Labour proposes new top tax rate of 36% for those on incomes over NZ$150,000 and lift in trust tax rate to 36%; Your view?

Labour proposes new top tax rate of 36% for those on incomes over NZ$150,000 and lift in trust tax rate to 36%; Your view?

By Bernard Hickey

Labour has released its Budget policy for the September 20 election, including plans for a new 36% tax rate for those on incomes over NZ$150,000 and an increase in the trust tax rate to 36% from 33%.

Labour said the tax changes, along with its already announced plan for a capital gains tax on assets other than the family home, would allow a Labour-led Government to run surpluses and repay Government debt by the end of its second term.

"Everything is paid for, plus we are in surplus," Labour Finance Spokesman David Parker said in releasing Labour's full fiscal plan. See the full Labour document here.

"Labour will set aside money to ensure service levels in health and education are maintained to meet inflation and population growth. Any new policies we announce for these sectors will be clearly and transparently funded by new spending," Parker said.

"Labour will also clamp down on tax avoidance by multi-national corporations because we believe that everyone should pay their fair share," he said.

The plan commits Labour to balancing the budget, running surpluses and repaying debt faster than the current Government. Labour said it also created "fiscal headroom to allow the option of income tax reductions in the second term."

Other details of the plan include:

  • Reducing the Government's net core crown debt (including the New Zealand Superannuation Fund) to 3% of GDP by 2020/21.
  • Limiting new operating spending to less than the Government's operating allowance of NZ$1.5 billion as set out in the May 15 Budget "plus the net increase in revenue resulting new policies."
  • Restore contributions to the New Zealand Superannuation Fund with payments of NZ$750 million in 2015/16 and NZ$1.5 billion in 2016/17, before returning to full contributions from 2017/18.
  • Raising NZ$1.5 billion working capital for Labour's plan to build 100,000 homes in 10 years.
  • Allowing enough fiscal headroom to allow for tax cuts, improved services or faster debt repayment in the second term.

'Faster debt repayment'

Labour said its net debt track would run 0.3% of GDP above the Budget 2014 projection as it borrowed NZ$1.5 billion to fund Kiwibuild.

"From 2018/19, Labour reduces net debt more quickly than the Budget 2014 forecast as Labour’s net new spending is less than the new operating spending allowance in Budget 2014. In 2020/21, net debt reaches 3.0% under Labour’s policies, which is less than the 3.7% projected in Budget 2014," it said.

"This commitment to restrained net spending means Labour will be able to pay down debt faster than National, and our new policies won’t put more pressure on inflation," Labour said.

Labour said Budget 2014 allowed for NZ$1.5 billion of new operating spending each year (rising with inflation).

"In 2015/16 new operating expenditure is $191 million above the allowance but this is more than offset by new revenue. In subsequent years, new operating expenditure is the same or less than the allowance," it said.

"In 2015/16 Labour’s additional spending totals NZ$1.691 billion, offset by NZ$241 million in additional revenue for a net figure of NZ$1.450 billion, against the new operating allowance for that year in Budget 2014 of NZ$1.500 billion," Labour said.

"By 2020/21, additional spending is $1.673 billion, partially offset by $274 million in additional revenue that year for net new spending of NZ$1.400 billion, against the new operating allowance for that year of NZ$1.656 billion in Budget 2014."

'Tax avoidance crack-down'

Labour said tax avoidance reduced government revenue by up to NZ$7 billion a year. It said it would target a NZ$20 million reduction in tax avoidance in 2015/16, rising to NZ$200 million by 2018/19.

"A special commissioner for tax avoidance will be created within the IRD who will be adequately resourced to target all forms of tax avoidance, particularly the actions of multi-national corporations," it said.

"A corporate tax unit will ‘embed’ IRD auditors in corporations that have a history of tax avoidance in New Zealand or abroad, with a particular focus on multi-nationals and their subsidiaries, to review ‘line-ball’ decisions before avoidance occurs. This policy is not directed at banks, which are now subject to a high level of scrutiny through their Reserve Bank disclosure obligations."

Labour reaffirmed its policy to remove the ability of landlords to avoid paying tax by offsetting rental property losses against their personal income.

"This measure targets negatively geared rental properties and means that losses may only be offset against future rental profits. This is expected to raise NZ$135 million a year once it is fully in place," it said.

Labour said it would update its alternative Budget after Treasury released its Pre-Election Fiscal Update on August 19.

Reaction

Finance Minister Bill English described the plan as the "same old tax and spend" from Labour.

“After nearly six years in Opposition, all Labour can come up with is a re-hash of its failed old recipe of taxing more and spending more. No one will be surprised – or impressed – by that," English said.

“Labour want to increase taxes so they can spend more without any focus on better results. They are out of touch with New Zealanders’ expectations that the measure of good government is better results, not more spending," he said.

“Labour’s complex capital gains tax would be full of holes, slap a new tax on 2.3 million KiwiSavers and on every New Zealand farm and business without addressing the real issues around housing affordability. As for the proposed new top tax rate, it’s just the politics of envy. It wouldn’t actually raise much money, it would encourage those who could do so to shelter money in companies and it would ignore the fact that these taxpayers already pay 22 per cent of income tax - even though they are just 2 per cent of taxpayers.”

Business New Zealand said it welcomed Labour's comments on fiscal discipline, but was concerned about the proposals for higher tax.

“Labour’s proposal for a firm approach to tax avoidance by multinational companies is sensible in the interim while international measures to harmonise international tax law are being worked through,” Business NZ CEO Phil O’Reilly said.

"But the centrepiece of the alternative budget – an increase in the top personal tax rate and trust rate to 36 percent – would not aid competitiveness and would penalise those who tended to invest most," he said.

“Higher income and trust tax along with a new capital gains tax are not good signals for anyone wanting to invest in New Zealand’s growth.” 

(Updated with more detail, table, charts, reaction)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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63 Comments

It's fair enough.

So, given that the Company tax rate is 28%, that introduces a nominal 8% incentive to move over, legally avoid, re-describe and in general to bring howling back all of the distortions that useta happen when the old 39% rate was in force.
 
Sigh.

Exactly. Great for lawyers and accountants though.
 

Using a Trust to own a company is the only real way to do it anyway.   The Trust system is being set up for looting by government (hence the free-for-all put your money in).

New Zealand is a culture of poverty, there is no reason to attempt to own anything or have any local investment.  Government will just grab it with the stroke of a pen, and if they don't grab it the first time they'll just keep trying.  That's why they put up min wage, as it's higher taxes and higher interest.  Why is higher interest so important?  Who do you think is forced to buy & hold Government/Treasury bonds....

Waymad, So are you saying individuals will re asign their income at 36% to a company to pay 28%?
But when you pay yourself wages you'd then be back to the 36% rate? Not sure if I get it.

Fun police

"Labour will also clamp down on tax avoidance by multi-national corporations because we believe that everyone should pay their fair share," he said.
I'd like to see exactly how they are proposing to do that.

They'll be stxffed without Google.. They should try to google "labour" and see what comes up.. don't annoy them Labour..

Plenty of other search engines around, Bing, Yahoo, and a few others, including Altavista which was around in the early 1990's
 
Govt should introduce a special Google-Tax. If Google spits the dummy, well good luck to them, they haven't exactly done Ireland any favours by domiciling all their profits there by profit shifting

Google vs the rest of the search engines is a bit like VHS vs Betamax in the 80s.

Does Google charge and account for GST on its NZ revenues?
If New Zealand Tax Gatherers told Google to either pay withholding tax on its revenues or take a hike and Google refused and took the hike and blocked all NZ IP addresses (ie denied service), it wouldnt be the end of the world. In fact, could be a good thing
 
Wouldn't affect you anyway, would it now

My understanding is no as the work is "done in Ireland"   I dont think we can do a with holding tax without new legislation, but Im all for it.
Would Google cut us off? well they lose the rest of their revenue stream and the court/class  action? interesting.
regards
 

Yes, they do, do "something". The Intellectual Property (IP) is owned in Ireland and Google charge royalties on the use of that IP to shift the profits into Ireland. It's also called transfer pricing.

if they block all NZ IP.. now not only you have to use another search engine but all Android phones will stop working soon or later.

So what. Are there no alternative smart phones? At some point someone has to stand up and give them the finger. NZ has been a world leader in many things. Mururoa. ANZUS. Suffrage. Time has arrived.

yeah, two empty cans and a piece of string!

Android is actually pretty independant, so no.
"The preferred license for the Android Open Source Project is the Apache Software License, Version 2.0 ("Apache 2.0"), and the majority of the Android software......"
So stuff google frankly.
regards

Google presently makes tax revenue off advertisers in NZ but I believe as the work is actually done "offshore" (Ireland) pays no tax?  Hence we'd still have google just they would be paying 30% and not 0%, or earn no money here.  Could Google block NZ users? I guess so, would they?  Not sure that would go for them legally.
regards
 

Updated with charts, detail, reaction.
cheers
Bernard

I don't have a big issue with a 36% top rate. I have a bigger issue with fiscal drag and how flat the current tax bands are. The top rate cut in at $60k and this has only increased once (to $70k) in 14 years!
 
A worker only needs to earn $48k to be on 90% of the current top tax rate; and earn $22,000 more to earn the top tax rate.

I agree - tax bands need to be reviewed.
I'd be in favour of making the first 10K tax free, and up the other taxk bands - lift the current 30% to incomes between 90 and 150,000, and introduce a new 40% on earnings from 150k onwards.
Ringfence investments so a loss cannot be offset against earnings for tax purposes.
And tax in general needs to be simplified. Too many loopholes and exemptions.

Does the tax bands being so close together have an effect on inequality?

I just think it's odd that the bands stop at incomes over 70k. Wages have risen, partly due to inflation, so the current top tax band no longer accurately reflects the top tier of wages/income.

Govn needs the income and no one wants to pay more tax, hence Govn doesnt compensate for it.
regards

My wife is about to get a substantial pay rise...even though we may "separate" so we can have 2 CGT free family homes

It's fine if you want to take a risk and commit tax fraud.  I just hope you are not a hypocrite who things benefit fraud is any different.

Did you get marry to qualify for student allowances?

Which would be classed as tax evasion.
regards

Don't worry, IRD already have his email. Meeting lined up for Monday.

why should a couple get only one house?  two people, two houses.  makes easy sense.  Otherwise late marriage or early divorce treats people differently under the law.

Just joking, but the point is many would do that and more given the tax differential.And make it "legal"
Got married because she was blind and I was drunk.
What is a student allowance??
Worked the butt off in every holiday to put myself through Uni.
Have paid all my taxes, as I realise there are hundreds of thousands on welfare, corporate, Labour or otherwise dependent on the small percentage who actually pay net tax

It is still tax evasion. Lets say you get away with it for 10 years, IRD calls, you are screwed financially get a criminal record, penalties and possibly un-employable....
regards

Tax is only paid by suckers. If Labour had any vision it would scrap personal and corporate tax and replace it with a financial transaction tax 

Yes, yes, yes.  On all deposits.  With no tax deductibility.

... the top 2 % of wage/salary earners already fork over 22 % of all PAYE tax collected ... ... how much more do we need to punish them for having the temerity to be successful in our land ?
 
Tall Poppies .... New Zealand ... snip snip snip ...

Depends on your defination of successful.  Im sure if you asked one of the poor if they had been gifted the ability and/or position of one of the rich they to would have been a success.
Also parasites are successful, not good for the host though
regards

Yes it's absolutely amazing that the successful got there at all, given the number of parasites they have sucking the living daylights out of them.......and maybe you should look at how some people use their gifts and ability and/or position to become successful !  Anyone can sit on their hands and do nothing and expect everything !
 
Read your last sentence again.....who's the parasite and whose the host? And maybe just look at what Rastus posted below because you sure as heck don't understand maths and taxes !

"... how much more do we need to punish them ..." 
Despite what some believe it is neither Tall Poppy Syndrome nor is it a punishment to expect richest among us to actually pay taxes at the same rate as everyone else. The reason the top 2% pay 22% of the PAYE is that they are so freaking much that when it is taxed at the same rate as everyone else it comes to 22% of the total. If one person somehow earned 1000000000000000000000000000 a year, then that one person is not being punished because if they are being taxed at the same rate as everyone else the tax take from that one person comes to 99% of the PAYE. The reason the tax take on the very rich has increased in recent years is not that their tax rates have gone up, it is that the incomes of the very, very wealthy have shot up while everyone else's have been flat. That is not being punished, infact being the only group in society for whom incomes have significantly increased is, I don't know, the opposite of punishment. If we replaced the current taxation system with something like a Tobin tax, the people with the most money would still be paying the most tax, and the people with the most extreme amounts of money would still be paying a lot more tax in proportion of the number of people, but it is a absolutely fair amount based on the amount of money they have.
The use of that really bogus statistic in discussions about the fairness of tax vexes me sorely, you might be able to tell. Did you know that men carry the burden of 100% of the Y chromosomes in the population but men only make up 50% of the population!!!
 

I totally agree with the sentiment here.  The fact is that wealthy individuals can accumulate truly dynastic wealth here in NZ because it's never really leveled by taxation.  We have no death duty (at least its 0%) or capital gains tax.  Taxing trusts isn't going to do anything! people will just allocate trust income to non earning discretionary beneficiaries, etc  loopholes on top of loopholes. 
It's like the Piketty effect on steroids, and it just leads to a very unhappy society.  I can barely reconcile the New Zealand of my childhood with the property baron rentier / tenant debt surf class divide which seems to exist today.    I dont mean to get political but Its one of the reasons why I'm so angry with the National party.  Their instance to maintain status quo, even apply regressive taxation changes and sell public assets in the face of what's likely to be the greatest financial collapse in human history.  We've sealed the fate of the poor and middle class here in NZ, but it didn't have to be that way.

I wish I had to pay $1,000,000 tax...

My, My. Aren't these exciting times we live in today?I wonder who will be the first to tell us "middle class" to Eat Cake?Then we will see real change in this world...

There you go , what have I kept saying?
Labour will TAX-AND-SPEND-OTHER -PEOPLES -MONEY until it runs out.
Its little wonder Kiwi's dont have enough  money  for strong Capital and Equity markets .......... its been taken away from us in taxes, so we have to rely on Aussies and Chinese to provide us with Capital  for Banks , Farms , etc .
They are so blinkered they dont see it

These changes will revive the brain drain that NZ suffered for years. There top 2% income earners are often our best and brightest and there is a genuine risk they will take their services elsewhere as the net income offered in NZ is less than elsewhere. How would you all feel if you need an operation you’re told, “Sorry, there are only a couple of vascular surgeons left in the country so you’ll have to wait 5 years to get that surgery”. How much capital flight are we expecting? I thought we wanted, needed, high performing and high earning companies to set up shop here. What is Labour planning for all those who find themselves unemployed when their employer packs its bag? How will we ever measure the lost opportunities? And last but not least, who here genuinely believes that every cent of the new tax will be responsibly spent in the most efficient and productive manner possible?

Happy123  -  it won't be just the top 2% leaving !
I think Labour will be finding it rather hard to get donations after this little press release.
 
 

Humbug
where would you have them go, happiness?
where would you have that vascular surgeon go?

won't be to australia where the top rate of marginal tax is 49% plus an additional 2% where the National (LNP) has just introduced a Temporary Debt Deficit Levy of 2% on all incomes $150,000 and over, effective 1 July 2014
 
And you might check out the difficulty NZ trained surgeons have getting registration in Australia
 
And if he wants to buy a $3 million house in keeping with his status he will pay $170,000 in stamp duty, straight up, before he starts, and will never get back.

Odd comment...  are you trying to infer that the only possible country on earth that a person could emmigrate to is Australia?
 
Singapore, income taxes ranging from 0% to 20%.
 
What about the higher salaries offered abroad...
 
I happen to know a vascular surgeon and she has about 1 dozen countries (including Australia) begging for her to go and work there. 

An oldy but a goody....
 
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this…

  • The first four men (the poorest) would pay nothing
  • The fifth would pay $1
  • The sixth would pay $3
  • The seventh would pay $7
  • The eighth would pay $12
  • The ninth would pay $18
  • The tenth man (the richest) would pay $59

So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.
“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? How could they divide the $20 windfall so that everyone would get his fair share?
The bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

  • And so the fifth man, like the first four, now paid nothing (100% saving).
  • The sixth now paid $2 instead of $3 (33% saving).
  • The seventh now paid $5 instead of $7 (28% saving).
  • The eighth now paid $9 instead of $12 (25% saving).
  • The ninth now paid $14 instead of $18 (22% saving).
  • The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

David Chaston, I vote Rastus' comment for comment of the day.

Rastus, unfortunately we are currently in the position of after the beating seeing google, Facebook and apple pay sweet f all tax.

Of course in the mean time the owner of the brewery is not paying for any beer as he does not earn anything due to aggresive tax planning statergies.

In reality you'll find that the ninth and tenth guy (high income earners) probably owned or have shares in the pub. Chances are they are making money from the drinking session as well as writing off their shares of the bill as business expenses.  So the ones that got done are the fifth - eight persons (middle income earners)

Astute point.
regards

and this proves what? its not an economics model. All it shows is a) how wonky some ppl think. b) how far extreme wonky "thinkers" will go to try and "prove" their view point.
 
regards

I really doubt Labour are actually this dumb, they're just so hard driven by the far left of their party that they feel obliged to come out with this policy (indeed when youre already dead what else do you have to lose?)  They know full well that history says it won't raise a dollar. I am one who has debated the idea of forming a company and contracting my services but have never seen enough need/motivation to do it, which is a bit different to when I set up my trust the year labour put the top tax rate to 39 cents. This would be the trigger for me to form a company (frankly I'd do it on principal),  and I suspect the same for a good number of other high earners who are able to contract their services, However, it won't be needed and I will still be paying 32 cents after Sept, and the country will be the better for it.

Actually, no it isnt dumb in terms of economics and probably not for vote loss either.  There are enough historical instances of top rates in excess of 50% (in the 50s and 60s) with no apparant restriction on the economy.   With a top rate at $150k most labour or labour leaning voters will not be impacted so wont care.
I also dont think its their far left vote, (I'd suggest a % of that has gone to the Greens).
In terms of what you want to set up that sounds like clear case of tax evasion.  I think there was a court case in the last 2? years where 2 surgeons did something similar to avoid paying tax on their $650k / year income, IRD won I believe.
 
regards

Not evasion, just avoidance and not at all like the sugeons example that I well remember. There are other legitimate reasons in what I do to do it this way and frankly don't know why I haven't in the past other than couldnt be bothered. As I said Steven, an academic debate since its not going to be necessary. But go back to my comment, doesn't raise a dollar, dumb, but I guess there are dumb and dumber, so perhaps its achieves something in the mind of their voters as you say.

I would also suggest that the IRD will be pushed into being more agressive. I mean the surgeons case wasnt thought to be illegal, PWC?  got caught badly.    I'd suggest that there is sailing close to the wind and not.
Let me know when your court case comes up, I'll watch with interest.
;]
regards

Well Steven, I trust my fellow voting Kiwis to keep me out of jail :-)

LOL.....you bugger. Lets see vote Green, help save the environment and help send Grant to jail or vote National to continue to see it pillaged and Grant goes free....
oh such a hard choice......
Looks like the voters may well save your butt this time, what an interesting September.  I am looking forward to seeing how NZers want the next 3 years.  What they get will be not what they expect though, time is ticking down.
regards
 
 

... why do you " really doubt Labour are actually this dumb " ...
 
What have they come up with since they lost the last election in 2011 that leads you to believe they really are not this dumb ?

Why wait kimy?  You can start reducing you rent you are charging to your tenants by $30-$50/week 9or more), helping the fellow kiwis - less rent, more disposal income to help out with their living costs - The gift that keeps on giving.. you know.

Actually kimy, the interest you pay benefits hundreds of thousand of NZers.
They are bank shareholders of course.
By the way, thank you for your contribution to my next world cruise.

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