The National Party says Labour's promise to raise income tax only for the highest income earners will hurt wealth creators, while an expert from the government's working group says it will do nothing to alleviate inequality.
National finance spokesperson Paul Goldsmith and Labour finance spokesman Grant Robertson Photo: RNZ
Labour released its tax policy yesterday, and says it will raise the rate to 39 cents for each dollar earned over $180,000. Apart from that, the party promises no other income tax increases.
The National Party, however, insists "Labour will eventually widen the net and come after middle-income earners".
Finance spokesperson Paul Goldsmith told Morning Report we don't need more taxes "at a time like this".
"Higher income earners pay a lot more right now, it's a progressive scale and that's appropiate."
'Nobody's got themselves out of a recession by increasing taxes."
He said we should have the lowest taxes possible to encourage investment and growth.
"The biggest challenge we have as a country is that we're loosing jobs on a massive scale. So how do you get the new jobs - you get new jobs by people investing and growing their business and taking on extra people.
"Ultimately, if you're putting up taxes for wealth creators then you make that more difficult."
Goldsmith said National would hold taxes where they are but adjust thresholds for inflation.
'It's not a tax cut like National would usually be looking for, because we do recognise that there are fiscal challenges, it's about a sense of direction and where we're trying to get this country."
"We've got to be prepared for the next crisis" - Paul Goldsmith
He said people should be worried about the Green Party and their "much more enthusiastic" approach to tax.
'It's an open question about what would happen if there was coalition agreement between Labour and Greens after the election."
Asked whether, by the same logic, an ACT coalition with National could mean more severe cuts, Goldsmith said National had a clear answer that they would not adopt ACT's policy. And put to him that that's what Labour finance spokesperson Grant Robertson has assured also, Goldsmith said Labour can't control it's spending.
Goldsmith accused Robertson of spreading misinformation that National would be making major cuts to public spending in their bid to reduce the deficit.
He said National has no interest in running an austerity regime and knows now is not the time to be cutting government spending.
Robertson said the policy reflected the need for certainty during the Covid-19 pandemic and that's why 98 percent of people will see no change.
"Obviously we've set this in the context of Covid-19" - Grant Robertson
"We think it's the right tax policy for this time as we navigate our way through these incredibly uncertain times."
Asked why the tax policy doesn't reflect promises made in 2015 and 2016 to address income inequality, he said that in those times they weren't dealing with a 1-in-100 year economic shock.
"This is the right policy for the time we're in at this moment, to give New Zealanders that level of certainty and stability, and make sure we can focus on recovery and rebuild from Covid-19."
Robertson said revenue policy isn't the only way to address inequality and stands by the government's record in other areas to address the issue.
Geof Nightingale, a tax specialist at PwC and member of the government's Tax Working Group last year, told Morning Report higher earners will be able to put their money in companies or trusts to avoid taxes.
"We live in the real world and you can only do the things that people will vote for" - Geof Nightingale
He said it's a relatively low rate for the OECD but other countries have lower taxes in middle income earners and much higher brackets that kick in for large salaries.
Nightingale said the new tax will do nothing to alleviate wealth inequality in New Zealand.
"All this does is exacerbate the distortion that the working group identified which was that we tax income from personal services relatively hard and there's a big class of economic income like capital gains which, to a large extent, goes untaxed.
"The evidence is that quantative easing is likely to seed asset prices so that's only going to increase that distortion."
Independent economist Cameron Bagrie described Labour's new tax policy as a "marginal tweak" but the first step in a direction towards higher taxes over the next decade.
Bagrie told Nine to Noon that the country faced three significant debt burdens including increased pressure on core spending, the cost of Covid and the looming huge costs associated with an ageing population.
"You roll those three challenges together and we've got some pretty hard choices we're going to need to be making over the next 10, 20 even 30 years."
Listen to the full interview with Cameron Bagrie
The government has already set aside $50 billion in new borrowing specifically for Covid recovery. Government debt was set to peak at 53 percent of GDP by 2023.
Bagrie said that Covid was worsening the country's debt burden, but the cost of Superannuation would hamper the sustainability of the country's long-term financial position.
He said about 800,000 people were on New Zealand Superannuation which was getting close to being 50 percent of total welfare assistance spending.
"And the number is going to keep going up."
Bagrie said the outlook for tax revenue in the near-term was a bit better than the government flagged in the Budget, because the hit in the June quarter was less than Treasury anticipated.
He said projected debt levels were still "pretty good" compared with international peers, which he expected the government would highlight.
Low interest rates meant less constraint on borrowing costs.
"The red flags are not waving there but if I look at the flip-side, New Zealand might have better, or lower level of public debt but we've got awful lot higher levels of private sector debt."
Bagrie was also concerned that not enough was being put in the emergency kitty to cope with the economic shock of natural disasters which occurred about "every 10 years".
He said tax increases were inevitable if the country hoped to get debt levels down to about 40 percent of GDP.
But the higher the taxes, the less incentive there was to work and try to get ahead.
"Lower taxes keep money in people's pockets, and encourages people to get out there and work a little bit more because you're going to keep more of your hard-earned dollars."
Bagrie said a successful formula struck the right balance, which was likely to lead the debate on tax rates.