Herald on Sunday editorial: She needs to be wary of the 'Taxinda' tag

Editorial

Jacinda Ardern would have surprised most of Labour's supporters this week with her decision not to increase the top rate of income tax. She had said she would make a decision on that question only after seeing the Treasury's pre-election fiscal update on Wednesday and it showed the Budget surplus to be lower after this year than previously forecast.

Reason enough, possibly, for Labour to "sock the rich" much as the Green Party has proposed with a policy to raise the top rate from 33 per cent to 40 per cent on incomes above $150,000.

But Ardern announced Labour would not go to the election with an increase in the top rate, nor would it put that option before the tax panel it proposes to set up if it is elected. Other wealth taxes, including capital gains tax on any asset apart from the family home, could be considered by the appointed panel. But not the top rate on incomes.

Why? Possibly to deny National an easy target. Labour will be aware its sparkling new leader has been announcing a number of taxes in the short time since she took over - a petrol tax, a water tax and could not rule out capital gains taxes. It will have seen a correspondent in the Herald dub her "Taxinda".

But her party probably has better reasons to keep the top rate where it has been for the past 30 years, except for the nine years of Helen Clark's Government.

That Labour Government raised the rate to 39 percent for no good reason. It had inherited a healthy Budget surplus from National and did not really need the money. The policy looked simply bloody-minded - Clark's revenge on Rogernomics - than a revenue necessity. Its only effect was to help deprive the Government of business confidence for its first year or two.

Stability is important for business confidence, especially taxation. While a few per cent on the top rate would hardly cripple those paid $150,000 and more, it would cause more tax avoidance. At a certain rate of personal taxation, people go to more trouble to avoid it. Even at 33 per cent, the Government's 2010 tax working group found half of those eligible for the rate were not paying it.

A top rate of 33 per cent is quite enough. Those who never see tax taken from their pay, because it is paid by their employer, do not know how it feels to have a third of some additional earnings taken by the state. Labour has made the right decision. It is looking very electable.