Goff says policy would see most people's tax payments fall due to NZ$5,000 threshold; Understands CGT doesn't raise much short-term

Labour’s tax package to be announced on Thursday will be a broad-based package that would see the majority of people's tax payments fall, leader Phil Goff says.

Meanwhile, Goff would not comment on speculation Labour was about to announce a capital on assets other than owner-occupied housing, although admitted “in general” that he was aware a capital gains tax did not collect much revenue in its first few years.

The policy to be announced on Thursday was certainly not "tax and spend," Goff said in answer to a question of whether the policy would be a tax switch, or a way to collect more revenue.

“What are our priorities? One is to have a fairer tax system. That means for most New Zealanders their tax rates will go down,” Goff said.

“The other reason, is to pay down our debt. We know we can’t continue to accumulate debt, and we’re not going to sell off our assets as a one-off quick fix to try to cover that problem,” he said.

The fall in most people's tax payments would be because Labour would make the first NZ$5,000 of income earned tax free. Introduction of that threshold is expected to cost about NZ$1.3 billion a year.

“And it won’t have escaped your notice that yesterday Australia has moved from the first A$6,000 tax-free to the first A$18,000 tax-free. If we’re closing the gap with Australia on taxation policy, we’re not going about it the right way,” Goff said.

Coy on short-term debt

Asked whether Labour's policy would mean they would need to borrow more than National in the short-term, Goff replied in the medium-term the two parties' debt tracks would be similar. He would not be comment on the short-term, saying details would be released on Thursday.

Pressed on what would happen with the debt-track in the short-term, Goff said:

“I think what matters to the financial institutions in terms of your ratings is whether you’ve got a credible policy to pay down debt, and to live within your means. Our policy will be very credible in that regard.

Asked whether he was aware that it would take some time for a capital gains tax to bring in revenues, Goff replied:

“Yes I am aware of that generally.”

'Thanks for talking about us'

Goff said the public discussion and debate that had taken place over the last few weeks about possible policies had been helpful.

“It’s given people the chance to look at the principals of the taxation system, the changes that need to be made, and why those changes are necessary,” he said.

“It’s not been unhelpful to have that general discussion prior to the announcement, and I’m very pleased that there is so much focus on what Labour is proposing as a clear alternative to what the National government is, or is not, doing.”

In any policy announcement it was good that people focussed on what needed to be changed in the system, Goff said.

“We’ve seen a series of broadcasts and articles through the media that have been helpful in setting the scene for the changes that we’re making," he said.

'Dagger in the heart of growth'

Meanwhile, Prime Minister John Key came out firing at his post-cabinet press conference on Monday afternoon, saying Labour's expected policy would be a "dagger in the heart" of economic growth. Key argued New Zealand already had a form of capital gains tax, rendering Labour's upcoming policy announcement extraneous.

“The first question you’ve got to go back to and ask is, does New Zealand need another tax? And the answer to that is, no. Not if you follow National’s plan," Key said.

"You’re going to be back in surplus within three years, you’ll have debt topping out under 30% of GDP, I think we will have created the better part of 170,000 jobs, we’ll be in a position where the economy’s growing where it can afford its liabilities. And in my view, why do you want to put another tax on the economy, which is frankly just a dagger through the heart of growth? I can’t see the point in that," he said.

“Secondly I don’t actually accept the view that New Zealand doesn’t have a capital gains tax. It does. Yes, it’s not as comprehensive as some jurisdictions, but actually if one goes and looks at those jurisdictions you’ll see that there are a lot of differences actually. They’re not all purist in the way they’re delivered, and actually the interaction between the personal and company rates in New Zealand’s quite subtle."

Budget 2011 and Budget 2010] included a "considerable amount of changes" that addressed the property investment situation.

“Labour’s actually fighting a problem they had when they were in office, but not actually the problem that exists today. Go and ask people who have been buying and selling properties, or buying and selling shares, and selling probably anything in under five years, whether they’ve had a knock on the door from the IRD," Key said.

New Zealand’s current taxation of capital gains depended on what your intent was when you bought an asset.

“If you bought an investment property, you would have been renting that property and in the business of renting properties for a considerable period of time. If you didn’t, you’ve probably breached your intent rules," Key said.

"So I think if you go and have a look at the overall mix of taxes we have in New Zealand, and the integrity of that tax system under National, all I can tell you is the system is a lot better, a lot less complex, and more likely to deliver revenue," he said.

“Yep, in the very long-term of course you can always put new taxes on. But if the answer to New Zealand is more taxes, then New Zealanders better get used to lower growth, and lower wage growth and less jobs. Because in the end this is just another sea anchor on the economy that’s been proposed by Labour because they want to spend more money and in the end they’ve got to square the circle. And the answer to that is put another tax on New Zealanders.”

(Updates with PM's reaction, comments on debt track, capital gains tax)