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You know it must be a slow news week when tax spends so much time in the headlines. But no matter which major party finds itself in government after next year’s election, it looks increasingly likely we’ll see changes to our tax system.
Even though it’s not really true, New Zealand likes to think of itself as a relatively egalitarian society. We don’t have a formalised aristocracy or thousands of years of baked in class divisions. Most New Zealanders are taxed on the expectation that the money they give shouldn’t be squandered, and that the tax they pay will be fair, relative to everyone else.
If fairness is the measure, and if fairness is what the majority of voters expect, then maybe we’re about to get it. Or, at least something close. National and Labour both look likely to introduce tax policies which appeal to a sense of fairness.
Let’s start with Labour. To be clear, the party hasn’t confirmed its position, but Revenue Minister David Parker is beginning to lay the ground work for tax reform that might impact the wealthiest New Zealanders. His concern is that money makes more money than labour makes money (Labout as in work, not as in the party!). Someone who is grafting away, working their arse off in two jobs, six days a week, is likely being taxed at a much higher rate for their efforts than someone who’s income comes from owning relatively unproductive assets. Tax should incentivise and reward work, especially in a country with a long-standing productivity problem.
For any government, it’s a balance. And while it’s important that wealthy people are also incentivised to build and invest and develop jobs, Parker argues the balance is a bit out at the moment.
Labour might look to introduce a tax which targets the very wealthiest New Zealanders. They might even do a bait-and-switch, where they give tax relief to Kiwis in the middle while targetting those at the top. If we’ve learnt anything about Labour’s tax policy, it’s that they’re terrified of doing anything unpopular. But I can’t see that being an issue, this time. Maybe taxs on the super-wealthy would lose them a few richlisters, but I doubt those people were voting for Labour in the first place. Ultimately, it would appeal to Kiwis’ sense of fairness.
Then, National. As we’ve seen in the last week, Christopher Luxon is having a more challenging time selling National’s plan to scrap the top tax bracket. As the cost of living bites, it’s very hard to explain why whoever is Prime Minister needs an $18,000 tax cut while the average worker gets less than $1000 a year. It doesn’t seem fair.
But National’s plan to adjust the other income tax brackets is a different story. After all, no one is complaining that we index superannuation to inflation. As the cost of living increases, it is a reasonable expectation that wages, super, benefits, and tax brackets all reflect the same shift. National could even consider going one step further than it has, by enshrining in law an automatic tax bracket adjustment to reflect inflation, every few years.
No government will want to do that, because it’ll impact their revenue much more than the current system. But depending on your measure, there’s a good argument to be made indexation is only fair.