Bridges tries to keep tax debate going

When Jacinda Ardern announced that the Government was ditching any change to a Capital Gains Tax, and also that she was dropping any CGT plans while she remained leader, some (notably Michael Cullen) claimed that that neutered Simon Bridges and any tax debate in next year’s election campaign.

But Bridges is trying to keep the tax discussion going. He has gone as far as putting a a bill into the member’s ballot that would index tax brackets to inflation. This would avoid the bracket creep that harmed Labour’s re-election chances in 2008 when the Clark/Cullen government list to John Key and National – but Bill English also let bracket creep erode take home pays through their nine years in office.

National went into last election with legislation already in place to adjust tax rates and brackets, but lost power, and the Labour led government reversed those adjustments.

The Spinoff – The Bulletin: Bridges pushes for bigger focus on tax debate

As Stuff’s Henry Cooke points out, under the member’s ballot it almost certain not to pass if it gets pulled out, “but would force the Government parties to vote against an effective tax cut.” National has signalled they intend to campaign on the issue, which means that if it does come out there will be a voting record of that come election time. If Labour in turn opt to campaign on any of the other, non CGT recommendations from the Tax Working Group, that would set the terms of the debate on ground that National would be comfortable with.

The policy would result in the loss of about $650 million a year in tax revenue, according to Mr Bridges’ figures, reports the NZ Herald. When the policy has come up, finance minister Grant Robertson has often pointed to that figure as money that will have to be cut from elsewhere. And while the Budget Responsibility Rules are in place – vocally hated as they are by those who want bigger investments in social services – it’s difficult to argue that the government is currently over-spending.

A point of clarification – as people go up tax brackets, they only pay higher rates on their income above the previous threshold. So while the percentage of people earning above the 33% rate for incomes of $70,000 up has risen (11% of earners in 2011 to 17% in 2016) those people are only paying 33% on what they make on top of the $70,000. Even for those in that bracket, income earned at lower thresholds gets taxed at a lower rate.

How the tax rates and brackets work is poorly understood.

The current Government has passed legislation that they have promoted as An end to unnecessary secondary tax

Workers who are paying too much tax because of incorrect secondary tax codes are in line for relief with the passage of legislation through Parliament late last night.

The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill passed its third reading and will come into effect on 1 April.

“We promised to eliminate unnecessary secondary tax for workers with more than one job. We are delivering on that promise,” says Revenue Minister Stuart Nash.

But this is quite misleading. Secondary tax rates (there are several) won’t change. Workers who paid secondary tax will continue to pay secondary tax, and their tax for a year will be no different.

All this does is encourage IRD to advise employees through the tax year if their secondary tax rate is appropriate to their level of earnings or not.

“The changes mean Inland Revenue will more closely monitor the tax paid by wage and salary earners through the year. If it appears the worker is being over taxed, Inland Revenue will suggest a more suitable PAYE tax code tailored to that worker.

“Till now the tax on the second job has often seemed too high. These changes ensure wage and salary earners are only paying the tax they should. Just under 600,000 secondary tax codes are used every year.”

Again this is misleading. The end of year tax calculation which determines how much tax you pay in a year remains exactly the same.

All this change does is attempts to tax more accurately through the year. It will reduce the chances of underpaying or overpaying (it can work both ways) interim tax via secondary tax rates, that is all. The end result will be exactly the same.

Secondary tax is a system designed to prevent employees from getting big tax bills at the end of the tax year. People who earn variable amounts in different jobs will always have a greater chance of inaccuracy through the year, regardless of this change.