The cost of the main policy in the National Party’s tax plan will be $8.2 billion over the four-year forecast period, when the most recent forecasts from Treasury are factored in, an economist has warned.
The new figure takes into account Treasury’s most recent wage forecasts, which lift the cost of the plan to $1.94b in the 2024/25 year, the first Budget in which the policy could be implemented. That makes it substantially more expensive than the $1.66b cost of the first plan, which National said should have been implemented in 2022.
“National’s costing appears to be based on 2021 wage data. The new analysis, based on Treasury’s Budget 2023 wage growth data, conservatively calculates the cost of the bracket adjustments at $1.94b in 2024/25, rising to $2.14b in 2027/2028,” said CTU economist Craig Renney, who ran the numbers.
“National said its tax bracket adjustments would cost $1.66b annually when announced as policy in March 2022. This represents $6.64b over four years. The revised cost is now $8.2b - a $1.5b blowout,” he said.
Renney formerly worked for Finance Minister Grant Robertson in Government and the Labour Party in opposition, and called on the National Party to release its own fiscal plan well in advance of the election to show the public how its numbers add up.
National’s finance spokeswoman Nicola Willis turned the figures back on Labour and said the analysis showed the party’s “economic mismanagement means continued sky-high inflation is pushing even more Kiwis into higher tax brackets, even though the spending power of their wages has gone backwards for three years straight”.
“The Government is spending an extra $1 billion of taxpayers money every single week compared to 2017. Labour is spending over half a billion dollars in corporate welfare for climate initiatives, $1.8 billion a year on consultants, $400 million on a new polytech bureaucracy and $100 million a year on advertising.
“Kiwis deserved tax relief from Labour last week – but instead all they got was more spending and more borrowing which will keep inflation and interest rates higher for longer,” she said.
The John Key-led National opposition and the Andrew Little and Jacinda Ardern-led Labour opposition both released costed tax plans using Treasury’s Budget forecasts, known as BEFU or the Budget Economic and Fiscal Update.
Those numbers were then updated when Treasury released its PREFU or Pre-Election Economic and Fiscal Update, Treasury’s last set of economic forecasts before an election.
Renney said the cost of the cuts was so high the public deserved to see how National could afford them, while also sticking to its commitment to adequately fund the increasing cost of health and education.
“The question is, how will this be funded? The scale of these tax cuts is around the same cost as cutting the entire annual Police budget. We’re not talking about spare change that can be made up by cutting a few consultants,” Renney said.
“Act published its alternative budget last week. Labour in opposition published its election-year alternative budget shortly after the Budget, and then updated that budget at the Pre-Election Fiscal and Economic Update. The scale of the changes being proposed here demands that National do the same,” he said.
“There is no need to wait until the Pre-Election Fiscal and Economic Update. National has all the data it needs now. They can do a line-by-line review of the Budget and tell voters what they would cut to fund their tax cuts,” he said.
National’s main tax policy would lift the income tax thresholds to take account for inflation between when Labour took office in 2017 and the end of 2021. The higher brackets will mean people pay less tax.
However it is also costly. As wage inflation pushes people into higher income brackets, the cost of lifting those brackets gets larger.
Renney’s numbers, which were verified by tax consultant Terry Baucher, have been adjusted for the latest forecasts of people earning in those brackets.
The calculations did not assume National would adjust the brackets even further, which finance spokeswoman Nicola Willis said she would like to do.
National is also committed to scrapping Labour’s interest deductibility changes, which prohibit landlords from deducting interest costs from their taxes.
Renney said that higher interest rates mean that this policy is likely to cost even more than when it was first costed after Labour brought in the interest changes in 2021.
Treasury’s BEFU included the most up-to date revenue forecasts. It estimated tax revenue from individuals would be about $56,914 this year, growing at about $3b-$5b a year through the forecast period to 2027.
Treasury said this growth was “predominantly due to wage growth and fiscal drag”.
Fiscal drag is the phenomenon of wage growth pushing people into higher tax brackets meaning they pay more tax despite the fact that they may not be better off in real terms thanks to inflation eroding the value of those earnings.
Treasury estimated fiscal drag would increase revenue by $1b a year.
Treasury forecast income from source deductions, mainly taxes on individuals, to come in at about $100m higher in most years of the forecast period than in its last set of forecasts, published in December.