COMMENT: By Bryce Edwards
Simon Bridges' tax announcement this week was generally well-received, with most considering it a clever piece of political positioning at the start of the year. There will still be all sorts of criticisms that can be levelled at National's new policy on tax bracket creep, and questions about the policy that remain unanswered, but overall there are plaudits for both the substance of the policy as well as a recognition that the announcement was a smart move, in terms of Bridges taking National in a new direction.
The policy announcement was part of Bridges' State of the Nation speech on Wednesday, which is well covered by Claire Trevett in her article, National leader Simon Bridges sticks to safe ground in tax pitch to middle NZ.
Trevett reports that Bridges is "promising from 2021 to move income tax thresholds every three years in line with the cost of living - a halt to bracket 'creep'. It would leave someone on the average wage about $450 a year better off in the first year, rising after that. Those on higher wages would be about $550 better off. He pointed out those brackets had not changed since 2010 and bracket creep was "tax increases by stealth"."
Here's why Trevett sees Bridges' announcement as clever: "It was also a bid to put the ructions of last year and his low personal polling behind him and assure National supporters the party had not changed. He sought to remind people of National's core strengths – sticking to the safe territory of talking about the economy, dismissing Labour's 'woolly' talk of a wellbeing Budget."
Trevett also reports the reactions from the Government's Finance Minister, Grant Robertson: "On National's numbers, the indexation of tax brackets would mean the Government missed out on $650 million – one per cent of tax revenue. Robertson pointed out Bridges was also going to scrap regional fuel taxes and any capital gains tax moves Labour might make, and had promised no new taxes in a first term. Yet he still wanted to build all the roads and pay all the teachers more."
Bridges is directing the policy at ordinary New Zealanders concerned about the rising cost of living. This is the emphasis in Sam Sachdeva's report on the speech: Bridges proposes end to 'bracket creep'. According to this report, "The largest benefits of ending bracket creep would go to those earning between $50,000 and $75,000 a year".
And Bridges is quoted as identifying who would benefit: "They're not rich, they're people who are mechanics, who are teachers, who are nurses, who do all manner of things". Reportedly, Bridges "estimated a worker on the average wage would save $430 a year in tax after the first change, $900 better off after the second adjustment, and $1400 after the third."
Of course, the Finance Minister has hit back with some very different figures: "Robertson also questioned the value of the tax change, saying it would be worth $8 a week to the average earner in 2021, and $1 a week to someone receiving $40,000 a year."
Much bigger official numbers are pointed to in a report in today's Herald: "Wage and salary earners paid out $1.7 billion in 'stealth' tax last year after inflation increases pushed workers and their pay packets into higher tax brackets, according to advice to the Tax Working Group" – see David Fisher, Martin Johnston, Chris Knox's The $1.7bn 'stealth' tax grab – work out how much 'extra' tax you have been paying?.
This article uses official Inland Revenue and Treasury advice provided to the Tax Working Group, which made the case for the type of indexing that National is proposing: "The officials said the revenue pulled in by those moving into higher tax brackets, without inflation being taken into account, could be seen as 'non-transparent' taxation – a 'stealth' tax."
The size of the "problem" is also detailed in this article: "Since 2008, inflation combined with pay rises has doubled the number of workers paying the full 33 per cent tax rate on earnings over $70,000. Those in the highest tax bracket increased in 10 years from 335,000 people to 665,000 people."
The online article also includes a calculator that readers can use to identify how much they would save if tax brackets were indexed to inflation.
Most commentators are taking Bridges' state of the nation speech and announcement as a signal that National is going to be highly focused on economic issues this year. According to Sam Sachdeva, "What is clear is that Bridges intends to stick to the mantra that drove Bill Clinton's 1992 presidential campaign: 'It's the economy, stupid.' By putting the focus so squarely on taxation, the cost of living and the state of the economy more generally, the hope will be to contrast National's reputation as sound fiscal stewards with the cliche of left-wing parties' profligacy" – see: Bridges puts finances to the fore, but lacks 'vision thing'.
Sachdeva also suggests that National plans to "force a wedge between Labour and New Zealand First over the polarising issue of a capital gains tax, and Bridges' approach could bear fruit."
Ironically, Sachdeva points out, National is now pushing a general philosophical tax position that Labour once did when Michael Cullen was Minister of Finance – remember the infamous "chewing gum tax cuts" – and Labour is now using the same attack lines that National once pushed: "Robertson borrowed from the attacks against Cullen in responding to Bridges, noting that someone on $40,000 a year would only save $1 a week – suspiciously close to the price of a packet of gum."
Sachdeva also gives the policy his approval, saying that although "at first glance" the policy appears to fit the category of "dull but worthy… on closer inspection it feels like sound policy."
For the best explanation of why the policy and Bridges apparent new direction is very smart, see Stacey Kirk's analysis, Politics, not tax, the point of Simon Bridges attack on 'income bracket creep'. Essentially, Kirk argues that Bridges is managing to signal that National is going to be a party of powerhouse policy substance, and also that it's focused on the rising cost of living in a way that the Government isn't.
Here's Kirk's argument about National's positioning as a policy innovator: "Bridges, in Opposition, has come straight out of the blocks in 2019 with policy; clearly communicated, easy to understand, not groundbreaking, but not a stretch to implement. He will be hoping that the simple act of unveiling costed policy, in a non-election year, will seem to be a contrast to Labour's time spent on the opposing benches. It's set to be a key theme of National's strategy, which also includes the release of a series of high-level discussion documents for public consultation throughout the year, as though it's a well-resourced Government department."
In terms of positioning National as being focused on economic issues, Kirk says: "if Robertson's not careful, he could find himself arguing that New Zealanders earning $70k or more, are rich enough to afford a bit of tax creep. As the Opposition seeks to increase its focus on the 'rising cost of living', that's a large swathe of middle New Zealand that National is daring the Government to alienate. In the early stages, it appears to have taken the bait."
Matthew Hooton also makes some similar arguments in his Herald column today, proclaiming "Bridges' policy is such obvious common sense that it deserves almost no credit. But the politics behind it are first-class" – see: Simon Bridges bets on specifics over waffle.
Hooton sees National as gaining the edge in the looming debate about tax reform: "Aside from making Robertson defend automatically increasing families' real tax burden, the political value of Bridges' very specific promise is that it contrasts with a Government certain to get on the wrong side of the tax debate and already trying to hide its lack of policy clarity with bureaucratic waffle."
Not all commentators are impressed, however. Economist Michael Reddell goes through Bridges' speech and finds it lacking in terms of real economic innovation, especially with the lack of attention to the New Zealand economy's poor productivity: "Sadly, there is no sign from this speech that a future National government would be any more serious about reversing our relative economic decline than their predecessors" – see: Bridges and the State of the Nation.
Although Reddell approves of National's indexation of tax brackets, he also challenges the idea that it should only happen every three years, and that the Government should retain veto rights over the process, pointing out "we don't apply this approach to (say) New Zealand Superannuation payments".
Other elements of Bridges' speech are also criticised – especially his law and order promise "that under the next National Government, New Zealand will become the safest place to live in the world". Reddell comments: "Cutting our murder rate by more than two-thirds would involve getting, and keeping, it, down to the very lowest individual years managed in the last 100 years or so. It would be laudable goal…. at least if Mr Bridges had any serious and plausible ideas about how to do it."
Other commentators have also drawn attention to Bridges' less than inspiring delivery of his speech. For example, Sam Sachdeva says "In that respect, Simon Bridges' address to a Christchurch audience was workmanlike rather than wowing." And Claire Trevett says the speech "lacked the fire of conviction for a traditional 'vision' State of the Nation speech." One possible explanation for this is, she says, "because he had dismissed Prime Minister Jacinda Ardern's talk as being all style and little substance, so maybe he was trying to deliver the reverse."
Barry Soper also drew attention to this in his column, Jacinda Ardern dodges KiwiBuild questions, Simon Bridges fails to engage. Here's his key point: "An autocue would have helped, the Perspex screen that pops the words up in front of you and allows you to at least pretend to be engaging with the audience. Most other leaders have used them but not Bridges, who was insistent on reading his notes, not deviating from the words typed in front of him, although despite his concentration, he misread a figure he spent the closing months of last year rehearsing, the $300 million he claims Labour's spent on working groups because they didn't do the work themselves in opposition. He read the figure as $3m, but no one noticed.
Finally, Bridges' tax proposal has sparked further discussion about the level of taxation in New Zealand and whether it's too high or too low. Zane Small looks at the evidence in: How New Zealand's income tax ranks against the world.