Who will reversing the tax cuts affect the most?

The previous (National) government legislated for tax cuts from next April that would benefit everyone earning money, in particular all workers.

Labour campaigned on scrapping these tax cuts, and intend to pass legislation that will reverse them. But they have been quite quiet about it.

In two interviews in the weekend new Minister of Finance Grant Robertson mentioned then just once in passing. On Q+A:

CORIN You will be well aware of the famous winter of discontent or so-called ‘winter of discontent’ – 1999, Labour government that came in. Are you worried that business is going to react badly to you? I mean, what is your message to, I guess, the small business owners, the business people in New Zealand this morning watching? Can you assure them that you’re not going to rip up the rulebook for them?

GRANT Absolutely. I mean, we are a party that’s committed to a partnership here with business, with working people as well. And, yeah, I went to a Mood of the Boardroom event with, you know, 150 CEOs just before the election and heard from them that their biggest concerns about New Zealand were about inequality. They said that we didn’t need tax cuts; we needed to invest in social services. They were worried about multinationals not paying their fair share of tax. They’re the same policies that we’ve got. Now’s the time for us to sit down with the business community and say, ‘How do we make this work together? How do we grow businesses and ensure a fair share in that prosperity?’

CEOs said “we didn’t need tax cuts” – good for them, they probably don’t, but they don’t speak for all workers. It’s curious to see a Labour finance minister taking a justification for a significant policy from big business CEOs on what they think all workers don’t need.

From the interview on The Nation:

Lisa Owen: Minimum wage — you’re going to raise it to 20 bucks an hour by the end of your first term. Are you worried that that’s going to put a handbrake on job creation?

Grant Robertson: No, not at all. When Labour was last in government, we were raising the minimum wage by about a dollar a year during that period. In fact, we had some of the best economic growth and the lowest unemployment that we’ve seen. Bear in mind, the people who will be getting these minimum wage increases will then be spending that money in the economy. It actually stimulates growth.

Lisa Owen: So in terms of paying for that, the Prime Minister’s indicated that there could be some breaks for small businesses, perhaps, to offset the cost of rising wages. But the thing with that is that will lower your tax take, and don’t you need that money?

Grant Robertson: Look, obviously, as Minister of Finance, I’m always keen to see the money that comes in that we can use, but we do have to make sure we’re being fair on small businesses. Australia has this — the idea of potentially a progressive tax rate for small businesses with low turnover. We want to take a look at that and see whether that could work in New Zealand.

Increasing the minimum wage will help low paid workers (if it doesn’t trigger price inflation. And Labour are also considering tax cuts for small businesses.

Jacinda Ardern has also mentioned small business tax breaks – see Ardern considers tax cut for small businesses to offset $20 minimum wage.

Ardern has also said little about reversing the tax cuts. She has said that their first 100 days plan is largely going to happen. This includes:

  • Make the first year of tertiary education or training fees free from January 1, 2018.
  • Increase student allowances and living cost loans by $50 a week from January 1, 2018.
  • Increase the minimum wage to $16.50 an hour, to take effect from 1 April 2018, and introduce legislation to improve fairness in the workplace.
  • Legislate to pass the Families Package, including the Winter Fuel Payment, Best Start and increases to Paid Parental Leave, to take effect from 1 July 2018.

So that will provide more money to students, low wage workers, families and superannuants (Winter Fuel Payment).

From 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. So Labour will eliminate National’s tax cuts, saving $1.5 billion a year. Making this choice provides Labour with the opportunity to reduce inequality and boost family incomes.

Families, students, old people, and possibly small businesses will all benefit from Labour’s changes.

There’s a large group of people who will miss out on the currently legislated tax cuts, and will also miss out on handouts from the incoming Government – wage earners who earn more than $20 an hour who don’t have dependant children.

Many ordinary middle New Zealanders will be paying for ” the opportunity to reduce inequality and boost family incomes”. They will do this in a number of ways.

They are already gradually paying higher tax rates due to bracket creep, and that will continue.

If pushing up minimum wages pushes up inflation those not getting more wages will see their costs increasing.

There is also a risk that interest rates will be pushed up – that will impact in middle New Zealanders the most.

The fuel tax will cost Aucklanders more.

And there’s another risk – house prices may drop. Prices have already levelled off in Auckland. The incoming government has plans to dampen property inflation further. This could impact on middle new Zealanders who already own homes (and have mortgages).

During the election campaign Labour kept emphasising the tax cuts ‘the top 10%’ would get in comparison to ‘the bottom 60%’ from the currently legislated changes.

They ignored the other 30%.

Labour will need to be aware of the risks of building resentment by ignoring many middle New Zealanders in their modifications of wealth redistribution. There are a lot of people who will not just miss out, they may end up paying out.