First $5k tax free under Labour

Labour leader Phil Goff making his state of the nation speech in Auckland today. Photo / NZPA

Labour is promising the first $5000 earned will be tax free by the end of its first term in government - but those earning top dollars will pay more.

Labour leader Phil Goff outlined Labour's new tax policy at his 'state of the nation' address in Auckland this afternoon.

It would introduce an across the board 'tax free zone' so earners paid no tax on up to their first $5000 earnings, at an estimated cost of $1.3 billion.

Although likely to be initially introduced at a lower level, Labour would look to increase that zone to reach $5000 during its first term in government.

However, it would also introduce a new top tax rate for those earning at least six-figure salaries, although Labour had not yet decided what that would be.

Mr Goff said Labour would not pay for its tax reforms through borrowing, raising GST or selling off assets. Instead it would do so by "claiming back some of the windfall tax cuts from the very top earners".

He said the current 33 cents in the dollar was low by international standards. Although the new top tax rate, or at what level of income it would set in, was not yet decided, Mr Goff said it would only apply to those earning at least more than $100,000 a year.

Mr Goff said 'rebalancing' the tax system would ensure everybody paid their fair share. Other countries, including Australia, the United Kingdom and Japan had no-tax 'zones.' He believed Australia's system, under which the first $6000 was tax-free, was appropriate.

Making the first few thousand dollars earned tax-free would give everybody the same size tax cut.

"It's a tax plan that benefits everyone, not like John Key's tax switch which gave the wealthy few a windfall while low and middle-income New Zealanders were forgotten."

The National Government last year increased GST to 15 per cent to offset tax cuts across the board.

At his state of the nation address in front of at least 400 people at the New Lynn community centre in Auckland today, Mr Goff said the tax changes would be partly paid for by cracking down on tax avoidance, such as speculators who "rip off the system" by offsetting losses in investment properties against their own incomes. A new Anti-Avoidance Tax Taskforce would be set up to close loopholes.

Prime Minister John Key said a Labour government would have to borrow to pay for the tax free zone.

"On our numbers he is short by at least $1.1b a year... he is essentially arguing for borrowing an enormous amount that has to be repaid with interest," Mr Key said.

"We would almost certainly be downgraded (by international rating agencies) and interest rates would rise."

Mr Key said Mr Goff was making totally irresponsible election promises.

"We live in New Zealand, not fantasy land... there's no fairy with a printing press at the bottom of the garden."

In his speech, Mr Goff also announced measures aimed to increase incomes and create jobs, including a stronger focus on research and development, investing in skills and trades training, changes to monetary policy and trying to boost export growth.

Changes to monetary policy would broaden the goals the Reserve Bank takes into account when setting the cash rate and encourage more aggressive intervention on currency speculation.