National detonated a $14.6 billion tax bomb yesterday, as both major parties gear up to their formal campaign launches at the weekend.
Finance spokeswoman Nicola Willis said the plan was “prudent” and targeted. The mixture of tax cuts and credits would give someone earning $60,000 up to $25 a week in tax cuts. Families with young children would get even more.
Controversially to some, the policy will be paid for by allowing foreign buyers to once again purchase homes in New Zealand, but only properties worth more than $2m.
Those sales would be taxed at 15 per cent.
The party’s multibillion-dollar tax cut plan defied expectations of its scale - even Labour, which had been trying to inflate the cost of the package to emphasise its alleged unaffordability, only thought it would cost $11b.
National leader Christopher Luxon said the plan would help the “squeezed middle” by lifting income tax brackets to compensate for inflation, in what National calls a “Back Pocket Boost”.
“The squeezed middle are being left behind,” Luxon said. “Hope and help are on the way.”
The tax bracket changes are unchanged from the policy announced by former finance spokesman Simon Bridges last year, which lifted the tax brackets by 11.5 per cent to compensate for the inflation between when Labour took office in 2017 and the end of 2021 - skipping the very high inflation we have seen since then.
Superannuation payments are indexed to after-tax wages, so these will also rise with the policy. A couple would get an extra $26 a fortnight.
Where the tax policy really gets into gear is the tax credit changes that have been bolted onto it: the independent earner tax credit will have its eligibility criteria widened, meaning everyone who earns between $24,000 and $66,000 - and does not get other support like Working for Families - will get $10 a week bolted on to their tax cut.
People earning up to $70,000 will still get some of that tax credit. In total, National thinks around 380,000 people benefit from the change.
Likewise, the party’s family boost policy will give families with childcare costs up to $150 a fortnight.
It means a couple earning $75,000 each with a child would get about $85 a week through tax relief and childcare tax credits.
A couple with school-age children (who would be too old to qualify for the childcare tax rebate) earning $60,000 each would get around $50 a week in tax cuts and credits.
Luxon said he would “restore the promise of New Zealand” that if you work hard, you can get ahead.
On an annual basis, the promises were massive - $3.1b in 2024. The entire operating allowance in that Budget is only meant to be $3.5b. National says it will not need to use that operating allowance to pay for the changes, because they will be funded through reprioritisations.
Willis promised to pay for the package with $8.4b worth of cuts and $6.2b of tax rises.
She said the plan was “fully-funded, prudent and responsible”.
“Our package will not add to inflation.”
National will ask the public service to find $594m of savings a year, on top of the $500m already found by Labour this week. National wants to slash “bureaucracy” and said the changes will not touch the likes of Te Whatu Ora Health New Zealand.
It promises to close “Labour programmes” - saving another $524m a year, and slash spending on contractors, saving another $400m.
Willis is also promising four new taxes or levies.
The party will keep the ban on foreign buyers from buying residential property, but only for properties under $2m. Property sales over $2m to foreign buyers will be taxed at 15 per cent, with the exception of sales to Australians and Singaporeans, who are exempt because of existing trade deals (people from these countries are exempt from the current ban).
National will keep Labour’s decision to end commercial building depreciation netting $525m in additional money, attempt to close loopholes allowing international online gambling outlets to shirk taxes and levies, and end the cross-subsidisation of the visa system, costing $119m.
Visa fees, with the exception of tourist visas, will rise.
Finance Minister Grant Robertson slammed the plan’s “voodoo costings” and listed Labour programmes he said would be cut by National, including 20 hours’ free early childhood education for 2-year-olds and free public transport for children, students, low-income and disabled people.
“National’s dodgy tax plan will make many families worse off through their cuts to early childhood education, cheaper public transport and public services. Their tax-and-burn plan will also pour petrol on the housing market that Labour has worked hard to rein in,” Robertson said.
“National’s cuts to the public services are more than double those the Government announced on Monday.
“National will be asking for 8 per cent cuts in many agencies and therefore they will not be able to protect frontline services. Despite what they say, the fine print of their document says health and education will be cut to find savings.”
Act leader David Seymour was quick to criticise the package as “loose change” and too similar to Labour’s plan.
“Tax bracket indexation is exactly what it sounds like: Labour’s tax policy adjusted for inflation,” Seymour said.
“It’s not a tax cut, it’s tinkering that freezes the unfairness of Labour’s tax policy in time. That’s just not good enough for New Zealand, we don’t need to trim the sails, we need a turn-around job.”
Green Party co-leader James Shaw said the plan focused too much on benefits to landlords and property investors over students and people on benefits.
“National’s plan is a cynical ploy to do the absolute least for middle-income earners in order to get away with tax cuts for the wealthiest few,” Shaw said.
“Under National’s plan, people on the lowest incomes would miss out while high-income property speculators can continue to line their pockets.”
Labour has raised some questions about the plan. Online casinos, for example, are currently obliged to pay GST on services sold in New Zealand. However, compliance is lax.
Putting up visa charges will also lead to a cost for the state when it looks to recruit in situations where the employer pays visa fees, as is often the case with nurses. This could lead to a cost to the Crown if visa fees are raised.
Labour also questioned whether National was over-egging the amount of money it would make from sales to foreign buyers. National reckons about 2000 sales annually would be captured by the tax.
Willis said the number was modelled “with reference to statistics of foreign buyers before and after Labour’s ban”.
“Likely property purchases by foreign buyers were based on higher-priced properties being favoured by these buyers, reflecting the past regional distribution of foreign property purchases and applying a $2m limit,” Willis said.
Thomas Coughlan is deputy political editor of the New Zealand Herald, which he joined in 2021. He previously worked for Stuff and Newsroom in their Press Gallery offices in Wellington. He started in the Press Gallery in 2018.
Banks are to benefit from the controversial decision.