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ANALYSIS: Labor politicians generally hate talking about taxes. It is National’s best line of attack against the party and it is something that most Kiwis really care about, far from the day-to-day controversies of politics. Hit the hip pocket and it is important.
But with soaring popularity and a huge amount of money borrowed to pay the Covid-19 bill, the party faces one of its best opportunities to change the tax system of this century, something that its grassroots believe is the right thing to do.
In fact, a private corporate UMR survey was completed the week before the fiscal policy was published and obtained. Stuff, Labor was still sailing high with 53 percent support, with National trailing with 29 percent, even after the Auckland shutdown. (UMR also conducts private Labor Party polls.)
Seeking to protect that leader from the polls, the Labor Party has opted for a much more cautious fiscal policy than the more transformative and divisive changes it has proposed in the last election.
It is not a wealth or property tax in any way. The words “family home” will not be spoken.
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Hagen Hopkins / Getty Images
Finance Minister Grant Robertson.
Instead, the top tax rate will return to 39 percent if Labor wins the Oct. 17 election, but at a new income level of $ 180,000 or more. Labor is calling the shift as necessary to fund health budget black holes and Covid-19 recovery, two issues that voters support them on.
If implemented, it would be the first increase in personal income tax rates in more than 20 years, since a Labor-led Helen Clark government moved the top tax rate to 39 percent in 1999.
That was undone by the national Key-English government in 2010, which lined the top rates for personal and fiduciary income tax at 33 percent.
But unlike those changes, this will affect a very small number of taxpayers. According to IRD figures, this change will only affect the richest 2 percent of income. Labor says the change will raise an additional $ 550 million a year
The concern of workers, as with most tax changes that exclusively affect the wealthy, will be the phenomena of “temporarily embarrassed millionaires”: Kiwis who earn much less than $ 180,000, but seem to do so at some point, however unlikely it may be. be.
Prime Minister Jacinda Ardern was burned enough by the latest fight over the capital gains tax to waive such a tax while she was leader; It seems this experience has also prevented him from wanting to venture to tax wealth rather than income, like the Greens. are currently proposing.
The logic of taxing property or wealth may be obvious to some, but the political calculus is much more confusing.
Setting the income bar for the highest tax rate at $ 180,000 is an attempt by Labor to vaccinate itself against the accusation that it is anti-aspirational or wants to tax people who try hard.
That charge would have been held longer if the threshold had been set at, say, $ 120,000.
It affects relatively few people, and considering New Zealand’s median personal income was $ 52,800 last year, $ 180,000 will seem a long way off to most people. Labor will bet that not only will it not be relevant to the lives of the majority of voters, but they will also think it is fair.
As it stands, when National opposes this tax increase, as it surely will, Labor can follow a line that National supports “2 percent” over everyone else. How either party copes depends on the political skills of Labor and national leaders.
In the broader tax scheme of things, this tax won’t help much. To put it in context, even a small part of the government’s Covid-19 response: the shovel-ready project fund (from which the Green school would be funded) is $ 3 billion.
The money this raises would take six years to pay for just that part of the plan.
This year’s government budget set aside another $ 20 billion to spend on Covid’s response, but the spending was effectively marked: TBC. Total coronavirus spending in the budget was $ 62 billion.
The total cost of the recession will be $ 140 billion of additional debt over the next few decades.
Those mind-boggling numbers show that this shift isn’t really about increasing revenue, but about inserting a new leg in the tax system that high-income people will have to get used to in the years to come.
It will increase the progressiveness of the tax system, an article of faith among many at work, and it will set a new tax expectation for the future. Tax changes are difficult to remove once they are locked.
One thing is clear: This will be the first new income tax hike, regardless of how relatively insignificant, that a sitting government has led to an election since before the Rogernomics era. There’s a reason for that.
