Adam Bennett

Adam is a political reporter for the New Zealand Herald.

Tax cuts 'likely' in Labour's new plan

Labour leader David Cunliffe. File photo / Brett Phibbs
Labour leader David Cunliffe. File photo / Brett Phibbs

Labour has reined in its policy to increase in the top tax rate going with a plan to lift it to 36c rather than 39c in its election year fiscal plan and is dangling the prospect of tax cuts if it got a second term, but not for the wealthy.

In its alternative budget released today, Labour said it would pay down debt faster than the National Government's Budget projections this year with a shake up of the tax system including its flagship capital gains tax policy, a 3c hike in the top personal tax rate, and a crackdown on tax avoidance by multinationals.

As revealed by the Herald this morning Labour says it would raise as much as $200 million a year in additional revenue by tackling tax avoidance by big international companies.

However Labour Leader David Cunliffe today said Labour's fiscal plan meant its new spending initiatives including its "Best Start" child support package would be built on "strong and sound fiscal foundations" allowing it to pay off the National Government's "record debt" by the end of its second term.


Under Labour's plan, net debt including the impact of the NZ Superannuation Fund would be back to 3 per cent of GDP by 2021.

National's Budget forecasts have net debt down to 20 per cent of GDP by 2020, however that excludes the impact of the NZ Super Fund.

Mr Cunliffe said Labour's spending would be "restrained" but revenue would be boosted by tax measures including a capital gains tax.

However by raising the top personal tax rate to 36c for those earning $150,000 a year or more, Labour would raise almost $200 million in the 2015-16 year, rising to $350 million a year by 2020-21.

By aligning the tax rate for trusts with the new top tax rate, the use of trusts to avoid tax would be minimised and again, a further $200 million a year in revenue would flow into Crown coffers, rising to $336 million by 2020-21.

Labour has previously said it would raise the top rate to 39c but Mr Cunliffe said it made more sense to have a smaller increase and to align the trust rate with the top rate to minimise avoidance and raise additional revenue.

Mr Cunliffe said the tax hikes would mean wealthier New Zealanders were being asked to "return a small part of the very large tax cuts they received from the current Government".

Labour estimated the tax hike would affect 2 per cent of tax payers who earned on average $260,000 a year.

They had received tax cuts at a time New Zealand could not afford it and National had engaged in "unnecessary borrowing" to pay for them.

New operational spending initiatives, would cost $1.69 billion in 2015-16, remaining within a couple of hundred million dollars of that over the following five years.

In its first year in government Labour would set aside an additional $1 billion a year which would rise in line with inflation to meet rising costs of health and education spending.

Labour's forecasts also include net costs for yet to be announced policies of $498 million in 2015-16, rising to $1.36 million within three years.

But Deputy Leader and finance spokesman David Parker said: "Everything is paid for, plus we're in surplus".

Labour would "not be writing cheques we can't cash".

However, Labour says its plan would leave "adequate fiscal headroom" to allow for tax cuts, improved services or faster debt repayment in Labour's second term.

Additional revenues gathered by the capital gains tax would be "quite substantial" at almost $800 million a year.

"We would expect that some of that would be a tax switch to income tax or other tax reductions elsewhere."

Mr Cunliffe said tax cuts in Labour's second term were "likely" but Mr Parker said "they wouldn't be weighted towards the wealthy".

Prime Minister John Key said the policy package was "more of the same" and he primarily attacked it over the capital gains policy.

"Labour's saying they want to tax every KiwiSaver in New Zealand, 2.3 million of them, every business, every farm. Why on earth would you do that at a time the economy's growing and it's earning more than its spending?"

Mr Key also said Labour's numbers "will be extremely ropey".

"They're adding things in like the Cullen fund which is actually an item that has to be consumed."

Finance Minister Bill English said the proposed new top tax rate was "just the politics of envy".

"It wouldn't actually raise much money, it would encourage those who could do so to shelter money in companies and it would ignore the fact that these taxpayers already pay 22 per cent of income tax - even though they are just 2 per cent of taxpayers"

- NZ Herald

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