Dear Supporter,

Labour’s new tax is about envy, not slaying the Debt Monster

Pictured: Grant Robertson and Stuart Nash avoid eye contact with the Debt Monster outside today’s policy announcement

Earlier today Grant Robertson announced the Labour Party’s new tax policy – the headline item being a new personal tax rate of 39 percent for income over $180,000.

It’s slightly more moderate than we expected – but it is still an envy tax, designed to satisfy the ideological urges of Labour’s left-wing base.

Only two percent of New Zealanders earn above $180,000, so the tax won’t actually bring in much revenue. Grant Robertson is trying to convince the media that the change will collect $550 million each year – enough to increase government revenue by just 0.5 percent. He can’t seriously ask us to believe this will slay the Debt Monster.

A dream come true for the accounting profession

But even Robertson's $550 million figure is pie in the sky. The real tax take will be much lower because his revenue forecast fails to take into account behavioural changes: high earners will get their accountants to shift personal income into companies and "PIE" (portfolio investment entities) which are taxed at 28 percent. In fact, we already know of an individual who is now incentivised to do this and will actually pay less tax overall.

Meanwhile, for high earners who can't restructure their affairs, it becomes more attractive to leave the country altogether, taking their tax revenue and productivity with them.

The lucky country?

Our Co-founder, David Farrar, has just published a comparison between income tax paid in Australia vs New Zealand. Have a read here: Under Labour everyone who earns up to $300,000 a year will pay more tax in NZ than Australia.

And while our Government is announcing tax hikes, signals from the Australian Government suggest it is bringing forward tax relief to boost their economy. 

“No new taxes” – can we believe it?

After announcing his new tax Grant Robertson promised, “Labour will not implement any new taxes or make any further increases to income tax next term.”

That’s nice, but it’s not actually a promise that Labour can make. There is a significant likelihood that the Greens will hold the balance of power, meaning they can demand their economically destructive wealth tax, regardless of Labour’s pre-election promise. The Greens will also be keen on new climate taxes.

Notice how Grant Robertson says “Labour will not” rather than “a Labour-led government will not.” He knows the Government can still introduce a new tax by blaming it on the Greens!

A better way: cut low priority and wasteful spending

Tax increases aren't the only way to slay the Debt Monster. 

Current spending is completely unsustainable and the Ardern Government needs to start turning the taps off. For a start, savings can be made by reducing existing low-value Government spending and looking for new opportunities to meet policy objectives more efficiently.

We'll be talking more about that in the coming weeks, but in the meantime, the politicians would do well to pick up this excellent paper by the NZ Initiative: Policy Point: Borrowing To Save: Retirement Income Policy After Covid-19.

Taxpayer Talk: our reaction to Labour’s tax plan

Immediately after the announcement, I sat down with Taxpayers’ Union Research Officer Islay Aitchison and economist Joe Ascroft to record a podcast episode examining the politics and economics of the tax in more detail. Click here to listen.

You can subscribe to Taxpayer Talk via Apple Podcasts, Spotify, Google Podcasts, iHeartRadio and all good podcast apps.

Thank you for your support,

Louis Houlbrooke Campaigns Manager New Zealand Taxpayers' Union