Facts on tax cuts/increases

The tax debate has ramped up a few notches, with National claiming Labour will increase income tax, and Labour claiming that National is lying.

Here are the facts.

Announced in the budget in May: IRD Budget 2017

From 1 April 2018, the $14,000 income tax threshold will increase to $22,000, and the $48,000 threshold to $52,000.

The tax threshold change provides a tax reduction of $10.77 a week to anyone earning more than $22,000 per annum, increasing to $20.38 a week for anyone earning more than $52,000 per annum.

That is clear, legislation has been passed, and unless legislation is changed again those tax cuts for everyone will take effect from 1 April 2018.

Labour:  Fact Check: Income taxes

National loves to scaremonger about tax increases. If you listen to what they say, you’d think Labour was going to tax everything that moves!

They’re wrong. We’ve been very transparent about all of our policies and plans, and we will continue to be so.

We’ve decided to cut through National’s spin. Click on any of the below issues to find out the full story:

Will you raise income taxes?

Jacinda has ruled out income tax increases this election.

Labour: Labour’s Families Package

Now is not the time for tax cuts. The top 10 percent of income earners get $400 million from National’s tax cut, which is as much as the bottom 60 percent receive combined.

Jacinda Ardern, Grant Robertson and other Labour MPs have repeated “the top 10 percent of income earners get $400 million from National’s tax cut” frequently. They don’t mention that all income earners will benefit from the tax cuts.

So Labour will eliminate National’s tax cuts, saving $1.5 billion a year.

From those numbers the ‘bottom 90%’ of income earners will get a total of $1.1 billion in tax cuts per year.

Labour would need to pass legislation that changes the tax rates currently in place to take effect from next April.

The terminology being used is “Labour will eliminate National’s tax cuts” but also “Jacinda has ruled out income tax increases”.

To National – their latest PR on this from Minister of Revenue Judith Collins: Labour would put up income tax for average wage workers

“Labour is simply factually wrong – they would force someone on the average wage to pay $1060 a year more in tax,” Ms Collins says.

“Labour needs to be upfront with New Zealanders. Under Labour income tax is going up.”

Strictly speaking that is inaccurate. Under Labour income tax won’t go down.

So both Labour and National are playing with words.

But, however you phrase it, if Labour get the support of a majority in Parliament to eliminate the tax reductions currently in place the income earners will be taxed more than if National stay in Government and don’t change the legislation.

Under Labour all income earners will pay more tax from next April than they would under National.

I’m not sure that’s something that Labour want income earners to understand and ponder when they decide to vote, so they are unlikely to win this war on words. They have certainly lost a battle by being drawn into debating it.

Labour’s commitments “can be funded out of existing tax revenue”

Labour leader Andrew Little says that any Labour policies can be funded out of existing and forecast revenues and tax rates won’t be changed.

In an interview on The Nation Little made commitments of sorts on not raising taxes:

We are not planning on any tax changes for the 2017 election. We will finely calibrate what we do once we see what the Government does in its foreshadowed tax changes, which we assume will be in this year’s budget, but who knows?

They are not planning any tax changes now but who knows what they might plan after the budget?

So we are focused and we are talking to New Zealanders about and I will make commitments to New Zealanders about the problems that are here and now. And the commitments that we’re making – all of them – can be funded out of existing tax revenue. That’s what we’re focused on. That’s we’re campaigning on.

So we will have to wait and see how Labour proposes to finance it’s policies. They have already talked about:

  • Resuming contributions to the Super fund and leaving the increase in costs of Super as they are.
  • Funding more police.
  • More health funding.
  • More education funding.
  • Increase social housing and state housing
  • Kiwibuild will build 100,000 new houses over 10 years (eventually self funding)
  • Labour said it would bring in three years of free post-school education over a person’s lifetime costing $1.2 billion a year by 2025 (the first year funded from money earmarked by the government for tax cuts).

So if National announce tax cuts or threshold adjustments Labour would overturn them or use them to fund policies?

Also:

Lisa Owens: Another thing is the Children’s Commissioner. He wants the Government to commit to a target of lowering the number of children in severe hardship by 10% over a period of 12 months. Will you commit right now to meeting that target?

Andrew Little: Ye—Two things we’re going to do. We will have a child poverty measure that we’re going to commit to, and I’ve already said every budget we will report on how we’re going against that measure, and we are absolutely determined to reduce child poverty in the way that the Children’s Commissioner is talking about.

…Yeah, because I think his figure is roughly 150,000-odd, and lowering that by 10% – I mean, yeah, if we can’t do that and we’re not prepared to commit to that – and I say we are – then, you know, we’ve got something seriously wrong going on.

That hasn’t been costed yet.

And it has to be remembered that Labour will need at least NZ First or Greens (or both) to form the next Government. They will want some of their own policies in the mix. Policies that are likely to cost extra money.

Any policy costings by Labour are pointless on their own. The cost of a change of Government needs to include likely NZ First and Green policy costs on top of Labour’s own.

It’s even possible that Labour will put forward a “no tax increase” policy but then ditch that in post-election negotiations with NZ First and Greens.

Financial credibility is likely to be a major election issue. Little will have to have some good answers to the inevitable questions of affordability of policies of a Labour led coalition that Labour may only have half the voting power in.