This is how Labor could outdo Luxon on tax matters

Max Rashbrooke is a senior associate at the Institute for Governance and Policy Studies, Victoria University of Wellington-Te Herenga Waka. He is a regular opinion maker for Stuff.

OPINION: “Paying taxes and pleasing, nothing more than to love and be wise, is not given to men.” So wrote 18th-century Anglo-Irish statesman Edmund Burke, and if the post-war embrace of high taxes seemed to temporarily contradict his claim, recent decades have provided the proof. No modern Labor party likes to talk about taxes.

After the fall intense debates, the tax talk has been more muted, but we can expect it to flare up again — and perhaps even dominate next year’s election campaign. If so, questions of justice will be central.

National’s plans to ax the highest tax rate and recover interest deduction for landlords are, I suspect, not particularly popular; they look too much like alms for Christopher Luxon’s wealthy cohort, and he seems to call them less now. But his call to adjust the tax brackets also suffers from the same problem.

Luxon would raise the thresholdsso that the 17.5% rate only applied to incomes above $15,600 instead of $14,000 as it currently is; the 30% rate would start at $53,500, not $48,000; and the 33% rate at $78,100, not $70,000. But even these changes, while superficially focused on central New Zealand, would benefit the high earners the most. The savings for a public sector manager at $120,000 would be $1042, but for a cashier on minimum wage just $112. From a justice standpoint, it’s unfathomable.

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Labor’s response could be to simply deny the need for any change. The typical Kiwi isn’t overloaded: far from it. According to the OECDOnly 19.4% of the average New Zealand salary goes to taxes, the lowest in the developed world, except for Colombia and Chile.

If Central New Zealanders are struggling, it is rather because wages are low that companies with little competition can drive prices sky-high (hello, supermarket duopoly!), and public services are patchy. (If anything, average Kiwis would be better off paying a little more in taxes, as long as they get significantly better public services.)

Labor could follow this line, hoping that the cost of living and wage increases can ease inflationary worries in central New Zealand, especially if an upcoming recession is relatively mild.

However, if people feel overburdened, the call for change may persist. Labor may need to consider tax reform, but the kind that favors the bottom and the middle, not the top.

One should pause for a moment to consider the problem that New Zealand is simply not raising enough revenue. If we were to tax like the European countries whose public services we admire, the government would have done it another $20-30 billion a year for education, well-being and health. But because Labor has ruled out a capital gains tax and is reluctant to introduce taxes on wealth or inheritance, Labor has few options there.

However, it can restore the tendency of the tax system against the poor. GST hits low earners hard and they are taxed on every cent of income. Conversely, many of our multimillionaires pay a lower tax rate than people on the minimum wage.

Labor could bear the $1.7 billion cost of Luxon’s threshold adjustments and — as former party workers like Clint Smith have suggested – redirect towards more progressive tax cuts. For the same costs, Labor could take the first $5,000 in income tax-free. This would save a minimum wage worker 10.5% of $5,000, or $525 — nearly five times Luxon’s offer. The average earner would get the same tax cut.

But even the very wealthy would. And the loss of $1.7 billion in revenue would be a blow to Labour. Can it recoup the tax cuts of the rich? It hasn’t promised any further taxes this term, but could make commitments for 2024 and beyond — for example, lower the threshold at which the 39% rate is cut from its current $180,000 to $120,000, and introduce a new 45% top rate on income. over $250,000, comparable to Australia’s. That could recoup about half the cost of $1.7 billion.

Labor would then need only a modest proposal – a levy on undeveloped land valuefor example, or curbing multinational tax avoidance – to make the changes revenue neutral. Of course, the tax increases may then appear to pile up – especially if one takes into account social insurance. So Labor may have to put off any further tax proposals and generally accept some revenue loss, or rely on tax revenues to exceed expectations (as has happened recently).

There are no easy options. Still, Labor has ways to protect much of the $3 billion in new spending set aside for years to come, while circumventing Luxon by offering most Kiwis a much bigger tax cut than it ever could. This would be a far cry from the ideal world where all forms of income, including capital gains and inheritances, are fairly taxed. But at least it could prove Burke wrong.