Election 2023: Income tax policies compared - how much you’d pay under different parties

Changing income tax rates is proving to be high on the agendas of most political parties, except for Labour, this election.

National wants the brackets adjusted for inflation, Act wants a flatter system, while the Greens, Te Pāti Māori and The Opportunities Party (TOP) want it to be more progressive.

What does this mean for you?

Everyone would receive an income tax cut under National’s proposal – although the reduction would be smaller for lower income earners, and cap out at a relatively low level for middle to higher income earners.

For example, someone who earned $40,000 would only get an extra $112 a year under National. Someone who earned $60,000 would get $800, and someone who earned $80,000-plus would receive an extra $1043.

Changes would be more drastic under proposals made by the smaller, more economically left-leaning parties.

Someone with an income of $60,000 would get a cut of $1220 under the Greens’ policy, a whopping $6520 under Te Pāti Māori, and $2020 under TOP.

At $80,000, the size of the tax cut would fall under Te Pāti Māori, but rise under the Greens and TOP to $1270 and $4320 respectively.

The size of the cut would come down thereafter for both parties. However, tax hikes would kick in much sooner under the Green Party’s policy, at the $125,000 mark, compared to TOP’s policy, at around $250,000.

Under the Green Party’s proposal, someone on $300,000 would pay an extra $10,330 a year – the most out of what any party is proposing.

While the hikes for high income earners proposed by the Green Party look significant, the tax reduction the party is proposing at the lower end of the income spectrum would affect many more people.

Turning to Act, it’s campaigning on making the income tax system flatter over a few years to avoid exacerbating inflation and adding more debt to the Government’s books.

Its cautious approach means the first iteration of changes proposed for 2024-25 are relatively minor compared to what some of the other smaller parties are campaigning on.

Someone on $40,000 would pay $980 more under Act. However the party would offset this with a tax credit for low and middle-income earners, and a carbon tax refund, claiming no one would pay more tax.

Those on around $60,000-plus would receive a tax cut under Act, which would cap out at $520 a year.

In 2025-26 and 2026-27, Act would like to continue flattening the income tax system, including by eventually removing the top tax rate of 39 per cent.

By this point, higher income earners would receive greater tax relief. For example, someone on $200,000 would pay $5020 less a year.

NZ First is likewise campaigning on delaying changes to the income tax system, saying it would make the lowest bracket tax-free “no later than April 1, 2027″, and would “adjust tax brackets for inflation starting April 1, 2024, with the first adjustment taking place in 2027 and every three years thereafter”.

Looking at the numbers a different way, someone on an income of $60,000 would see 18 per cent of their income go towards tax under Labour and Act, 17 per cent under National, and 16 per cent under the Greens.

Someone on $120,000 would see exactly a quarter of their income go towards tax under these four parties’ policies.

Of course, a party’s income tax plans need to be considered alongside their other policies.

Left-leaning parties – other than Labour – are campaigning on taxing wealth (or land in TOP’s case) for example, to recoup some of the costs associated with delivering some hefty income tax cuts.

National and Act want to reduce the tax burden on property investors.

Labour is focused on removing GST from fruit and vegetables and continuing to lift welfare payments.

National wants to limit welfare payment increases, to save $2 billion over four years, by indexing main benefits to consumer inflation rather than wage inflation.

See a summary of parties’ key tax policies below. All the costs and savings listed relate to the four-year forecast period from 2024-25. The two major parties’ plans have been summarised to a more detailed extent than the smaller parties’ plans.

Labour

• Remove GST from fresh and frozen fruit and vegetables, enforced by a Groceries Commissioner at the Commerce Commission – costs $2.2b over four years.
• Boost the In-Work Tax credit by $25 a week to $97.50 on April 1, 2024. The IWTC is received by 160,000 low-income families, but excludes those on a benefit – costs $795m.
• Lift the Working for Families abatement threshold from $42,700 to $50,000 on April 1, 2026 – costs $555m.
• Remove the ability for commercial and industrial property owners to write off depreciation as an expense – raises $2.1b.
• Keep the bright-line test at 10 years for existing investment property and five years for new builds – raises $200m.
• Continue phasing out interest deductibility for landlords (excluding new builds) by 2025.

National

• Lift all income tax brackets (except for the top one) by 11.5 per cent, delivering tax cuts that max out at $20 a week – costs $9.0b.
• Broaden eligibility for the Independent Earner Tax Credit, for modest income earners, to compensate for the impact of inflation – costs $707m.
• Introduce the FamilyBoost childcare tax credit, worth up to $150 per fortnight, for families with young children – costs $996m.
• Boost the In-Work Tax credit by $25 a week to $97.50 on April 1, 2024. The IWTC is received by 160,000 low-income families, but excludes those on a benefit – costs $795m.
• Lift the Working for Families abatement threshold from $42,700 to $50,000 on April 1, 2026 – costs $555m.
• Restore the ability of landlords to deduct interest costs from tax bills – costs $2.1b.
• Ditch changes made by Labour to extend GST to services like Uber – costs $206m.
• Reduce the bright-line capital gains tax from 10 to two years - costs $200m.
• Introduce a 15 per cent tax on residential property, worth more than $2m, bought by non-tax residents - raises $3b.
• Remove the ability for commercial and industrial property owners to write off depreciation as an expense – raises $2.1b.
• Index main benefits to consumer price inflation, rather than wage inflation – raises $2.0b.
• Raise taxes on online gambling – raises $716m.
• Hike immigration fees - raises $492m.

The Greens

• Change income tax brackets so those who earn less than $125,000 a year get a tax cut and those who earn more, pay more. The shake-up sees income under $10,000 not taxed at all, and a new top tax rate of 45 per cent introduced for income above $180,000.
• Lift the corporate tax rate from 28 per cent to 33 per cent.
• Tax an individual’s net wealth above $2m (and a couple’s net wealth above $4m) at a rate of 2.5 per cent a year.
• Tax the net value of assets held in trusts at 1.5 per cent a year.
• Introduce an “income guarantee” for those studying or looking for work of $385 per week for individuals, $770 for couples and $735 for single parents. Payments replace existing welfare.
• Replace Working for Families with a payment to parents or caregivers of $215 every week for the first child, and $135 a week for every other child, with an extra $140 a week for every child under 3 years of age.

Act

• Progressively reduce the number of income tax rates from five to three by 2026, so that eventually people pay 17.5 per cent on the first $60,000 they earn, 30 per cent on income between $70,000 and $180,000, and 33 per cent on income above this level.
• Introduce a tax credit for low and middle-income earners to offset some of the increase in tax they’d pay under a flatter system.
• Use revenue collected from carbon emitters under the Emissions Trading Scheme to pay individuals about $100-$200 a year, rather than leave the Government to decide how to use that money to try to reduce emissions.
• Abolish the bright-line test and interest limitation rule (residential property investor taxes).

Te Pāti Māori

• Remove GST from all food.
• Completely change income tax thresholds to the benefit of lower-income earners, including by introducing a tax-free threshold for income below $30,000, and two new top income tax rates of 42 and 48 per cent for income between $180,000 and $300,000 and above $300,000.
• Tax net wealth above $2m per person at between 2 and 8 per cent a year, depending on the level of wealth.
• Increase the corporate tax rate from 28 per cent to 33 per cent.
• Introduce an “overseas financial transfer tax” that would tax foreign-owned company profits at an additional rate of 2 per cent above the corporate tax rate.
• Introduce an “undeveloped land tax” applicable on land where development hasn’t begun within four years of purchase. A 33 per cent tax would be applied to the difference between the land’s purchase price and market value. Exemptions would apply for Māori freehold and customary land.
• Introduce a “vacant house tax” of 33 per cent applied to the difference between a property’s purchase price and its market value.

NZ First

• Adjust income tax brackets for inflation starting April 1, 2024, with the first adjustment taking place in 2027, and every three years thereafter.
• Reduce the lowest tax rate, on income below $14,000, to zero by April 1, 2027.
• Allow residential property investors to once again deduct interest as an expense when paying tax.

The Opportunities Party

• Change income tax brackets to the benefit of low, medium and moderately high-income earners by creating a tax-free threshold for income below $15,000 and introducing higher tax rates for those who earn above $180,000 a year.
• Impose a 0.75 per cent tax on the value of urban residential land every year, excluding commercial, rural, conservation and Māori land.
• Prevent beneficiaries’ relationship statuses from determining the level of support they receive.
• Increase income support for disabled people.
• Wipe all debt (worth about $2b) owed to the Ministry of Social Development.
• Extend the In-Work Child Tax Credit to all children of low-income families.

Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.