New Zealand Labour Party Reveals Tax Plans

by Mary Swire, Tax-News.com, Hong Kong

18 July 2011

The New Zealand opposition Labour Party has revealed its plans for the country’s economy, including introducing a capital gains tax and an increase in the top tax rate. The plans were unsurprisingly met with scorn by the government.

Phil Goff, Leader of the Labour Party said that the plan "charts a course for a stronger, more resilient economy and will allow us to keep our valuable assets for the benefit of future generations".

"We will make the hard decisions needed to secure a prosperous, long-term future for all New Zealanders," he said. “Our policies will result in investment shifting from speculation on property to the productive sector. This will lead to more jobs with better pay, give the economy a much-needed boost so that we can pay our way in the world and make it easier for more Kiwis to buy their first homes."

“We need to build an economy that has the capacity to create safety nets to pay for future shocks, like the devastating Canterbury earthquakes," he added. "These changes won’t be easy and some people won’t like them. But it’s the right thing to do.”

The proposed capital gains tax would be set at a flat rate of 15% and would not apply to principal residences or properties in the Canterbury earthquake disaster area for five years. Goff said that most New Zealanders would not have to pay the tax, but that it would still raise in the order of NZD26bn (USD22bn) in revenues over 15 years. These revenues would be used to pay government debt and cut taxes elsewhere.

In addition, Labour would restore the top individual tax rate to 39% for income earned over NZD150,000. This measure, the party says, would likely affect just 2% of the country’s top earners. To help those at the other end of the income spectrum, Labour would introduce a NZD5,000 tax allowance. The party has also proposed to remove goods and services tax on fresh fruit and vegetables.

“This tax switch is about creating a fairer tax system. In fact, under Labour, the overwhelming majority of Kiwis will end up paying less tax not more,” Goff claimed.

Finance Minister Bill English’s response was to say that the last thing New Zealand needs is more taxes and more debt. He said:

“The economy is really gathering momentum, as we saw in the encouraging GDP data today showing the economy grew significantly faster than expected in the March quarter despite the earthquake,” he said. “More taxes and more debt under Labour would put that at risk."

“New Zealanders have a clear choice: Labour wants to take New Zealand backwards with more taxes, more spending and more debt. National will take the country forward by growing the economy, getting back to surplus by 2014/15 and repaying debt.”

“Labour has clearly learned nothing from its failed policies of the past. Having left New Zealand with forecasts of ever-rising debt and permanent deficits when he was kicked out of office in 2008, Phil Goff now wants to go back and do the same all over again.”

“After making lavish spending promises over the past two years, it’s had to come up with a hodge-podge tax grab that will be good only for the armies of bureaucrats and tax accountants needed to administer it."

“Even on their numbers – and with no accounting for their spending promises – Labour would borrow more every year until 2018/19.

“It would also have six income tax rates, a GST that applies to some things but not others, a big gap between the company rate and the top tax rate and a capital gains tax on productive industries with a maze of exemptions that raises virtually no revenue in the first few years. All of this would encourage tax avoidance."

“Instead of more taxes, New Zealand needs more taxpayers. Instead of growing the government, we need to grow the economy,” Mr English said.

The response from BusinessNZ, the country’s largest advocacy group for enterprise, was that Labour’s tax proposals “won’t make the boat go faster”. Chief Executive Phil O’Reilly said steeper tax on higher income earners would be an incentive to leave New Zealand.

“This would erode the tax base, rather than building it up. Five percent of New Zealanders pay around a third of all income tax, and bumping up their tax risks reducing their ranks further and making New Zealand poorer,” O’Reilly commented.

“A capital gains tax as outlined by Labour is unlikely to help the economy either. With all the proposed exemptions, it wouldn’t raise much revenue,” he observed. “And it would create problems of its own. It’s the exact opposite of what is widely accepted as the fairest and most efficient system: a broad-based, low-tax policy."

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