Election 2023: Labour releases fiscal plan, says now is 'not the time for additional taxes'

The Labour Party has released its fiscal plan for the upcoming election, confirming its stance that "now is not the time for additional taxes" and it will maintain current income tax settings during "these volatile times".

The plan has been independently verified by Infometrics, which found the value of its proposed fiscal programme can be met within the allowances set out in the Pre-election Economic and Fiscal Update (PREFU).

It includes Labour's election commitments of removing GST off fruit and vegetables, making changes to Working for Families and its paid partner's leave initiative, as well as others like extending free school lunches to the end of 2026 and pumping more money into drug-buying agency Pharmac.

"Labour's fiscal plan is responsible, balanced, costed and credible. It has been endorsed by an independent analysis from Infometrics, who have concluded that the new spending commitments Labour has made can be accommodated within the future spending allowances set aside in PREFU," said finance spokesperson Grant Robertson.

He said the next few Budgets will be "tight" as the Government reduces expenditure following "necessary investments through COVID and to ease the pressures of the cost of living".

"There is room in Labour's plan to meet cost pressures and for a limited number of new commitments, as announced during the campaign."

He said Labour would "maintain income tax settings to provide consistency and certainty in these volatile times". 

"Now is not the time for additional taxes or to promise billions of dollars in unfunded tax cuts which would add to inflation and take money away from health, education and housing."

Grant Robertson and Chris Hipkins at Budget 2023.
Grant Robertson and Chris Hipkins at Budget 2023. Photo credit: Getty Images.

One of the principles of Labour's fiscal management set out in the plan is a "stable revenue policy".

"We will maintain stability in the tax system. With many Kiwi households struggling with the Cost of Living, it is a time for certainty and not a big shake-up of our tax system. Labour will not introduce a wealth or capital gains tax after the election."

To make the tax system fairer, Labour said the trustee tax rate would be aligned with the top personal tax rate of 39 percent in April 2024. This was already announced in Budget 2023.

It's also already announced it will implement a Digital Services Tax and restart normal increases to the fuel excise duty and road user charges.

The National Party, Labour's main opposition that is currently more popular than it in the most recent polls, is offering changes to income tax brackets to account for inflation, partially paid for by new taxes, including on foreign buyers purchasing properties worth more than $2 million.

That plan has been criticised by a number of economists, who don't believe the foreign buyers tax will bring in as much revenue as National (and the independent analysis it commissioned) has predicted, putting into question how it will end up paying for its tax cuts.

Robertson said National's plan doesn't add up. 

"They need to front up and be honest with New Zealanders about their policies, which public services will be cut and how much more debt will be needed to prioritise tax cuts for the wealthiest and landlords."

But Labour's potential coalition partners are also proposing a range of new taxes and income tax bracket changes. For example, the Greens want a wealth tax and a tax-free threshold. Te Pāti Māori also wants these changes as well other taxes, like one on vacant homes.

Despite that, Labour leader Chris Hipkins has said his party would not support a wealth tax after the election, if in a position to form a Government. 

Robertson said on Wednesday that Labour's approach to the economy was underpinned by its fiscal rules, which include achieving a surplus across the forecast period and keeping net debt below 30 percent of GDP.

The PREFU released earlier this month showed a surplus forecast for 2026/27 - one year later than previously predicted - and net debt peaking at 22.8 percent of GDP in 2025.

"To support meeting these fiscal rules, Labour's fiscal strategy will continue our responsible and balanced fiscal approach," he said. 

"We will drive further savings and efficiencies across government on top of the $8 billion we have found this year. We will prioritise investment in essential public services that New Zealanders rely on and build a stronger and more resilient economy that delivers high wage jobs and transitions to a low carbon future."

The Government made $4 billion of savings ahead of Budget 2023 and also announced another $4 billion in savings in August, which came from trimming some programmes, reducing future operating allowances and asking for some departments to tighten their belts. 

"Our savings and revenue measures include the removal of depreciation for non-residential buildings. Our existing fiscal sustainability and effectiveness programme will lead to further opportunities for savings and repriorisations to ensure government spending is directed toward the areas and people who need it most."

In its analysis of the plan, Infometrics said the costings provided "can be met within the fiscal settings outlined in PREFU".

"The costings that we have reviewed fit within the fiscal envelope available and appear to be reasonable assessments of the costs of these policies, conditional on the underpinning assumptions of each policy and commitment. 

"Infometrics has examined the high-level assumptions underpinning several of the various policy costings released publicly by the Labour Party, and we confirm that the value of the fiscal programme is as set out in the Labour Party's various policies. Infometrics concurs with the numbers presented within the policies."

The full fiscal plan can be found here.