Labour leader Phil Goff has drawn the first battle line in the 2011 election campaign by promising to sock the rich as he makes a fresh appeal to beneficiaries, the lowest paid and superannuitants with a promise of a $10 a week sweetener.
Prime Minister John Key is expected to counter with a speech focusing on savings and investment in Auckland today and has already slammed Labour's plan as unaffordable.
Mr Goff fired the opening salvo in election year yesterday with a promise to exempt the first $5000 in income from taxes – a $1.2billion plan which Labour says it can afford without going into debt. But it is yet to spell out where all the money will come from, leading to claims from National of a $1billion plus shortfall.
Labour says some of the money will come from introducing a new top tax rate which could cut in from as low as $120,000. Mr Goff refused to say yesterday at what level the new rate would be set but it could go as high as 45c in the dollar if Labour chose to align the rate with Australia. He ruled out other taxes such as a capital gains tax to help pay for it but signalled further announcements closer to the election.
The top rate across the Tasman cuts in on income about $180,000. Labour has confirmed it modelled its plan to exempt the first $5000 in earnings from tax on Australia, which already has a tax-free threshold.
Labour is also promising to crack down on lucrative tax loopholes used by property investors, saying it will set up an Anti-Avoidance Tax Taskforce to close the loopholes.
Billions were estimated to have been lost by people dodging tax, Mr Goff said. He singled out the ability of investors to offset rental properties against their salary to avoid paying tax.
"The tax working group pointed out that only about half of the wealthiest individuals in New Zealand are paying the top tax rate."
The Treasury had estimated that this tax dodge alone cost the country $260 million a year.
Mr Goff's promise has echoes of Labour's election-winning pledge in 1999 to raise taxes on income over $60,000 to help pay for more spending in health and education.
But Mr Key criticised Labour's plan as irresponsible and not properly costed.
Mr Key will outline the Government's economic agenda in a speech in Auckland today.
"We need to increase our national savings so we can con-trol our destiny as a country," he said.
He said Mr Goff's plan left a shortfall of $1.1 billion.
That would push up borrowing from foreign lenders, increase interest rates and prompt a ratings downgrade.
Mr Goff had signalled Labour would look at ring-fencing losses on investment property so they could not be offset against other income tax.
National had considered that and rejected it. At most it would raise $260 million a year, but once sophisticated investors restructured their affairs "you might raise $130 million if you are lucky".
Mr Key said the Government was borrowing $300 million a week. If Labour borrowed the full $1.1billion that could rise to about $320million a week.
It would also delay a return to surpluses. On current forecasts the Budget would return to surplus by 2015–16.
Mr Goff said Labour would release full costings closer to the election campaign but promised there would be no extra borrowing.
National has already borrowed heavily to fund its own tax cuts, targeted for the wealthy.
- © Fairfax NZ News
How would you rate your mathematical skill?Related story: Kiwi maths performance concerns