It makes no sense ... but only as we have no capital gains tax. Without a CGT, allowing interest deductibility simply allows property owners to experience the double gain of a) having their tenants pay for the bulk their asset while, b) allowing to owner to pocket the tax free capital gain. To have both is obscene. Having interest deductibility re-instated is only fair if there is a comprehensive CGT in place.
re ... "I would have preferred to see [interest deductibility] remain but extended to owner occupiers."
Many countries do - and/or did - this. Usually not to 100% but the percentages were significant. As these countries governments lean left or right, the %s are raised and lowered. The USA does this a lot.
(Not going to respond to any points DD has made as I don't believe anyone to be as ignorant as they claim to be. DD's post is nothing but political nonsense and doesn't address the thrust of the article. )
allowing to owner to pocket the tax free capital gain.
Whats a "capital gain"?
With a lot of house prices getting back to c2017 levels on the back of squirrely banking it would seem more meaningful systemic changes are required than victim blaming and targeting those that took a bad risk at the wrong time.
With house prices so obviously pinned to OCR levels, its apparent to me that looking for fixes that dont start and finish in the banking system is overthinking it.
How about asset testing Superannuation with the provision that you can only lose 50% of your benefit. That would produce massively more revenue for health and education and others that we all know is needed. Would likely produce much more than a capital gains tax (which I like) and likely easier to administer.
A lot f so called wealth has been acquired involuntarily especially for those who found their home sky rocketing in value by a market propelled upwards by unprecedented low interest rates and the notion that property was thus a safe haven investment.
But is this really 'wealth creation'? Let's step back a bit. Private banks create credit 'out of thin air' based on the rules surrounding their reserves. This makes people feel wealthy and elicits the behaviors of spending more today than forgoing spending thereby stimulating consumption in the economy. This effectively 'creates wealth' for vendors who are able to benefit from greater revenue and higher margins.
OK. All sounds good. But what's really happening is that this is something or a mirage - all you're really doing is increasing the money supply and greater debt obligations. Is that necessarily bad? There is no simple answer to a complex question like this. But it really boils down to whether or not allocating credit / debt to non-productive activity should be encouraged over productive activity - you know, like making stuff.
The problem as I see it is global debt to GDP is 3-4x - essentially meaning we need to increase our productive output to service greater debt. When we get to the point where we're creating more money simply to service debt, I think we're in serious trouble. And it seems to me that the ruling elite has no intention to move to wealth generation driven by productive enterprise. It will happen but why would people bother? Too much energy and risk involved. Therefore, I think we continue to deepen the neo-feudal socio-economic model.
100% Agree.
My friend Jack still hasn't cottoned on to this yet.
by GetFeeling | 19th Aug 23, 1:44pm
Take my friend Jack ... Average Kiwi bloke earning $80,000 per year.
Government takes about $17,320 in income tax each year.
Jack hates paying tax and begrudges paying it.
How dare they take money he has earned!
Still, people tell him he actually gets back most of it in government services.
But Jack has also just taken out a $500,000 mortgage.
In the first year, Jack will pay some $34,839 in interest.
Yes, read that number again. Twice as much as the government takes from him in tax.
He'll never see this money again. Nor receive any physical services.
Some of it goes to people richer than him that have been able to save money and then lend it to banks.
The rest of it goes to very rich people through a convoluted series part-payments with yet more rich people taking a cut.
Does Jack begrudge paying this "Housing Tax" to faceless rich people?
No. Jack just accepts it as the price to pay that ensures that over time his 'asset' will appreciate in value.
But does it? Once all the costs are taken into account, and including the slice rich people take, and adjusted for real inflation and property cycles, it is questionable.
(I wonder what would happen if Government provided residential mortgages [evil grin] then at least Jack would see some of his money again. The residential mortgage 'business' is actually far less complex than other utilities that actually have to provide something tangible like electricity, water, etc. The days of leaving banking in the hands of those with mega-capital, only because they have mega-capital, while sucking the life out of entire populations, is coming to an end. Governments also have mega-capital balance sheets and it is time they used them for our benefit - rather than facilitating the rich to grow even richer.)
The idea that NZ creates wealth by virtue of its housing/ property stock is baloney. However it might be described, that wealth earns nothing for the nation. It cannot be uplifted and exported like livestock, water, coal or whatever. But the market can be brought, and bought, to NZ by way of immigration and/or foreign based ownership. That factor and that function create the rub. Not sure how much of NZ’s housing stock is owned by sole occupant households, who own no other property, but for those folk the value of their home is largely irrelevant. When they sell and buy again the selling and buying prices will mostly have remained in sync. But the troubling element in that transaction arrives if that homeowner has leveraged the property and that’s where the direction that surfaced with this government’s active encouragement to borrow to spend to save the country has wreaked so much damage. Hells bells every finance minister and RBNZ governor have been on record bemoaning quite correctly the abysmal saving record of NZrs except for Messrs Robertson & Orr encouraging the complete opposite. There it is.
The idea that NZ creates wealth by virtue of its housing/ property stock is baloney.
It's the 'mirage' of wealth and its real impact is on the behaviors it elicits on consumption. This is why it is so addictive. Furthermore, and I have been thinking about this recently, the land / housing mechanism is crucial for the money supply. That is where the money supply is concentrated really from in the Anglosphere (ex-U.S.) in particular.
Been thinking about this and there is no reason why a never-ending housing bubble is a legitimate way to base the structure an economy. I say that because as long as you accept the trade-offs, it seems to have worked its magic since the early 90s when the whole idea took root.
Look here is an illustration of the danger that can trap the unthoughtful or unsuspecting. In our extended family let’s say an in-law, couldn’t get his head around that the house he had bought with our relative in 1998 or so for $180k now had a market value of about $550k. He thought he now had $370k to spend and he’d go get a Maserati to show for it. It took quite some family intervention to deter him. You might call it pretty dumb but I would suggest that type of thinking is not that uncommon especially if banks and the government, as per my above post, get in on the act. For example not so long ago banks were raising credit card limits for customers without being asked. So you might argue has the great boom in property value been arranged to target household equity and clip the ticket of that household spending it? An indication, credit card repayments are now lagging larger than in any recent time.
I know that I'm repeating myself periodically.
its still the same asset with the same market value. This is not the same as price which simply reflects money as the medium of exchange, re/devalued by monetary and fiscal policies outside the control of the asset owners.
There is no real "profit" in such asset CGs
Being capital gains tax free is probably the only reason why wealthy people are still in NZ. If there was a CGT here I would never have bothered to move back from Australia, especially as Australia has so many other good tax policies like salary sacrificing, self managed super funds, and being able to offset investment losses against personal income. NZ is a country that is literally at the bottom end of the world, its small, and expensive to live here, so there needs to be something that attracts people and capital here. If you were looking to imvest capital, then tax free gains helps provide a return that overcomes the limitations of investing in a small economy with limited growth.
Implement a CGT and I would be better off going back to Australia. Especially since the beaches are better there too.
If you were looking to imvest capital, then tax free gains helps provide a return that overcomes the limitations of investing in a small economy with limited growth.
Are you for real ? I think the only limiting factor is probably yourself. In 12 years the capital I put into my Greenfield's business has multiplied 14 times, and I pull the startup capital out of it every year now (tax paid). I don't intend to sell it, it pays me and I work 8 hours a week, currently from my yacht in Fiji. I don't own any property at all.
Pretty sad to see no party helping the people at the bottom who really need it. Its so simple to introduce a tax free threshold of say $15K. If Australia already has it set at AUD$18K its an obvious no brainer and so simple to introduce and you couldn't make it any more targeted if you tried.
No thanks they have not thought that through. NZD$14K to 15K is about the limit. Higher limit is Aussie because they have higher wages. Even a start on dropping that current 10.5% tax on the first $14K is an obvious move and just increase the tax rates further up the scale to offset it.
When you say "a tax free threshold of say $15K" you mean while increasing upper bands to claw back the benefit from the wealthier, high income groups, right?
Because if that's not what you meant, you'll be falling into the trap that National has set for Kiwis. I.e. Under National's plan - everyone, including those earning $180k and more, gets the tax break - while those at the bottom get jack! (A point made very clearly in the article.) So much for being "clearly aimed at hard pressed middle".) What a croc!
Yes it does, $60K is still higher than the average wage in this country and the jobs typically came with a company car. There are people trying to exist on much less, try living on $20K. People on over $100K are creaming it and can afford to pay more tax, end of story. Adjusting the tax rates and bands is the easiest, quickest and guaranteed to make a difference overnight to those on low incomes.
I knew I should have added "/sarc" to my comment...
New Zealand's average salary cracks $70,000 reaching record high - Trade Me | Newshub
Average hourly wages in New Zealand - Figure.NZ
(noting that average is not median which is probably what you meant)
It's not about what people can afford or whether or not they have a company car. It's simply about envy.
Goodness, you are a strange thinker.
Many people thoroughly enjoy their jobs in the median/average pay ranges. And thank goodness as a society for that!
The people who work in social services, those who work in aged care, those who manned the grocery checkouts during COVID, those who work as labourers on our roads, the bus drivers, the rubbish truck drivers, the teaching assistants, the drain diggers and tree planters... the list is endless.
These are the people who make a real day-to-day difference to all our lives - whether we are rich or poor.
Your attitude in saying that all these people are envious [of those with higher incomes] is very sad. I fear you don't know many good natured, good hearted people.
Yes certainly highlights their disdain for anyone who they perceive as less well off than them. It wouldn't surprise me if they've somehow correlated in their head that these people are Labour voters, and therefore are the enemy for voting red instead of blue.
We haven't had a war in a while, the enemy is no longer the communist halfway around the world it's the Labour Party voting "communist" grocery worker who wants to tax Kiwikids to oblivion and give everybody a free house etc.
Maybe they are envious of academics, politicians and businessmen. They can turn up late or not at all with nobody noticing. They can take long summer holidays and winter holidays in warmer climes but those rubbish truck drivers, those hospital cleaners however worthy they consider their work cannot turn up late. Generally a worse job with all too often insulting pay and little job security; they are at the bottom of the status ladder and that is stressful.
Kate, I did not say anything about "all these people are envious" at all. I noted & replied specifically to Zwifters' original statement "People earning over $100K can definitely afford to pay more tax. I never earned more than $60K in my whole life. " which speaks very clearly of envy.
Class wars again…so last century.
I started work with nothing age 15 as a cleaner & factory worker & have been poor more than once over the decades as well as apparently included in the 1%,
NZdan, I voted for Labour since Kirk with only 2 exceptions. Never again.
I earn over $100k, wife earns less as an ECE but our household could certainly afford to pay more tax. Our DTI is 3 so that's probably a contributing factor. Sure, I could donate to IRD but I'm not going to pay more tax than I am obligated to.
I wouldn't be kicking and screaming if my tax went up and it was a neutral change i.e. lower incomes received a bigger tax cut. Certainly won't make be strive for less either. "Sorry boss, I'll have to turn down that payrise as it'll be taxed at a much higher rate. I'd rather go without whatever net dollar amount I may receive, even if it's over 50% nett."
It applies to my three daughters. The one without children seems to live well but the other two with kids and rents find life economically tough. Of course it would be much tougher if they earned the so called 'living wage'. They are above the WFF limit. Is the solution a generous universal child benefits? Tax the single.
The Australian tax rate is 30% up to $200,000. What kind of no hopers do you think NZ will be left with if you jack the tax rates up on someone here earning a basic $100k? When I left NZ in 2001 I was earning more than that, and I still got a 20%+ pay rise by moving to Australia (same company transfer). Its almost like most New Zealanders have no clue what highly qualified, skilled people earn both in NZ and in Australia, so think that everyone earning $100k must be "rich". A 22 year old first year lawyer straight out of Uni will be on $100k in Australia.
Golly. Quite an unbelievable statement.
The problem is that the wealthy - the top few percent - have been getting wealthier and wealthier and the rest of us poorer. Such wealth disparity causes massive issues. For example, it was a major cause of the great depression in the 1930s. Interestingly, the 1950s and 60s boom in the USA and other countries was caused by a reversal in wealth disparity.
Henry Ford even got this. He said, "It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages." ... Consequently, he ensured his employees were paid well ... so they could become customers!
[begin black humor]Not to worry, though. The French got it right. I am starting a guillotine manufacturing business. The IPO will be announced shortly. I don't want to "eat the rich". They are unlikely to be palatable and there's not enough of them for a good feed.[end black humor]
The wealthy using wealth to get wealthier isn’t due to lack of taxes. Our financial system is the culprit. Until that changes the above won’t. Why do you think wealth/asset price growth has been so prominent under both major parties? (Worth mentioning asset growth much higher under labour)
I would rather see quality of life raised than guillotines for the rich as you joke about. What’s the saying? “The left don’t care about the poor, they just hate the rich.” Sounds like we’re getting into that territory here.
I think a distinction in wording here would be helpful. There should be higher taxes on unearned income - i.e., wealth accumulated without effort. Which is why I'd argue for far lower PAYE (taxes on labour), and far higher taxes on non-employment related gains/earnings.
Wealth isn’t income. Unrealised gains aren’t income. As it has been pointed out before, wealth taxes would inevitably catch the average joe just like people on modest incomes are now in the top tax brackets. We have had six years of unintended consequences. Let’s not keep going down that path.
I suspect they tried to recruit people at kindergarten.
But once they found out they would be taxed on their meagre wage, while the "tax plan" they were to endorse meant they got almost nothing from the tax plan, they refused to do it and went back to eating paint. They were probably unaware that, as "consultants", they were universally despised by both their employer and their employer's future partner in government.
You can learn a lot from kindergarteners. National should spend more time amongst them.
even fran could see what it is was designed to do
But it's not just the cost that has experts concerned. NZME head of business Fran O'Sullivan told Newshub Nation she is worried about what this policy will do to house prices in New Zealand, given it will add more competition to the market.
"It gets the market going again but it gets it going at a time the squeezed middle is finding it hard, in some cases, to service mortgages or buy houses in the first place," O'Sullivan said.
She said by adding in more competition from foreign investors, as well as immigration, it could elevate house prices over time.
"That will be great for the base (code for landlords and investors) but it will still impact the squeezed middle"
Well funnily enough, there will probably be no shortage of builders jumping in to build multi-million dollar homes to satisfy demand. Because its dead easy to build a single family home in this country, while its much harder and far more expensive to build multi-family homes. And I for one would prefer to see old houses in character suburbs knocked down and replaced with amazing homes instead of those cheap and nasty multi-unit developments that will be run down ghettos in about 10 years.
Why can't we encourage intelligence and entrepreneurship?
Instead we support dependency.
Make it simple - support the children (same benefit up to a fixed income level).
Tax free earnings to everyone up to $40k.
Cream rises and will be wealthy - try to take it away and the money will flow elsewhere.
NZ loves tribal behaviour and rugby.
Where is the the celebration of TRUE intellectual and cultural achievement.
NZ CRUSH GROWTH.
after watching willis this morning she is going to be a worse finance minister than GR and that takes a lot to be that bad. her policy is based on assumptions not facts, it has not been costed properly, she has no idea about offshore gambling or offshore tax agreements or how inflation is made or how many houses will be sold.
so i will be peeved when she does what she told jk to do and raises GST after the election but says nothing before the election
Yeah, a bit of a train wreck. Why in the world won't they release their model/costings? I suspect they determined what the number to be collected needed to be and worked backwards from there.
What a novel way to balance a budget!
Add to that, Chris Hipkins interview didn't go much better. Credit to Jack Tame for being 'attack neutral'.
Costings? Who cares? Just be like Labour, promise free everything, don't provide any costings at all, and then deliver nothing. Its been Labour's modus operandi for 6 years now. And then spend billions on secretive projects that they never told anyone about, not even their coalition partner, National's problem is that it is still trying to offer up genuine policies, instead of lying through their [giant] teeth to voters.
What do you mean who cares? Are you trying to give National a free pass because Labour are so inept? We're not talking about Labour we're talking about National, a party many of us would prefer to vote for and that hold themselves as being the more competent choice.
Maybe that's why our political parties do such a shit job, because the moment someone attempts to criticize a party or ask for a much higher standard it's shut down with "whataboutism" and "oh you're just a Labour fanboy".
and obviously has trouble at home balancing the cheque book on 200K and cannot afford to take her kids to the movies, who's bright idea was it to put her in charge of the countries books and how long before she rolls luxon so she can pass that on and hide her lack of financial knowledge
I'm baffled why she was the ideal candidate to be spokesperson for Finance, yet they have Simeon Brown who was a commercial banker with BNZ as spokesperson for Transport.
Did they have a mid-week quiz night? Dress code: Novelty Ties, correct answer gets to pull a portfolio from the hat all while chortling over a few wine paired canapes.
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