Raising taxes on the rich to pay for COVID-19: Where politicians and experts stand

The second outbreak of COVID-19 in the community will only add to New Zealand's economic pain and debt - so how will we pay for it?

Auckland has gone back into lockdown level 3, while the rest of the country is in alert level 2. This has forced businesses to close and put severe restrictions on movement through Auckland's borders.

With New Zealand adding tens of billions of debt to get through the COVID-19 economic crisis, the question of how we're going to repay for it is becoming increasingly urgent.

Jacinda Ardern has refused to say if Labour will run on increasing taxes this election, telling The AM Show earlier this month that voters "won't have to wait very long" to see its tax policy.

One option could be raising taxes on the wealthy. New Zealand's top personal tax rate is 33 percent on income over $70,000 per year and the latest Newshub-Reid Research poll showed half of New Zealanders support an additional higher income tax bracket.

Newshub looked at what politicians and experts say on if we need to raise taxes on the wealthy.

What have National and Labour said?

Raising taxes on the rich to pay for COVID-19: Where politicians and experts stand
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National has ruled out both income tax increases or cuts with leader Judith Collins saying her party has "made it clear" that it does not support increasing taxes. 

However National would look at income tax bracket indexation - which would prevent people moving into higher tax brackets as their income rises due to inflation, giving them lower real-world income.

Jacinda Ardern has said Labour's tax policy would be revealed "early" in the campaign - although it hasn't been released yet.

Appearing on The AM Show earlier this month - before the latest community outbreak - the Labour leader was coy about if her party would raise taxes, even refusing to say if she thought it was a good idea in principle.

"Asking for my theory or opinion on it, whether it's personal or otherwise, is seeking to announce a policy before it's ready to be put out there," she told The AM Show. "You won't have to wait very long."

Minor parties for it

Raising taxes on the rich to pay for COVID-19: Where politicians and experts stand
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Green Party co-leader and Finance spokesperson James Shaw says New Zealand needs to raise taxes on higher earners.

"Our plan would introduce two new top income tax brackets for a more progressive tax system - so high earners chip in more," he tells Newshub.

The Greens proposal would introduce a 37 percent rate for income over $100,000 and a 42 percent rate for income over $150,000.

"We would also introduce a 1 percent wealth tax for those with a net-worth over $1 million," Shaw tells Newshub.

"This would apply to 6 percent of New Zealanders and would fund a guaranteed minimum income of $325 a week for people who find themselves out of work or with reduced hours. This would mean the country's wealthiest would pay it forward to lift others out of poverty."

Minor parties against it

Raising taxes on the rich to pay for COVID-19: Where politicians and experts stand
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Last year the ACT Party relaunched itself with the push for a 17.5 percent flat tax rate for everyone. Post-COVID, this promise is gone - the top tax rate would remain at 33 percent.

"We can't have a flat tax in the foreseeable future because the Government spent it all on its COVID spending spree," ACT leader David Seymour told Newshub.

Now, any cuts would come to GST and lower tax brackets.

"We'd temporarily cut GST to 10 percent and permanently cut the marginal tax rate paid by those on the median wage from 30 percent to 17.5 percent, simplifying the tax system to three rates," ACT's plan says.

"Our proposed five-point cut in GST would conclude in June 2021, while our income tax cut will be permanent. By cutting the 30 percent rate, we make the tax system flatter and fairer, with only three rates: On your first $14k, you would pay 10.5 percent. On your next $56k you would pay only 17.5 percent, while the rate on income above $70k would remain 33 percent."

Seymour said New Zealand is already the "most heavily-taxed country in the Asia-Pacific".

"The top ten percent of earners pay almost half of all income tax," he told Newshub.

"Hitting productive Kiwis with more taxes will just prolong our economic pain. The simple truth is that we can't tax our way back to prosperity.

"ACT is the only party proposing to let hardworking taxpayers keep more of what they earn. We have a comprehensive plan for a faster recovery with lower taxes and less debt."

New Zealand First has also come out strongly against raising tax brackets. In his speech to launch his party's campaign, leader Winston Peters laid into the Green Party's tax policy.

"Aside from its wealth tax component, which overseas experience emphatically shows always fails to achieve its purpose, proposing two new rates for those earning over $100,000 and $150,000 shows the Green Party's tax programme is totally out of touch with the economic demands of the moment," he said.

"We'll announce our tax policy in the campaign. But we will not support irresponsible tax policy, whether too much, too little, or too flat."

What do the experts say?

A road sign with rich poor words on sky background
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The New Zealand Initiative executive director Dr Oliver Hartwich says New Zealand needs stability and our tax settings shouldn't be touched in a crisis.

"No I wouldn't [add new higher tax brackets], at least in the short term, because we're going through a really difficult economic crisis and wouldn't want to make matters worse by raising taxes in a recession," he told Newshub.

"If we're thinking to increase rates in the middle of a downturn, that would have a procyclical effect."

He's also against plans to add a wealth tax, saying this would end up affecting about a quarter of Kiwis.

But Dr Hartwich told Newshub he doesn't support tax cuts at the moment, arguing we're already internationally competitive and again stating the most important thing is get out of the COVID crisis and avoid tax uncertainty.

And Dr Hartwich wouldn't go near GST cuts - recently implemented in Germany where their VAT (value-added tax) is falling from 19 percent to 16 percent (NZ's rate is 15 percent).

"No one really knows if this gets passed on to consumers or if it's kept by companies," he says.

On the other hand, Tax Justice Aotearoa advocacy group chair Louise Delany says the impact of COVID-19 means that raising tax rates is more important than ever.

"The tax system can be improved to make sure it does not place the heaviest burden on those who can least afford it. Second, people in government need more tax revenue to do things like boost our ailing health services and support people who have lost their jobs because of the coronavirus pandemic," she says.

"For these reasons COVID demonstrates that we need to tap into sources of revenue that we have hitherto neglected. This includes higher tax rates and wealth taxes."

Tax Justice Aotearoa proposes three major changes to our tax system -  a higher rate for those earning $150,000 and above, a wealth tax for people with significant net assets and tax transparency.

"Adding in a higher income tax bracket and introducing a wealth tax will bring in more shared resources to government. Depending on rates and thresholds, together these taxes could bring in several billion dollars a year," Delany says.

Delany points to the polling showing an increase in public support for a higher top tax rate, and "now is the right time" for the Government to do so.

"The question is whether or not we want to invest in our country and our people, through things like improving our health system and supporting people who have lost their jobs because of this pandemic," she says.

"Our message would be to put our people and planet first, make sure everybody is contributing their fair share, and use our collective resources that are our taxes to invest in building a society where everybody thrives: a society where everybody has opportunities to gain a good education and enjoy good basic health; a society where every child lives in a warm safe home; a society where people have meaningful jobs that give them satisfaction and help them put a meal on the table for their family, and to be there to eat it with them.

"When our people thrive, we unlock every individual's creativity and ingenuity, to solve our shared problems - like the coronavirus - and build productive businesses that help strengthen our economy. And our tax system is a crucial tool to use in achieving this."