Jacinda Ardern warns National Party tax policy will boost inflation, Nicola Willis says 'laughable' attack was 'political mischief making'

Prime Minister Jacinda Ardern said National's tax policy would hit inflation and savings, National finance spokeswoman Nicola Willis said that was wrong. Photo / Mark Mitchell

Prime Minister Jacinda Ardern bookended her Monday with attacks on the National Party's tax policy, saying it would lead to more inflation, higher interest rates, and potentially British-style market chaos that would erode people's savings.

Highlighting the market chaos in Britain, Ardern warned that policies like National's could have an impact on markets and people's retirement funds. The size of National's package is far smaller than the UK Government's but Ardern said she thought the comparison was a fair one.

"I don't think it's an unfair comparison - what we have on the table here is $3 billion of tax cuts which affect those on the top tax rate, the removal of the top tax rate in New Zealand, and the removal of work we've done to incentivise investors in the housing market - in the UK you've seen the top tax rate change and the removal of stamp duty [a property tax]," she said.

But National's finance spokeswoman, Nicola Willis, shot back that Ardern's comments were "nothing but political mischief making by the Prime Minister who continues to believe her Government can spend New Zealanders' money better than they can".

"Government spending has increased $51 billion a year since Labour entered office, a 70 per cent increase and 30 times the cost of National's plan to adjust brackets for inflation," Willis said.

Annual core Crown expenditure was about $80b when Labour took office in 2017. It is currently just under $130b. As a share of GDP, core Crown spending was slightly below 30 per cent in 2017, it is currently 35.4 per cent of GDP, falling to just below 30 per cent of GDP by 2025/26.

Ardern first laid into National on RNZ's Morning Report during her weekly round of morning media and repeated the attack at her post-Cabinet press conference that afternoon.

Tax policy has been front of mind all over the world as Britain faces economic meltdown over the Liz Truss-led Conservative Government's fiscal policy which included tax cuts and spending commitments worth about 4.5 per cent of GDP.

National's tax cut package is significantly smaller at about 0.5 per cent of GDP, but would still likely add to inflation unless paired with significant spending cuts. National has yet to announce spending cuts that would fund large portions of the cuts.

Ardern said "more broadly" there was a "lesson to be learned when you look at some overseas jurisdictions who have gone down the track of wide-ranging tax cuts and the impact that has had on their market and the impact that has had on pension funds and so on".

"The things you do in this space can have an inflationary impact - certainly what National has proposed would, and you only need to see the response in the UK to see why tax cuts for the wealthiest at this time is such a bad idea," Ardern told RNZ.

In the United Kingdom chaos in the bond market had seen some pension fund values evaporate to the extent that the British central bank, the Bank of England, was forced to intervene announcing it would buy £65 billion ($128b) in government debt to stabilise markets.

"Policy decisions and the time at which you make them can have much wider ramifications particularly when it is seen as tax cuts for the wealthier and it may therefore have inflationary impacts - there is a lesson is that," Ardern said.

At her post-Cabinet press conference, Ardern reiterated that the comparison between Britain and the National Party was a fair one.

"Certainly you can observe what has happened in the UK - I leave it as read. You see the analysis there and what has happened there," Ardern said.

But Willis said the comparison was unfair given National's package was far more modest.

"National's modest package of tax threshold adjustments could be funded by dropping low-priority projects, reducing waste and driving better results from existing spending," she said.

Willis said Ardern had overseen a 32-year peak in inflation, and that "attempts to blame National for this are laughable".

"National is proud of our record of careful economic management, paying down debt and balancing the books," Willis said.

Ardern said her main objection was the fact National's tax package was weighted towards the top end of town, with relatively modest wins for people on low incomes, but large tax cuts for people earning over $180,000 or who owned multiple properties.

"Our main focus around the National Party's tax policy is the issue of a cut that would be primarily focused on the wealthiest New Zealanders that undoes all of the work we have done to improve the housing market at a time that could reduce inflation and undoes our ability to invest," Ardern said.

National's tax policy is to adjust tax brackets for inflation that took place between when Labour took office in 2017 and the last quarter of 2021, costing $1.7b if it were implemented this year, but slightly more if rolled out after the election.

The party would also repeal interest deductibility changes for landlords and repeal the 39 per cent top tax rate.

The tax debate in Ardern's post-Cabinet press conference was sparked by a tax policy from Top (The Opportunities Party) which was launched at the weekend.

On Sunday, the party's new leader, Raf Manji, announced $6.35b worth of income tax cuts, including a pledge to make the first $15,000 people earned tax free.

This would be paid for by a 0.75 per cent annual tax on the value of residential land.

Manji said it would "rebalance" New Zealand's property-focused economy.