Labour and National find each other’s weak spots: Zombie tax policies

Finance Minister Grant Robertson and National Party finance spokeswoman Nicola Willis. Photos / Mark Mitchell

National and Labour are attacking each other with what they think are each others’ most unpopular tax policies.

The problem is that neither of these policies are, strictly speaking, on the agenda this election. They are zombie policies - ideas that were once alive, but are now half-dead.

Both are defending the attacks as fair game until the other clarifies what is and is not off the table in the next term.

Labour has begun accusing National of having a tax policy that includes “tax cuts for millionaires”, while National is still accusing Labour of having a “jobs tax”.

In Question Time on Tuesday, Prime Minister Chris Hipkins lashed out at National for “tax cuts that… mean that somebody on a salary of a million dollars a year would get over $50,000 a year extra in a tax cut”.

Meanwhile, National’s tax calculator website tallies up taxes Hipkins has quite definitively ruled out, like a wealth tax.

National and Labour are attacking each other with what they think are each others’ most unpopular tax policies.

National has no final tax policy, although it says one is coming soon.

In lieu of a full policy, the party has three main tax commitments: adjusting the income tax brackets upwards, which will mean a tax cut for people who earn income from working, and axing Labour’s interest deductibility changes and restoring the bright-line test to two years.

The last two changes will certainly benefit some, and probably most, millionaires. These are tax cuts that benefit people who own rental properties. The bright-line test taxes the capital gains they make when selling those properties, and the interest deductability changes mean those property owners can deduct the cost of their interest from their tax bills.

This will probably benefit some millionaires, although seriously wealthy people likely own their homes outright, meaning no interest costs to deduct.

Labour Leader Chris Hipkins, flanked by Grant Robertson and Carmel Sepuloni announcing the party's tax policy. Photo / Mark Mitchell

National’s main tax policy, a pledge to adjust tax brackets, maxes out at just over $1,042.50, meaning “millionaires” would get about the same as someone on a median income of $70,000.

Labour’s $50,000 tax cut figure for someone on a million-dollar salary actually comes by costing how much someone would save if National repealed the 39 per cent top rate of tax, which currently kicks in on income earned over $180,000.

This is a grey area. National does support getting rid of the tax bracket in principle but says it will not do so next term.

It made the decision following a bruising Official Cash Rate hike last November, saying the economic picture was so dire the party could not afford to proceed with the cut, although the party has never dispelled the suspicion that it was really gotten rid of because the idea of repealing it is very unpopular.

It only hits the top 3 per cent of income earners, but would cost well over half a billion dollars to repeal.

The bracket creep idea has been on the cards since it was put forward by National’s former finance spokesman Simon Bridges last year. National has not released its final tax policy since then.

National’s finance spokeswoman Nicola Willis said Labour had lashed out at its tax plans because Labour’s own tax policy, removing GST on fresh and frozen fruit and vegetables, has been so poorly received.

“What’s obviously going on here is that they know that their tax policy has fallen well short.

“New Zealanders can see that the biggest beneficiaries of their tax proposals will be supermarkets and that there’s very little in it for the everyday working person,” Willis said.

Finance Minister Grant Robertson said that Labour was raising the 39 per cent rate because National “has not put out their tax policy”.

“That [removing the 39 per cent rate] is part of what they want to do. It will be good to have clarified when they plan to do it,” Robertson said.

As long as National continues not to have a clear tax policy, Labour will attack them for a policy they have said they believe in, but will not roll out next term.

Willis said the party would have its fully costed tax policy out soon, and said it would be fully funded. National will then, following the PREFU forecast, release its fiscal plan, which sets out how much it plans to spend, and how it plans to manage its debt.

National finance spokeswoman Nicola Willis. Photo / Mark Mitchell

But Willis said the tax plan will announce how it will fund itself, and it will not rely on digging into future operating allowances (the allocation of new money to be spent at each Budget) to be funded.

“Our tax plan will be fully funded. That is to say, it will not require funding from future operating allowances nor will it require debt funding,” Willis said.

This suggests Willis’s tax plan will fund itself by cutting existing spending, much like Labour’s GST policy - although the cost of National’s is far larger. National’s bracket changes alone are just under four times more expensive than the GST policy on the most recent costing.

She said the party is still committed to bracket changes to reflect inflation, axing the interest deductibility changes, and returning the bright-line test to two years.

National is not itself immune from having a go at their opponent’s weakness on tax.

Earlier this year, Hipkins froze work on the Social Unemployment Insurance scheme, which National calls a “jobs tax”.

The scheme is fairly costly in a tax sense, raising a tax of 1.39 cents on every dollar earned. Someone on $70,000 a year would pay $973 in “jobs tax”.

Despite the freeze, National continues to include the “tax” in its calculator of what Labour’s policies would cost people, alongside a now-axed wealth tax and cyclone tax.

Robertson said National should “keep up” with the changes, and Willis said National will be changing the wealth tax part of its tax calculator after it releases its own tax policy.

Willis said National would continue to attack the unemployment insurance policy until Labour clarifies what it is doing with the scheme.

“As I understand it there are still people employed by public agencies to work on that policy, which leads me to the view that you wouldn’t be paying people to work on that policy unless you are planning on introducing it,” Willis said.

Robertson said Labour would eventually set out what it plans to do with the scheme.

“We’ll talk about that within the context of our manifesto,” Robertson said.

“But nothing has changed… that’s paused until such time as we consider the economic conditions would allow for it to go ahead,” he said.

Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.