Saturday, April 22, 2023

Jack Tame: Is Labour planning new tax changes?

The impending release of a report into the taxation of wealthy New Zealanders will coincide with a speech next week from revenue minister David Parker, who's made no secret of his belief that New Zealand's tax structure lacks fairness.

If Labour were to introduce tax changes, the most obvious strategy is with a bait-and-switch.

John Key's 2010 "tax switch" increased GST to 15% while reducing personal taxes.

Key had previously ruled out changes to GST, but was able to endure criticism from his opponents by arguing that medium-and-low income earners would ultimately be better off with the changes.

His opponents vehemently disagreed, arguing that increasing GST would disproportionately benefit higher income earners.

Key's switch was introduced outside of an election year, but during a similar period of economic uncertainty.

He correctly calculated that voters were more likely to value an increase in their respective incomes than punish his government for subsequent inflationary impacts, or a perception that rich would get richer.

Thirteen months later, National was comfortably returned to government.

Labour might consider a version of the same strategy, arguing that a tax switch which benefits the poor and middle class at the expense of the wealthy is a prudent way to improve the fairness of the tax system whilst helping New Zealanders with everyday cost-of-living challenges and a potential recession.

One way to do this would be to adopt National's tax policy and raise income tax brackets in line with inflation whilst simultaneously targeting wealthier Kiwis to make up the lost revenue, and some.

Commentators have questioned whether boosting middle class incomes might even allow for the reintroduction of a capital gains tax (CGT) policy, which was previously ruled out under her leadership by Jacinda Ardern.

Opposition parties would surely characterise a CGT or similar as depressing economic growth and stifling innovation.

But Labour's strategists could gamble that many of those most directly affected by the introduction of a CGT, wealth tax, or similar, would be unlikely to vote for Labour anyway, and any votes lost in the political fallout might be offset by support among lower-and-medium income earners.

Still, given his party's recent history and his decision to scrap contentious policies, it would be a surprising move for the prime minister to take on a comprehensive CGT, especially given Labour has already introduced changes to the brightline test.

A much easier sell would be a tax switch which in the eyes of voters more directly targeted the wealthiest New Zealanders (National recently reversed its planned cut to the top income tax bracket after polls showed two thirds of New Zealanders opposed it).

Labour is always twitchy on tax policy. But if timed deftly and communicated skilfully, conditions could allow for significant changes that don't automatically hurt the party's chances in October's election.

Jack Tame is a well-known television presenter and journalist in New Zealand. This article was first published HERE


Anonymous said...

How about NO Jack.

K said...

liarbour voter deal coming your/our way.

Anonymous said...

At least cartels provide some level of service for extorting your money.

Robert Arthur said...

The only "fair" CGT is one which includes all assets, including the family home, vintage car, art, is discounted for inflation, and is at a constant rate, and assessed and levied every year, with the abilty to postpone payment (with interest) But that requires a formidable accounting exercise each year, including all inputs which contribute to gain (some portion of lawn mowing, new roof etc). Effort totally non prodcutive (like learning te reo). And would need a close watch so money owed does not exceed equity. The existing now long term bright line test is a farce and many sellers wouldl emerge with a tax credit. It is grossly unfair that the gain is assessed in one year and therfore often at the top tax rate. It is blocking many properties from release onto the market.

Rob Beechey said...

Dream on Jack.

JamesA said...

Jack it would help establish credibility if you learn the meaning of bait-and-switch before using it in an opinion piece.