A cut to the top tax rate would be crazy, Grant Robertson says, while Nicola Willis says it should be part of a policy to cut tax across the board. Photo: RNZ / Angus Dreaver
Analysis: A surprisingly good set of government accounts livens up the tax cut debate - it's shaping up as a key election issue and a defining difference between Labour and National.
The Treasury opened its books this week and revealed a deficit of $9.7 billion compared with the May forecast of more than $19b.
That hadn't been expected and it was because the tax take was $10.6b above forecast and government expenses $3.9b lower than forecast.
Finance Minister Grant Robertson said the figures were clear evidence of a strong economy and promised an "incredibly rigorous" approach to future spending.
National saw it from a different perspective. For the opposition it meant tax cuts were more affordable and the fact that more revenue was being raked in supported its argument that people should be allowed to spend more of the money they earned.
National finance spokesperson Nicola Willis said a prudent government - which Robertson insists Labour is - would be able to deliver tax cuts and good results on its spending.
National's policy is to adjust the tax brackets in line with inflation and remove all the new taxes it says Labour has introduced - and that includes the top tax rate of 39 percent on income over $180,000. The next one down is 33 percent.
Robertson told Morning Report he wasn't considering tax cuts this term.
"Cutting the top rate of tax at a time like this is completely crazy," he said.
"We've seen in the UK the impact that that kind of policy would have and there are billions of dollars that the National Party would have to find on top of, I might say, various spending commitments they're making. I don't think their proposals add up."
The tax cuts proposed by National are shaping up as a key election issue. They're easy to understand and they throw up a stark difference between the main parties.
Robertson's reference to the UK was about Prime Minister Liz Truss' new government announcing the top tax rate would be abolished and then scrapping the policy.
It was part of her economic recovery plan which involves massive borrowing - it caused the pound to plummet and drew a warning from the International Monetary Fund that it could increase inflation and inequality. The pound rebounded after the U-turn.
The inequality warning was on the simple basis that if wealthy people pay less tax they will have even more money to spend than those on lower incomes.
The impact here would be exactly the same.
National leader Christopher Luxon doesn't accept the comparison. He says the circumstances are entirely different.
In the UK, he said, wholesale changes to the tax system were being proposed while the UK government was also offering "a massive amount of stimulus" for energy payments (to help consumers pay their bills).
In New Zealand, the government was spending freely and tax revenues were up.
When it came to the top rate, Luxon was staunch. He said New Zealand had a higher cost of living and lower wages than other countries and in a competitive world it needed tax incentives to be able to attract foreign surgeons and engineers.
Prime Minister Jacinda Ardern said at her post-Cabinet press conference the comparison was fair.
"What we have on the table here is $3 billion of tax cuts which affect those on the top tax rate," the Herald quoted her as saying.
"The things you do in this space can have an inflationary impact - certainly what National has proposed would, and you only need to see the response in the UK to see why tax cuts for the wealthiest at this time is such a bad idea."
Willis called Ardern's comments "nothing but political mischief".
"Government spending has increased $51 billion a year since Labour entered office, a 70 percent increase and 30 times the cost of National's plan to adjust tax brackets for inflation," she said.
National's policy is to index the tax thresholds (the brackets) to inflation and unwind Labour's seven new taxes, Luxon said.
Labour has already branded the policy as "tax cuts for the rich" and it can be expected to go really hard on that during next year's election campaign. We haven't yet heard the old one of "National looking after its rich mates" but that will probably be resurrected.
Jacinda Ardern and Christopher Luxon have also joined in a vigorous discussion on tax rates this weeks. Photo:
Pushback on public sector job cuts
National's tax policy is linked to cuts of a different kind, and Luxon got pushback on that as well this week.
He said he wanted to trim 14,000 public service jobs to save $2b which would help fund his $3b-plus tax cuts package, Newshub reported.
"We're going to have a very efficient public service," Luxon told the AM Show.
That begged the question: Which jobs will be cut?
The Public Service Association asked it. The union's president, Benedict Ferguson, said he wanted to know which workers would go and which services would be cut.
"I think Luxon needs to come clean on what his plan is to fund these tax cuts," he said.
"The public service is very efficient right now. Yes, it has grown, but it has needed to due to underfunding by the previous government and due to population growth."
Ferguson said he believed frontline services such as border security and social services had become more efficient under Labour.
Luxon responded by saying the government was spending more money, hiring more people and getting worse outcomes.
"Never before, in our country, have we seen a government spend so much, hire so many people and achieve so very little."
Faafoi's new role
It was revealed this week that less than three months after leaving Parliament former cabinet minister Kris Faafoi is heading a new PR and lobbying company.
He told RNZ he was into his third week as chief executive of a company called Dialogue22.
He shrugged off any criticism over the speed of the move.
"I don't get particularly fussed about that, you know, people are entitled to their opinions but as I said you leave politics and you have to find yourself a new career."
Dialogue22's website advertises expertise in government and public relations services "to those who need their perspective heard and understood".
Faafoi's venture is backed by advertising business owner Greg Partington.
New media entity a threat, select committee told
Sinead Boucher Photo: supplied
At a select committee meeting this week MPs were told the merger of TVNZ and RNZ would pose a threat to the rest of the sector.
Stuff chief executive Sinead Boucher said the merger would create a media giant with substantial market power and a not-for-profit remit plus the ability to act commercially or non-commercially and go after any audience it chose, RNZ reported.
"To have an injection of government funding into budgets that would dwarf the rest of the industry's budgets put together really makes it a very serious threat to our viability and to the viability of the rest of the industry," Boucher said.
*Peter Wilson is a life member of Parliament's press gallery, 22 years as NZPA's political editor and seven as parliamentary bureau chief for NZ Newswire.