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Analysis: National is the last party in parliament to release its tax package, and it arrives in the shadow of a slowing economy, persistent inflation and predictions of looming government deficits. Its challenge was to present a package that seemed economically credible but could also help swing the election by delivering enough to “the squeezed middle” cohort of voters the major parties are squabbling over.
The package is large – $14.6 billion over four years. And complicated. It’s targeted at median-income families through a complex tangle of bracket shifts, transfer abatements, Working For Families (WFF) credits, rebate increases and the creation of yet another credit: the FamilyBoost childcare tax credit. It’s especially generous to average-income households with children, who get $250 a fortnight, while a minimum-wage earner with no children only gets an extra $20 a fortnight. And the transfers taper off for higher incomes, cruelly depriving Labour of the gleeful charge that National’s policy is a handout for millionaires.
National is also rolling back the brightline test for capital gains on non-residential properties to two years – “a capital gains tax by stealth” according to Nicola Willis – and restoring rental deductibility for residential properties. It is scrapping the Auckland regional fuel tax on the grounds that none of the projects it was supposed to fund show any sign of being built. It will all come into effect very quickly. Labour’s policies this election have been staggered, often not kicking in until 2026. Most of National’s major initiatives kick in with next year’s budget.
The package was introduced by a rather muted and downbeat Christopher Luxon and then elaborated on by a flinty and defiant Willis, who warned that Labour would describe the package as gutting health and education. She pledged that both sectors would enjoy funding increases under National and that none of this will require additional borrowing. She also insisted that the tax cuts will not be inflationary, something both parties confidently assert whenever they decide to toss another few billion dollars into taxpayer pockets. If the cuts increase disposable income and lead to increased demand in a tight economy, they’ll be inflationary.
Perhaps that would be offset by the spending cuts and a suite of new taxes. National will scrap Labour’s foreign buyers ban on property investment and introduce a 15% foreign buyer tax on purchases of houses worth more than $2 million. It will impose levies on immigration visas. It will close an existing tax loophole targeting international sites providing online gambling to New Zealanders. It will end a tax break for depreciation of commercial buildings introduced by Labour. And it will top this up with $8.4 billion in spending cuts, some of which is nice and specific: it will use the dividend from the Emissions Trading Scheme, which they’ve funded at $590 million a year. And some of which sounds a little vague, like the $600 million a year in reducing “back-office functions” in the public service.
There will be a brief, inevitable squabble about whether the costings have holes in them, but the real fight will come in just under two weeks when Treasury releases its pre-election economic and fiscal update – the PREFU. This is expected to be grim: Labour will argue that National’s forecasts for its tax takes are delusional, that the money isn’t there, the package is irresponsible, that it’ll bankrupt the country. Sometimes voters are persuaded by these arguments; in other elections they’ve just wanted their tax break. And sometimes they don’t seem to care much either way. So far this feels like a “don’t care” campaign. Even if there aren’t any miscalculations, the scale and complexity of it all mean that any costings must be very provisional. No one can predict how all these innovations will interact with changes in the economy over the next four years.
And even though this tax package is large, it doesn’t change very much. National – like Labour over successive budgets – has fabricated another suite of intricate and ingenious mechanisms to deliver money to cohorts of available voters while maintaining the broader status quo. There’s no vision of how the economy should generate more wealth, or how to solve any of our long-term problems – low productivity, a low value export economy – or even the novel problems like our terrible terms of trade. National’s scheme is clever because Nicola Willis is a very clever person. But so is her counterpart, Grant Robertson, and little of their abundant cleverness seems to be at the service of much, other than short-term electoral tactics. All this cleverness is slowly ruining us.