NZ Election 2020: Labour will introduce new tax rate for Kiwis earning over $180k, rules out further tax changes

Labour is proposing a new top tax rate of 39 percent on income earned above $180,000, but is promising no new taxes or any further increases to income tax if it wins another term. 

Labour's finance spokesperson Grant Robertson said on Wednesday Labour wants to "strike a balance" as New Zealand recovers from COVID-19, avoiding cuts to services while helping keep a lid on debt. 

"This policy is about maintaining investment in important services that are so crucial for New Zealanders like health and education, while keeping tax rates exactly the same as they are now for 98 percent of people," he said. 

"The new rate will cost $23 a week for an individual earning $200,000, but it will make a big difference to the country's ability to maintain the investments needed for the economy to bounce back."

Robertson said Labour will not introduce any new taxes or make any further increases to income tax next term if re-elected to Government. Labour has also committed not to increase fuel taxes if it wins another term. 

The new tax bracket is forecast to generate $550 million of revenue a year. 

The highest tax bracket in New Zealand is currently 33 percent on each dollar of income exceeding $70,000, while the lowest tax bracket is 10.5 percent on income of up to $14,000. 

New Zealand's median income is $52,000, and at that level the effective tax rate is about 18 percent because only income that falls between the $48k-$70k bracket is taxed at that rate. 

Labour chose the new $180,000 mark because it covers the top 2 percent of earners in New Zealand. It said the $180,000 threshold matches Australia's top income tax rate.

Labour's revenue spokesperson Stuart Nash said Australians earning over AU$180,000 pay a much higher rate of 47 percent, and said in these "uncertain times" New Zealand needs stability in the tax system. 

Labour's revenue spokesperson Stuart Nash and finance spokesperson Grant Robertson.
Labour's revenue spokesperson Stuart Nash and finance spokesperson Grant Robertson. Photo credit: Newshub

"Under our plan, 98 percent of New Zealanders won't be affected by these changes. The company tax rate is not changing, giving businesses continuity and certainty," Nash said. 

"We know from the experience of other countries - like Australia, Canada and the UK - that their economies grow strongly when higher earners are paying tax rates above 39 percent." 

The last time New Zealand had a 39 percent tax bracket was under Helen Clark's Labour Government, on income over $60,000. 

"When New Zealand previously had a 39 percent top rate, it certainly didn't stop GDP from growing at annual rates of 3 percent and 4 percent," Nash said. 

Robertson said Labour's revenue policy is part of its plan for managing the books responsibly as the world battles with COVID-19 and the subsequent economic slump. 

"New Zealand is not immune from the impact COVID-19 is having on the global economy. That's why we ring-fenced the remaining $14 billion in the COVID Fund to help us fight a second wave."

Robertson said if any of the $14 billion isn't needed then it won't be spent. 

He challenged the National Party is to explain exactly what they will cut to meet their spending promises and their "extremely harsh" debt policy of reducing debt to GDP to 30 percent within a decade.  

"Their numbers simply do not add up unless there are tens of billions of dollars of cuts to services like health, education and police."

National Party leader Judith Collins told The AM Show on Wednesday she suspected Labour's tax policy would involve taking money off people, or spending "other people's money". 

"You can't tax your way out of an economic recession - you've got to grow your way out. Who knows what they're going to say? Whatever it is, it'll be about taking more money off people."

ACT leader David Seymour said tax hikes it not the answer. 

"Grant Robertson will announce Labour's tax plan without Jacinda Ardern at his side - she obviously doesn't want to be associated with the increased tax bill for hardworking Kiwis," he said. 

"Let's not forget that these are the same people who wanted to introduce a capital gains tax."

Labour leader Ardern ruled out a capital gains tax while she's leading the party, despite campaigning on it ahead of the 2017 election.

Labour's coalition partner NZ First disagreed with the approach.