Commercial and industrial building owners would essentially foot the bill for the removal of goods and services tax (GST) from fruit and vegetables if Labour was elected to govern after the October election.
Meanwhile the party would pay for other tax changes, aimed at helping low and middle-income earning families, by dipping into money set aside in the Budget for unspecified future expenditure.
Labour is campaigning on spending over $500 million a year to remove GST from fresh and frozen fruit and vegetables from April next year.
The cost of this would be offset by it preventing non-residential building owners from writing off depreciation as an expense when paying tax.
The Government started allowing non-residential building owners to make these deductions in 2020, as it sought to support businesses in the face of Covid-19. The change was understood to be permanent at the time.
Reverting the rules back to the way they were pre-Covid would cost property owners about $545m a year.
Labour is also promising to boost the In-Work Tax Credit by $25 a week to $97.50 from April next year, and lift the Working for Families abatement threshold to $50,000 from April 2026.
Once fully implemented in 2026, these changes would cost about $450m a year.
Labour said the cost would be met by the “annual Budget allowance”.
At budget time, governments specify how much more (or less) they will spend in the future.
For example, the Government committed to increasing its operational expenditure by $4.8 billion in 2023/24, and then increasing it again by $3.5b in each of the next three years.
It committed to spending some of these allowances on addressing cost pressures in the health system, for example.
Labour is saying it would use some of the uncommitted parts of the allowances to pay for its tax promises.
This might restrict its ability to spend on other initiatives, or deal with cost pressures caused by inflation, without expanding the allowances decided on in Budget 2023.
The Government’s finances are tight, as the slowing economy means businesses are paying less tax than expected when Budget 2023 was put together.
If the corporate tax take continues to underwhelm, and this isn’t offset by positive economic surprises, the Government may need to borrow more than planned or cut spending elsewhere.
Coming back to Labour’s policy to prevent commercial and industrial building owners from writing off depreciation as an expense, Labour’s finance spokesman Grant Robertson noted the former National-led Government had taken the same approach.
Nonetheless, Deloitte tax partner Robyn Walker opposed changing the rules.
She said there was agreement within the tax community that buildings do in fact depreciate, so this should be allowed to be deducted as an expense.
Making a change now would also add to the pressure the relatively highly indebted commercial property sector is under, as it contends with high interest rates.
The Reserve Bank, in its May Financial Stability Report, said commercial property operators face “an uncertain outlook, as pandemic-induced changes to consumer behaviour and office occupancy continue to affect tenant demand, and discretionary retail spending slows”.
“Liquidity in commercial property markets has been low, and values have not fully adjusted downwards to reflect the higher interest rate environment, particularly for less desirable office and retail buildings.”
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.