Election 2023: National's $14.6 billion tax relief plan to be funded by new tax, other changes

National has announced it will fund its $14.6 billion tax relief plan by reprioritising spending and introducing targeted revenue measures like a new foreign buyer tax on some houses.

It will mean an "average household" with children with an income of $120,000 will be better off by up to $250 per fortnight, an average household with no children will get up to $100 per fortnight, a full-time minimum-wage earner will get up to $20 per fortnight and a superannuitant couple will get up to $26 more per fortnight. 

The 'Back Pocket Boost' package includes changes to income tax brackets to compensate for inflation, introducing National's FamilyBoost childcare tax credit, and increasing Working for Families tax credits. This would come in from July 1, 2024.

This will cost a total of $14.6 billion over four years and will be funded through a mixture of new reprioritisations and targeted revenue measures.

The announced reprioritisations:

  • $594 million on average per year reduction in spending on back-office functions in government departments, excluding non-core and frontline agencies

  • $400 million on average per year reduction in government spending on consultants

  • $590 million on average per year Climate Dividend, returning taxes raised on climate polluters to Kiwi families rather than giving subsidies to large corporates.

The announced targeted revenue measures:

  • $740 million on average per year from introducing a 15 percent foreign buyer tax on purchase of houses worth over $2 million

  • $525 million on average per year from ending the commercial building depreciation tax break

  • $179 million on average per year from closing a tax loophole and ensuring offshore operators delivering online gambling to New Zealanders, pay tax

  • $123 million on average per year from moving to user-pays immigration levies, excluding tourist visas.

The National Party is also promising to fully restore interest deductibility for rental properties, bring the brightline test back to two years from the current 10 years, not go ahead with the Government's proposed fuel tax hikes over the next three years and remove the Auckland Regional Fuel Tax.

One of the main elements of the tax relief package is adjustments to tax thresholds. This is expected to cost nearly $9 billion over the four forecast years.

Currently, the bottom threshold is $14,000. This will change to $15,600 under National's plan. The $48,000 threshold would change to $53,500 and the $70,000 threshold would change to $78,100.

"At least once every three years, including in 2026, we will assess the impact inflation has had on the average tax rates faced by income earners, with a view to making adjustments to tax thresholds that are affordable and responsible in light of the economic and fiscal conditions at the time," National says in a policy document.

Election 2023: National's $14.6 billion tax relief plan to be funded by new tax, other changes
Photo credit: National.

National leader Christopher Luxon said the changes to the brackets are capped at $78,100 "meaning everyone earning over this amount will receive the same amount of tax reduction per week". 

"Our plan is carefully targeted to ensure that those who will benefit the most are working New Zealanders. It's about time they got some relief from Labour’s cost-of-living crisis and National will deliver that to them," Luxon said.

"It's not right that someone on the minimum wage is so close to the 30 percent tax rate, that if they choose to work longer hours, those hours are currently taxed at 30 percent. National's changes will mean a full-time worker on the minimum wage will only pay 17.5 percent tax on extra hours worked."

National already announced the FamilyBoost childcare tax rebate earlier this year, promising families earning up to $180,000 a 25 percent rebate on early childhood education expenses up to $3900 per year depending on income. That would be $75 per week.

The policy document released on Wednesday says National "will end Labour’s extension of 20 Hours ECE to two-year-olds" as their FamilyBoost rebate will replace this.

National's FamilyBoost scheme.
National's FamilyBoost scheme. Photo credit: National.

On Working for Families, National would increase the in-work tax credit by $25 per week from April 1, 2024. It would also increase the abatement threshold to $50,000 from April 1, 2026. This is the same as what Labour is proposing.

One of the reprioritisations is bringing down back-office bureaucracy. It would do this by reducing advertising and public relations spending, stopping work programmes not supported by National (like any work on RMA replacement, Fair Pay Agreements), leaving some job vacancies empty, retiring some working groups, and stopping programmes to refurbish offices or upgrade property leases.

"Savings from this exercise will be booked in Budget 2024, generating an efficiency dividend to support National’s commitment to tax relief," National says.

However, some agencies will be excluded from delivering this efficiency dividend and will instead be "expected to redirect savings found in the back-office into frontline services".

These agencies include the Ministry of Health, Te Whatu Ora, the Ministry of Education, Corrections, Oranga Tamariki, Police, the Defence Force, NZTA and Kainga Ora.

"These agencies will still be expected to reduce wasteful bureaucracy spending, but any savings will be recycled into the frontline. All other agencies will be required to find savings and reduce spending," finance spokesperson Nicola Willis said.

National would also end the 'Community Connect' programme, which includes half-price public transport fares for community service card holders, people aged 24 and younger, and those on total mobility services. It also includes free fares for children aged 12 and under.

The party says this "was badly designed and difficult to implement nationwide".

"Some regional councils have struggled to screen passengers for age, meaning the rollout of the policy has not proceeded as planned."

The leadership duo said they would rather give Kiwis more money in tax relief to spend how they wish.

Finance spokesperson Nicola Willis and National leader Christopher Luxon.
Finance spokesperson Nicola Willis and National leader Christopher Luxon. Photo credit: Getty Images.

The foreign buyer ban would remain in place for all houses worth less than $2 million, while National would introduce a 15 percent foreign buyer tax for houses worth more than that being purchased by people who do not hold a resident class visa in New Zealand.

"The foreign buyer tax will be charged at 15 percent at the point of purchase. This means that a foreign buyer who purchases a $3 million apartment in Auckland will pay $450,000 in tax."

Australian and Singaporean buyers would be excluded due to fair trade deal obligations. Willis said independent legal advice found this would be consistent with international agreements.

Willis said fewer than 2000 transactions would occur as a result of the tax.

On closing the online casino gambling tax loophole, National says it will establish "a regulatory regime for online casino gambling to ensure offshore operators pay their fair share".

"Requiring online casino gambling operators to register and report their earnings for tax purposes, with IP 'geoblocking' of services that do not comply with the New Zealand licensing regime."

National also wants to move to an immigration model where the cost of processing visa applications is recovered through fees charged to applicants.

"To reflect this, National will increase visa processing fees and shift immigration services to a cost-recovery model – although there will be no increase to visa fees for the Pacific Islands.

"As part of this change, National will introduce priority processing fees, where visa applicants can pay an additional fee to fast-track their visa application – a policy which already applies in the United Kingdom."

A review of visa fee settings would be initiated with the new higher fees to be applied from July 1, 2024. National also wouldn't allow fees to cost more than 90 percent of Australia's equivalent fees, meaning visitor visa fees that are already higher than Australia's would not be affected.

National's also promising to end depreciation for commerical buildings. Labour said it would do this to help pay for its policy of removing GST from fresh and frozen fruit and veges.

National leader Christopher Luxon.
National leader Christopher Luxon. Photo credit: Newshub.

"It's a pretty exciting day," Luxon earlier told AM host Ryan Bridge ahead of National's announcement. "We're here to give help to the squeezed middle who have been doing it really tough and have been absolutely hammered by this Government.

"There's a range of relief that we're actually being able to offer. As we've talked about, a large part of it is actually adjusting the tax thresholds.

"I think what's really exciting is we've focused and targeted this plan on the squeezed middle, as we call them."

Speaking to Newstalk ZB prior to the announcement, Labour leader Chris Hipkins said there was "a lot of smoke and mirrors" as National was presenting some of their figures for "households" and across "fortnights" which makes the amount of money "look bigger".

Other political parties have already released their tax policies, including Labour's proposal to remove GST from fresh and frozen fruit and vegetables. The Green Party is campaigning for a wealth tax and changes to income tax rates, while Te Pāti Māori wants GST off all food, a wealth tax and other smaller taxes. ACT wants a simplified tax system, with just two income tax rates.

Labour's policy of removing GST from some foods is expected to save households about $4.25 per week on average. However, that is just one part of the party's cost of living policy. It's also promised to hike Working for Families tax credits on top of already extending free early childhood education to more families and removing prescription fees.