Ups and downs of tax policies

Coming to a wallet near you - the great tax debate.

As they trawl for your votes in the last two weeks of the election campaign the two sides of the political divide are squaring off over how much tax needs to be raised and how much needs to be spent.

On the right, National and Act want to cut personal taxes - they just disagree on how far and how fast.

On the left, Labour and the Alliance want to lift personal taxes. They agree on how fast, but not on how far.

In a way no other policy does, tax defines the main parties. And their positions form a perfect arc from the far right to the far left of New Zealand politics.

Tax policies in themselves do not tell the whole political story, otherwise a tax rise would always be rejected by the voters and a tax cut always welcomed.

Part of the equation is how the rise or fall is distributed, what measure of user-pays will be displaced by rises or imposed after tax cuts, and what social and community services are funded, and how efficiently, by the taxes raised.

On the left, the Alliance is proposing steep personal tax increases as well as a raft of wealth taxes including a casino tax, stamp duty and land tax.

The party would give beneficiaries $20 a week each and would boost tax rates at the top end, although it has severely moderated its 1996 tax policy.

Alliance strategists believe support bled away in the last days of the 1996 campaign as National went on the attack over its policy to make all those earning more than $28,500 pay more tax.

Now it wants to create a more progressive tax scale by increasing the amount those earning more than $60,000 pay, but it is no longer socking the average wage earner.

It agrees with Labour's plan to lift the rate on income above $60,000 from 33c to 39c, but would go further. It would lift the rate to 43c on income above $75,000 and 47c above $100,000 (what it is calling its executive surcharges).

Labour would lift the fringe benefit tax in line with the move to a new top personal rate, but otherwise has pledged no significant increases in any other rates in the next three years.

During that period it wants a far-ranging review of all taxes. But any recommendations from that review which are accepted as policy would not be implemented until they had been put to voters at the 2002 election.

By being up-front about its tax plans, and leaving any further moves until after 2002, Labour is hoping to take a lead from Australian Prime Minister John Howard, who campaigned and won on a promise to introduce the unpopular GST.

Labour's increase in the top rate would raise an extra $400 million.

New Zealand First is playing the classic centrist role, vowing to bring a plague on the tax plans of both the left and the right. While leader Winston Peters has said he wants to see general taxes fall in the long term, the party does not believe the time is right for that now. It has said it will vote against both Labour and National's plans for changes to personal tax rates.

On the right, the choice is as stark as it is on the left. National wants to dip its toe in tax changes if and when the economy allows, while Act wants to plunge in quickly in the belief a tax cut itself will lift economic performance.

Act will back a small cut to the middle rate proposed by National that would drop the 21c rate on income between $9500 and $38,000 to 20c and the threshold for the top 33c rate pushed out to $40,000.

But it also wants a rapid cut to the top rate to bring it down to a flat 20c. It wants to achieve that through a series of steps spread over five years.

Act's finance spokesman, Rodney Hide, is looking to a rate of 24c after three years.

If Labour is hoping to adopt the John Howard formula, then National is relying on the tried and true rule that parties rarely win on a platform of tax rises - and that the hip pocket is the most sensitive political organ.

National is proposing a two-stage cut to personal rates. The first, planned for April 2000, is already included in Treasury forecasts despite Treasurer Bill English's failure to get parliamentary backing earlier this year.

The cut to the 21c rate and the shift in the threshold would give $10.50 to all those earning more than $40,000 a year and lesser amounts below that. Those earning up to $9500 a year would get no tax cut. The overall cost would be about $400 million.

In the second phase National wants to lop 3c off the corporate rate and the top personal rate in the next term, dropping them both to 30c. However, the message has been muddied by conflicting statements from Mr English and Prime Minister Jenny Shipley, who has insisted a cut to both rates is affordable on the present economic track.

Finance Minister Sir William Birch yesterday tried to clarify the message, saying the corporate rate was a commitment while the personal rate cut would be made "as soon as it is fiscally prudent to do so."

Slicing 3c off the corporate rate and the top personal rate would cost about $800 million a year.