Labour plans higher tax bracket

04:04, Jun 25 2014

Labour will hike the income tax rate for top earners under a draft Budget for its first six years in government.

But the new top rate of 36 cents in the dollar, dubbed an "envy tax" by Prime Minister John Key, is less than the 39c Labour proposed in the leadup to the last election.

Labour leader David Cunliffe and finance spokesman David Parker announced the proposed new rate today, for those earning more than $150,000 a year.

Labour says 2 per cent of earners have an average income of $260,000 a year.

The top tax bracket now is 33c in the dollar for all income over $70,000 a year.

"This small group has received billions of dollars in tax cuts from the current government at a time that it could not afford them," Cunliffe said. The Labour plans would also see the tax rates for trusts hiked to 36 per cent in a bid to combat tax avoidance.


More broadly, Labour claims it would run surpluses over the first six years it would be government, and pay down the debt that had accumulated since National took office in 2008.

The calculation includes payments to the New Zealand Superannuation Fund - which Labour said would resume more quickly than National proposes - which are not counted in the calculation of net Crown debt at present.

Another $1 billion a year would be set aside for the funding of health and education to help keep pace with rising costs, before any increases in funding were claimed.

"The package in front of you is the most thorough fiscal plan that you have ever seen from a government in waiting," Cunliffe said.

"Even the current government with the resources of Treasury behind them had not told the public of New Zealand what it would do in the next term, and Labour is."

Cunliffe said the policies he had announced since becoming leader were based on "strong and sound fiscal foundations".

According to its Budget, Labour said it had room to increase spending by $500m a year for its first two years of the next term, and $350m a year in the third year, with policies to be announced before the election.

"Keeping to our goals of running surpluses and paying down National's debt has meant making tough choices when it comes to spending," he said.

"There are lots of good policies that we have chosen not to fund."

Based on Treasury figures, the difference between this year's top-tax policy and that of 2011 was that the 36c rate would raise $246.6 million less in income tax than the 39c rate.

Parker said the Budget showed fiscal responsibility and reflected his upbringing in the "Presbyterian South".

"Everything is paid for, plus we're in surplus," he said.

The party also announced a new plan to crack down tax avoidance, including suggestions that it would take unilateral action to combat loopholes used by multinational companies to pay tax wherever it was most beneficial.

Labour said it would also embed IRD staff into companies known for tax avoidance, but appeared to stumble on detail.

Naming internet companies Facebook and Google as companies which derived substantial revenue from New Zealand while paying little tax, Parker said it would probably not work to embed IRD staff with those companies as they had virtually no physical presence in New Zealand.

As expected, there is no mention of other policies from its 2011 tax plans such as a $5000 tax-free threshold and removing GST on fruit and vegetables, however the party still plans to introduce a capital gains tax of 15 per cent, excluding the family home.

The Taxpayer's Union was quick to attack the proposed new top income tax rate.

"The 2 per cent of New Zealanders who earn over $150,000 already pay 22 per cent of the total [tax take]," executive director Jordan Williams said.

"We can't expect high earners to stay in New Zealand if we continue to slap more tax on those most able to relocate."

"We are stunned that just as New Zealand gets back into surplus Labour wants to increase the tax burden rather than give New Zealanders tax relief. Raising taxes will not raise more revenue, it will chase away the golden goose."

But the Council of Trade Unions welcomed the announcement.

"Those who earn over over $150,000 will pay more tax and applying tax to trusts to combat tax avoidance, are welcome steps to reducing inequality and the unfairness of the tax system," CTU president Helen Kelly said

"It's a relief to see more effort in stopping the billions of dollars of tax evasion."

Key said Labour's new top tax rate was"an envy tax" and the numbers were "extremely ropey".

Key said a capital gains tax was complex and didn't raise much money.

He said that when the country was going back into surplus, Labour was saying it wanted to tax every one of the 2.3 million KiwiSavers, every business and every farm.

"Why on earth would you do that at a time when the economy's growing and its earning more than it's spending?" he said.

Labour was a big-spending party and in the past it had not got value for money from that.

He said lowering the proposed top tax rate from 39c in its 2011 policy to 36c suggested Labour had got "cold feet", but it would encourage avoidance because the company rate stayed at 28c.

"The only people who will really pay the top 36 per cent tax rate are those that can't structure their affairs."

Very-high income earners would put their earnings through a company.

However, Key said aligning the top tax rate and the trust rate was good tax policy.

Finance Minister Bill English said Labour's draft Budget was a "re-hash of its failed old recipe of taxing more and spending more".

"No one will be surprised or impressed by that," he said.