.... but will inflation erode any benefit before it arrives?
Incoming Prime Minister Chris Hipkins has already indicated he intends making the tax system “fairer”. That points to the route a government facing an election could take to tilt the odds towards winning in its favour, given Labour’s support in the last months of the Ardern era had been drifting downwards.
Appearing on AM on Monday, Hipkins said he will focus on bread-and-butter issues, like the cost of living, in his new role.
He also hinted that tax changes could be on the cards, saying “we should always look at how we can make the tax system fairer”.
“You’ve asked about values so I will start right at the core value. If you work hard you should be able to get ahead. There are people now working really, really hard, some of them might be working multiple jobs and they’re not feeling that they can get ahead,” he said.
“They are contributing enormously to New Zealand and to our prosperity but they are feeling that they’re not able to get ahead. We need a tax system that recognises this, that actually makes sure that those who are really striving, who are putting in the hard yards, actually feel the reward for that.”
Such a comment might be surprising, coming as it does from a minister who belongs to Ardern’s inner circle. But it does suggest that Hipkins will be leaning heavily on Grant Robertson (who is expected to retain the Finance portfolio) to frame an election-winning budget, and in the process make the tax system “fairer”.
Bagrie said one way to help struggling Kiwis would be to completely overhaul the tax system by lowering income tax and increasing GST.
“Certainly there’s some scope for getting rid of what we call tax thievery – that’s making sure that as your incomes move up, you don’t just shift up into a higher tax bracket,” Bagrie said
“But if I was going to design the tax system from an absolute square one, I would probably have higher GST and lower income tax. And some sort of wealth tax thrown into the mix as well.
“Now whether the government of the day is yet bold enough to come out with that sort of platform, I suspect the answer is no. But the new Prime Minister has basically flagged that he’s going to have another look at that old chestnut called tax, so we’ll see where it goes,” Bagrie said.
The way income tax currently works, each dollar earned up to $14,000 is taxed at 10.5%, then each dollar between $14,000 and $48,000 it taxed at 17.5%.
The next bracket is $48,000-$70,000, taxed at 30%, followed by the $70,000-$180,000 bracket, taxed at 33%. And above $180,000 tha rate is 39% – the final bracket introduced by Labour after the 2020 election.
Hipkins has confirmed his Government would stick to Labour’s tax promise for this term, which is no new taxes outside of the new 39% tax rate.
The problem for the government is that whatever adjustments the government makes to the tax system, inflation at its current level could erode any income gains before they arrive.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton