Labour’s election 2020 tax policy

Labour have announced their policy to have a new tax band of 39% for individuals earning income over $180,000. There is no planned increase in the trust tax rate and nothing mentioned about the corporate rate. It plans to raise around $550m pa. While it will appeal to those who believe the wealthy should be taking more fiscal responsibility, it is really a damp squib for those on the left calling for significant tax increases. Back in the Helen Clark Government, the 39% tax rate was introduced at incomes over $60,000. Furthermore, Labour promise not to introduce any new tax or raise income taxes further in the next 3 years. That does not strictly rule out a GST increase, but it does rule out talk about a potential wealth tax (as put forward by Greens Party) or land tax (capital gains tax has already been ruled out by the Prime Minister).

The $550m it will raise is unlikely to make much dent in the drop in tax revenues caused by Covid-19 and will not go far to make significant changes in spending in areas of health, education or housing. The Labour party is making no promises to cut any expenditure and is therefore will have to keep borrowing to fund budget deficits over the next few years.

By contrast Australia is cutting individuals taxes. The current Australian government has legislated a 7 year plan to reduce personal taxes through a combination of bracket changes, rate changes and low income tax credits. After stage 2 of the reforms (from July 2022), those on a $120,000 or more income bracket would save $2,565. Tax savings would be felt at all income levels. A person on the average wage would save around $1,200 tax.

The Labour party has referenced this new rate (39%) as still being lower than Australia’s top tax rate. But the average wage in Australia is 31% more than that in New Zealand! In fact the average Australian net wage is higher than the average New Zealander’s gross pay. A single kiwi earning either the average wage or 167% of the average wage is ranked fourth from the bottom in the OECD in terms of their average net wage.

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