Prime Minister Chris Hipkins will ‘eventually’ look at tax changes, but warns they will be inflationary

Chris Hipkins joined Kerre Woodham on Tuesday morning to answer questions Photo / Michael Craig

Prime Minister Chris Hipkins said he would “eventually” look at adjusting tax brackets, but that doing so now would be so inflationary that it would eat up any increase in people’s incomes.

Hipkins spent one hour answering Questions on Newstalk ZB’s Kerre Woodham Mornings, including questions from talkback callers.

National has promised to adjust tax brackets for inflation between when Labour took office at the end of 2017 and 2021.

“I think eventually we will need to look at resetting our income tax brackets - I’ve been pretty open about that,” Hipkins said in response to a tax question.

But he warned that bracket adjustments would need to be large in order to deliver a meaningful amount of money to people - and large tax cuts would be inflationary.

“One of the challenges of doing something in that space right now is that we know it would ultimately be inflationary.

“You have to make really big adjustments to tax brackets in order for people to get a meaningful amount.

“More than $2-$3 a week you’re talking about [a] big cost to Government in terms of revenue foregone,” Hipkins said.

He said that such cuts would probably increase inflation to the extent that it would erode the gains made from any tax cut.

“The inflationary environment that would stimulate would mean people would face rising costs more than any money they would get from their tax cuts.

“The main message I have there is raising incomes is one of the reasons people are moving up the tax brackets and that is a good thing.”

In response to fears that New Zealand’s economic and tax settings were driving people to Australia, Hipkins noted that Australians paid higher rates of tax than New Zealanders.

“They pay higher tax rates in Australia,” he said.

Many Australians do pay higher rates of tax than New Zealanders, although low-income Australians pay lower rates of tax than New Zealanders. The first $18,201 of income is tax free in Australia and income to $45,000 is taxed at 19 per cent.

The first dollar of income is taxed in New Zealand and income between $14,000 to $48,000 is taxed at 17.5 per cent.

“Their economy is delivering more for working people but the tax take that they have helps to stimulate that activity as well,” Hipkins said.

“Teachers, nurses, doctors - these are the people we run the risk of losing to Australia - their wages get paid out of tax revenue.”