Thomas Coughlan: Tax question remains unanswered, as Budget month draws closer

Finance Minister Grant Robertson will deliver the Budget next month. Photo / Mark Mitchell

Tuesday’s Cabinet meeting was a big one - and not for the reasons you think.

Not only were there three post-Cabinet announcements (so many that Prime Minister Chris Hipkins forgot one), it was also the last Cabinet meeting before it takes a fortnight break with ministers getting to enjoy a bit of Parliament’s long three-week recess.

They’ll need the rest.

When Cabinet meets again on May 1 it will be the beginning of Budget month, and the beginning of the three-week sitting block that will culminate in the Budget’s delivery on May 18.

With that in mind, a host of Budget decisions went to Cabinet on Tuesday to be signed off the break. The shape of the Budget is now largely complete. Unlike the Covid Budgets, which were midnight oil affairs, this one is mostly finished – although there’s always the possibility of late changes in the remaining three Cabinet meetings before May 18.

The May calendar is already packed. The idea of a Budget “Day” went out the window long ago, replaced by a Budget “Month”, with pre-Budget announcements teased in the weeks leading up to a Budget and post-Budget announcements made in the two-week recess that typically followed.

The logic to this is obvious – to monopolise public attention on spending announcements for as long as possible.

Labour has a difficult choice ahead of it this year because the party’s congress (the name it has for the party conference during an election year) will be just a week after the Budget.

One thing under active consideration is whether this is the time for Labour to launch its first election policy – everything thus far is government policy that Labour will run on, as distinct from a manifesto campaign commitment to be implemented after the election.

The party congress would be a logical place to launch its first election policy – something small (big announcements will come closer to polling day) but something that signals the party is shifting gears from governing to campaigning.

There isn’t total agreement on this. You get one shot at selling a Budget; if you’re going to spend $4.5 billion - as the Government currently plans to - it makes sense to drag out the political sales pitch for as long as possible.

But not too long.

National has moved from being lampooned for its distinct lack of policy to having four recognisable election policies: in education, early childhood education, three waters, and electricity, along with a host of smaller policies accumulated from last year and early this year.

National has also managed to get its discipline issue sorted. The Government has had a bad run on that front, from MPs Gaurav Sharma, Stuart Nash and Kiri Allan to appointees like Rob Campbell, Ruth Dyson and Steve Maharey to governing partners Marama Davidson and Elizabeth Kerekere – the past few months have been tough and National is keen to exploit the fact that, for the first time in years, it’s probably had a better few months on the discipline front than Labour.

Get ready for more pre-Budget photo ops. Photo / Mark Mitchell

You’ll notice Luxon rattles off the names of the above during his morning media rounds each week, trying to establish a chaos narrative with which to contrast himself.

Labour needs to get on top of that – and begin to announce election policy of its own (it’s not in trouble yet - Governments typically wait until after the Budget to announce policy).

Labour has a packed few weeks to get through before the Budget, including the announcement of whether or not it will announce any tax changes.

Hipkins has taken the unusual step of allowing Labour to have an ambiguous position on tax. He’s not ruled anything in or out, beyond what was in Labour’s last manifesto. He’d be well within Labour’s existing manifesto commitments to include in the Budget a tax change that triggered after the election - the new tax year begins on 1 April 2024.

As late as Tuesday, Hipkins refused to rule one way or the other whether any revenue-raising changes were in the Budget.

April will see the release of two reports that might prepare the political ground for a tax change.

In 2021, Revenue Minister David Parker secured funding to research the level of tax paid by New Zealand’s wealthiest individuals. The data on this subject is incredibly poor, and means we have little knowledge of how much tax our wealthiest do or do not pay.

A draft report has landed and the final one has been publicly signalled for release by the end of this month. If it’s anything like an earlier attempt at this research from 2020, it’s likely to show that almost 40 per cent New Zealand’s wealthiest pay less than 10 per cent of their total incomes in tax.

This is, to quote a former finance minister “pretty legal” mainly because the way these individuals earn their income is in sectors of the economy that are lightly taxed or not taxed at all.

What is less well-known is that the Government is planning to release at the same time results from another parallel report by Treasury, which aims to calculate the amount of tax paid by “regular” people across the wealth spectrum.

This would work out how much tax an ordinary person would pay on their earnings through income tax, but also in their expenditure, like GST.

The idea will be to contrast the raw tax deal ordinary people get, with the good deal enjoyed by the wealthy.

The fact that both of these reports will be released weeks before the Budget has raised eyebrows. So too, did comments from Finance Minister Grant Robertson to Stuff last month when he loosely gestured towards a proposal from the Tax Working Group for a “tax switch”: cutting tax rates by lifting the bottom two rates of income tax, funded by raising taxes on the wealthy (in this case via a Capital Gains Tax).

That specific policy might not get the green light – but something like it might.

Now’s also the time to give a thought to the most significant pre-Budget date, the finance minister’s scene-setting pre-Budget speech.

Almost always delivered to a business audience and usually hosted by an Auckland-based bank, this is when the finance minister gestures towards the broad fiscal parameters of the Budget – spending, revenue and borrowing. Last year, Robertson used the speech to announce a new debt calculation. This year, the speech is likely to be just one week before the Budget - differing from last year when it was delivered at the beginning of the month.

This year’s speech hasn’t been firmly locked down – but it could include something spicier.

One thing that does look fairly certain in the Budget is an adjustment to Working for Families, the tax credit system that supports just under 350,000 families. It’s unclear how the Government will squeeze this into a Budget that’s already struggling to fund simple cost pressure increases from other departments, but ministers have been strongly hinting that at least some of the recommendations from a years-long review of the scheme will be implemented.

This would play into the message Labour wants to sell in the 2023 election: that it’s still capable of delivering immediate cost-of-living relief, while also pointing to the fact that existing policies (like Three Waters) are designed to bring costs down too.

Whether voters are willing to listen is another matter entirely.

The Chrisses should rest up over the recess. May could be... taxing.