Thomas Coughlan asks National leader Christopher Luxon about their tax plan. Video / Mark Mitchell
National Party leader Christopher Luxon says everything in his tax policy but indexed tax brackets are now under review, after today’s cash rate rise.
The Reserve Bank today lifted the Official Cash Rate by 75 basis points to 4.25 per cent: The highest level since December 2008, the biggest single rise since the OCR was established in 1999 and the ninth consecutive rise.
Luxon this afternoon told reporters National would review its tax policy as a result: It would still index tax brackets but other promises including cutting the top tax rate would be reassessed.
A major focus of National’s tax policy is the indexing of tax thresholds to inflation.
“We are committing to indexing our tax thresholds. It’s practical and pragmatic,” Luxon said.
“Over the course of our first term we’ll look to make that right, but beyond that we need to go back and consider.”
Luxon said National’s main spending promise, which is that health and education spending rise each year in line with inflation, had not changed.
“We’re continuing to invest in health and education – we need to be able to do that. We have a health system falling apart.”
National’s challenge is not so much the affordability of the tax cuts, but the fact that cutting tax by that amount would inject fresh stimulus into the economy – making inflation even worse.
“We’ve been crystal clear to say the economic conditions are what we will determine what we can achieve in our first term in Government. We’ll take stock of where we are today,” Luxon said.
Luxon was clear the indexing policy would not change, but changing the rest of the policy was possible.
“We would like to offer people tax relief, but when we look ahead, when I think about the 39 percent rate in particular, that’s something I really want to think about,” Luxon said.
Luxon had alluded to dropping parts of his tax plan in an interview with the Herald that morning.
“We will inflation adjust tax thresholds which many countries around the world have as a standard principle – anything else we’ve said look we’ll have to decide what conditions are at that time,” Luxon said.
“What we’ve been saying very clearly is the economic situation in New Zealand is changing – it is important that we are prudent and responsible and good economic managers and so we will look at those situations before we progress any further tax reduction.”
Luxon was not the only one delivering policy changes.
Finance Minister Grant Robertson responded to the Bank’s concern about the level of spending in the economy. Robertson said the Government was always looking at ways it could stagger its infrastructure build so as not to trigger excessive inflation in construction prices by building a whole lot of projects at once.
The Government’s NZ Upgrade economic stimulus program was one program the Government was looking at sequencing in a less inflationary way.
“When it comes to our transport projects in particular we are constantly looking at how we phase projects, how we sequence projects, that is part of what we do,” Robertson said.
“It’s an ongoing process and obviously Waka Kotahi does important work that we don’t want to stop but we’re no different to anybody else. From time to time we do have to sequence things.”
ACT Leader David Seymour said the party “remains unequivocal” in its position that the top tax rate of 39 percent needs to be repealed.
“We will steer New Zealand away from its current path of Government-led, high tax, high debt nonsense that makes life harder for hardworking New Zealanders.
“New Zealand needs real change. We need a government that does not run at the first sign of trouble but actually stands up for good policy. A top tax rate that raises only 0.42 percent of government expenditure is an exercise in envy. It is tall poppy syndrome in the tax code that holds us back from solving real problems like low productivity.”
Seymour described the 39 percent rate as an “envy tax”.
“Tax cuts are necessary if we want to provide some much-needed relief to Kiwis and shake New Zealand out of its post-Covid funk. All it takes is a government who can control its spending.”
ACT would also reduce the middle-income tax rate down from 30c to 17.5c in the first year. A nurse with one child, for example, earning $70,000 would receive around $2,300 in tax relief, Seymour said.
“ACT stands for real change, our proposals would give a $2000 tax cut to someone on the average wage.”
– Additional reporting by NZ Herald staff reporter