Chris Luxon delivers State of the Nation address from Auckland. Video / National Party NZ Facebook
National leader Christopher Luxon will not say when he plans to introduce his tax package when in Government, saying only that he would implement the cuts in the package in the party's first term.
Debate has swirled around the cost of National's tax plan, which would lift the tax thresholds,effectively giving every income tax payer in New Zealand a tax cut. The party costed that policy at $1.7 billion. National also plans to repeal the 39 per cent tax bracket, and allow landlords to deduct interest costs from their taxes.
National has not formally costed those policies, but most estimates suggest they would cost in the vicinity of $1.3b a year at first, giving National's total plan an annual cost of $3 billion.
This is a problem for the party as the 2024 Budget, which would be National's first budget should it win the next election, currently has only $3 billion of new operating spending allocated to it. This would be totally absorbed by the tax package, unless National plans to deliver no new services, or cut spending elsewhere.
National would be more likely to stagger the tax cuts over three budgets, but each year the party waits, its tax policies become more expensive as more and more taxpayers would be dragged into higher brackets.
'In the first term we're going to unwind the tax policies the Labour party has put in place," he said.
In terms of savings, Luxon would not confirm whether or not National would recommit itself to its 2020 policy of suspending Government contributions to the NZ Super Fund, currently slated to be $1.3b this year (the year Luxon thinks the tax cuts should be implemented) and $1.89b in 2024 (the year of his first budget, should he win the 2023 election).
In Question Time on Tuesday, Prime Minister Jacinda Ardern described the proposed tax cuts as poorly targeted, saying someone on a $45,000 wage would be better off by just $2.15 a week.
When asked whether it would be better to cut taxes for lower incomes by more by keeping the 39 per cent tax bracket in place, Luxon said he still supported cutting the 39 per cent rate, which would come at a cost of about $600m in lost revenue.
"Minimum wage workers in New Zealand have had a 36.5 per cent increase since the Government came to power, so they've had some really good increases to the minimum wage.
"Beneficiaries have had a big step up as well. The group that hasn't has been regular workers if you're on average income of $72,000 that's not a lot of money in New Zealand," Luxon said.
People on $72,000 currently have $2000 of earnings taxed at 33 per cent, costing them $660 a year. Overall, a person earning that income would pay $14,680 of it in tax. Under National's plan, they would save $860 a year.
Luxon continued, "at $79,000 when you kick into 39 per cent that's a challenge. That's not a lot of money I'd say $70,000 to $80,000. Yes it's a lot more than others but you're still feeling the cost of living squeeze here".
In fact, the top tax bracket kicks in not at $79,000, but at $180,000. IRD's most recent estimates suggest only the top 3 per cent of income tax payers pay the tax.
"We opposed it as it was coming through the House. We think it's a big disincentive to attract people to nz, it's been a great boon to tax lawyers and accountants," Luxon said.
Another tax Luxon promises to bring in is the repeal of the Government's interest deductibility changes. Currently, people who own multiple properties are able to deduct interest costs from their taxes.
National leader Christopher Luxon won't say when the tax cuts he promises will come into force. Photo / Mark Mitchell.
The Government said the changes are to deter property speculators; owner-occupiers cannot deduct the cost of interest from their taxes which means they are at an effective disadvantage when it comes to bidding for a house as the cost of holding the property is higher for them than it would be for an investor.
National warned the policy would put up rents and has been proved correct - rents have gone up since the policy came into force last year.
Luxon has reaffirmed a previous National stance of reversing back those changes, but would not say how he would make sure the benefits of allowing interest deductions would be passed on to tenants and not simply pocketed by landlords.
Luxon would not say whether he would ask that landlords not pocket the full interest deduction, and pass some on to tenants.
"We'll put all of that into our plan in due course - all I'm signalling to you is 'we're trying to give you a short-term challenge, which is inflation-adjusted thresholds and longer term we're signalling very clearly we're going to unwind the tax the Government has put on," Luxon said.
"What we're saying is we looked at the official advice, we voted against the bill because the advice was the status quo would lead to lower rent prices than what they ended up doing," he said.
The challenge for Luxon is rents tend to be "sticky" because once they go up, they rarely go down again, unless there is enough rental supply to force competition between landlords.
