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Tax policy proposal a tightrope walk

Editorial

Labour's proposed new tax rates are the most dramatic development of the election campaign so far and cut straight to the issue of how the country can recover from the economic recession caused by the Covid-19 pandemic.

Finance Minister Grant Robertson says Labour wants to increase the tax rates on income over $180,000 to 39 percent. This would affect only two percent of New Zealanders and cost someone earning $200,000 just $25 a week.

Getting the new tax rate across the line would be a real challenge — Labour would probably need to have an outright majority in Parliament.

Not surprisingly the strongest reaction has come from the National Party and ACT.

National's finance spokesman Paul Goldsmith says no country has ever taxed its way out of recession. The proposed tax is estimated to raise $550 million which he says would not make a dent in the proposed deficit forecast for this year which is $28 billion. It is typical of Labour's tax and spend mentality and he warns there is more to come.

ACT leader David Seymour described the policy as divisive populism which was aimed at a small group of New Zealanders.

Perhaps more significant are the comments of Greens co-leader James Shaw whose party is part of the coalition government. Shaw says the policy will not address the growing wealth gap and inequality. The Greens have pressed for a wealth tax and are supporters of a capital gains tax.

The Greens have proposed a wealth tax of one percent on wealth of over $2 million which would be combined with a minimum wage.

The fact that Grant Robertson introduced the tax instead of Jacinda Ardern, who was busy campaigning elsewhere in the country, is seen as indicating that this is his baby.

Tax is always one of the main differences between the two largest parties. The Labour government of Helen Clark introduced a maximum tax rate of 39 percent which was later reduced by the John Key-Bill English government.

The policy would probably go down well with Labour's core supporters, few of whom would not earn anything like $180,000.

One problem, however, is that it does not address the actual wealth of people such as the value of property, shares or even art works. As a result many wealthy people would escape its reach.

The policy has however, introduced a serious issue into a campaign that up to now has consisted largely of personal barbs exchanged between the various party leaders.