Labour's Robertson holds fast on opposition to tax threshold changes to account for inflation bracket creep, even if 2016/17 tax take comes in above expectations; Says coalition talks could involve reprioritising spending plans

Labour's Robertson holds fast on opposition to tax threshold changes to account for inflation bracket creep, even if 2016/17 tax take comes in above expectations; Says coalition talks could involve reprioritising spending plans

By Alex Tarrant

Even if the government’s books for last year come in as projected at $1.5 billion better than expected, we’re unlikely to get income tax threshold changes to account for nearly a decade of inflation if Labour has its way after 23 September.

Labour finance spokesman Grant Robertson was adamant Wednesday that his party's priorities differed from National’s to such an extent that even if there were an extra billion dollars or so on the table come election time, that would go towards boosting health and other spending above and beyond what Labour has promised already.

Labour Wednesday announced a fiscal plan to spend $20 billion more over the next four years than Budget 2017 projections, while keeping government spending under 30% of GDP and reducing net government debt to GDP to 20% by 2022, a year later than National. Reversing Budget 2017 tax threshold changes, imposing a Google Tax, halting negative gearing and extending the bright line test is expected to bring in nearly $10bn extra revenue.

The plan is based on Budget revenue and growth projections, although Robertson told media Wednesday that Labour was not counting on any extra tax take for the 2016/17 year, projected to have been about $1.5bn above expectations.

If that holds, “we’re working on some plans at the moment around where that investment will go,” Robertson said. He then reiterated Labour’s priorities for spending on health, education and housing, and reducing inequality and poverty. “Making sure people have the incomes that they need to be able to live good and decent lives.”

Asked whether that meant Labour might finally consider any changes to tax thresholds, he replied: “Look, we’ll see what happens, but I doubt it. That’s not our focus. We’ve been very clear that, at the moment, there is a significant need in our community to be able to invest in health, to be able deal with some of the really specific issues.”

That really is drawing a line in the sand. Remember, Labour leader Andrew Little is a fan of mandated shifts to tax thresholds every few years to account for inflationary bracket creep. Labour’s fiscal plan indicated reversing the shifts made by Steven Joyce to the bottom two income tax thresholds would bring in nearly $500m in 2017/18 and then nearly $2bn a year out to 2021/22 versus Budget 2017 projections.

Just not this time around, though. Election 2017 is about Labour trying to show a completely different priority list to National. Any big tax plans appear set for another tax working group to ponder over the next three years. Labour will take any recommendations to the electorate in 2020.

The question now is whether income tax threshold changes to account for inflation are in the 'big change' basket, or whether some of Robertson's spending allowances for the next few years could allow for it.

The other main line of questioning Wednesday was how much Labour was prepared to shift on its numbers if the Greens and/or New Zealand First demanded a refining, or requested greater spending allocations as part of any coalition negotiations.

Robertson did say some of the ‘unannounced policy’ contingency in Labour’s fiscal plan could be used to cater to post-election coalition negotiations. That’s just under $900m for 2018/19, rising to over $4bn in 2021/22. However, Labour is planning on announcing policies during the election campaign that will require most of that buffer.

But there is also the prospect of re-allocating current spending allowances, rather than having to agree on new spending with any partners, Robertson pointed out. He said it would be very surprising if there was any need to pare back those spending projections.

“I don’t think there’ll be any difficulty in a post-election change-of-government environment to spend that amount of money. Clearly within individual projects and policies, that’s what happens. It’s happened in every single MMP government of any stripe – it’s just the reality of the system.”

While there is no plan to release a joint alternative Budget with the Greens, Robertson pointed out the junior opposition party had signed up to Budget Responsibility Rules with Labour. There was also “an awful lot of common ground,” between the parties, he said.

“The voters will decide, and after that there’ll be discussions and negotiations.”

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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32 Comments

I love this...
"Robertson did say some of the ‘unannounced policy’ contingency in Labour’s fiscal plan could be used to cater to post-election coalition negotiations. That’s just under $900m for 2018/19, rising to over $4bn in 2021/22. However, Labour is planning on announcing policies during the election campaign that will require most of that buffer."

I think you are going to need to give up more than that, Grant, if your current polling is anything to go by.

the whole tax regime needs a major rethink.
why do we tax all welfare payments? benefits, super
why is there not a tax free amount, lower the benefits to that level to make it neutral
raise the other tax brackets to make it neutral for everyone else
and save some money on administration

I doubt there is much admin cost in taxing benefits. and without it peoples taxable income would be less than it should be (e.g. Someone working and on NZ super should pay the higher tax rate when their total income goes over the bracket, not just their working income)

Why cant Labour do anything without wanting to take more from us in Tax ?

Last time it was Capital Gains Tax that slaughtered them .

This time its not adjusting for erosion of our earnings through Bracket Creep.

They do it every time.

I was expecting a decent housing policy from them , but no , but all we got is a housing wishlist and more tax to pay .

Correct me if I'm wrong but up until about 20 yrs ago I seem to remember that tax bracket adjustments to account for fiscal drag were almost automatic. Nowdays they have pretty much been abolished. Certainly Labour didn't do it. And the last time National did it (with huge fanfare) they increased GST, so the net affect would have been negligible. By the way, increasing GST had the affect of increasing the cost of new house builds overnight. That didn't help!

Bracket creep allows politicians to give a big election bribe when needed.

.. do you think that there'll ever come a day when the average Kiwi on Struggle Street wakes up to the fact that it's their own money ( paid via PAYE , GST , petrol excise ) being offered back to them by the politicians ...

The election bribes are your money guys ... it's yours , not the government's ... they're not giving you something for free ..

.... SIGH !

GBH, it might help if some media outlets reported "the Government is spending $X billion of taxpayers' money on Y." Instead of "the Government is spending $X billion on Y." Just a thought on something that often bugs me...

I agree, Gummy. I'm thinking that a quote from Cormac McCarthy's "No Country for Old Men" seems to me somehow appropriate (minus the drugs reference):

I think I know where we're headed. We're bein bought with our own money. And it aint just the drugs. There is fortunes bein accumulated out there that they dont nobody even know about. What do we think is goin to come of that money? Money that can buy whole countries. It done has. Can it buy this one? I dont think so. But it will put you in bed with people you ought not to be there with

H L Mencken:

The state — or, to make matters more concrete, the government — consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting ‘A’ to satisfy ‘B’. In other words, government is a broker in pillage, and every election is a sort of advanced auction on stolen goods.

I am sorry , but this guy is just shooting himself in the foot ........... on one hand he says he wants to help lower wage earners , but then wont adjust the tax take for those very same people to adjust for erosion in spending power due to inflation.

They bang on about the low wage economy and worker exploitation, but still take a large sum in tax away from those lowest wage earners .

They are reintroducing the independant tax credit National is going to abolish. That and the better families package will ensure the lowest brackets are better off. It was National who wrote the lower tax bracket voters off, by removing the independant credit , and gearing the brackets to suit the upper earners more.
To be fair , the middle brackets ( and obviously the top ) without family will be worst off under Labour,

Is bracket creep your new big complaint?
Exactly how much have lower end taxpayers lost due to bracket creep? A couple of dollars per week, maybe?
What's the deadweight loss on that?

When you add that up to 52 weeks a year, over how many million taxpaying adults, that sums to a fair bit.

It doesn't matter though.
Essentially tax revisions are only made on the basis of deadweight loss. i.e. if there is a tangible economic benefit to giving the individual the difference, or not.

Well, when you're a Tax and Spend outfit, ya dinnae wanna do anything to reduce the Tax Revenue/OPM side of the equation, eh.

Not sure why you're dropping in textbook economic terms ("deadweight loss") that have no relevance. The simple fact is that the government is taking relatively more purchasing power off most NZ'ers than they were before. Nats tax "cut" plan really just offsets this effect.

By not listening to the logic of tax bracket adjustments, Labour is effectively for tax hikes for the middle class. And yes, the numbers are significant, even for the average earner.

Ahh because it is relevant.
Perhaps the textbook terms might help your understanding?

Why else would you adjust tax brackets unless you assumed there was some associated deadweight loss with the current settings? The logic of change is that the net economic effect is positive.
Potentially in your world you change things with no positive economic benefit, in the real world, however, this isn't the case.

I personally think taxes should always be low, but adjusting the tax system for the net effect per individual (low incomers) of a few dollars per week just doesn't seem like it's going to have any net effect.

Just as a comfort to all those hard done by peeps who will miss out on tax reductions it is a fact that the Government will get a large proportion back in gst and profits tax from those who have to spend all of their income.

It's an issue of equity. Bracket creep increases tax on middle income earners. Fair enough while the country's balance sheet is restored to better shape following crises but with a return to surpluses and crown debt heading in the right direction, the time has arrived for this inequity to be addressed. Kiwis are big on fairness and this Labour party kick in the guts to hard working people will not be well received.

Lets face it , bracket creep mostly affects those whose income is in the middle of the Bell Curve and thats the centre vote .

Those one the left of the Bell curve (low earners) are affected but they simply struggle more , and those on the extreme right of the bell curve (high earners ) are already very comfortable , so they will be annoyed , but it wont affect their ability to put food on the table .

Labour is in effect seeking to take more money than National from the very people who it needs to get it into power .

You need to better define what distribution your 'bell-curve' has in order to make that argument.

Okay its a "normal distribution' bell curve of New Zealands pere capita income

Put GST down, that's a tax cut for everyone.

No put GST UP thats the fairest for all , it taxes your spending habits not your blood and sweat 10 hours a day

Paying necessary bills is hardly "habits". GST is extremely onerous for those on low incomes who do not have "habits" they can choose to modify to avoid GST

Labour should note that Governments in high-growth countries do more by doing less.

They have small or contracting bureaucracies, low or falling taxes and deficits, enduring fiscal and monetary rectitude, the rule of law, liberalisation, privatisation, secure property rights and freedom of choice instead of Big Nanny controlling every aspect of their lives.

Boatman,

Can you name these countries please. Perhaps you could include some evidence of these small or contracting bureaucracies. Some numbers would be helpful.

Singapore?

Singapore?
Note "freedom of choice instead of Big Nanny controlling every aspect of their lives"

Singapore?

Nats should have taken the opportunity this time around to lift the top tax rate threshold. 70k is far too low for it to kick in - barely above the average earnings.

They were never going to be able to govern alone anyway, and in a few month's time they'll be in coalition with Winnie who won't let them do anything there. Then it'll be Labour's turn in 2020.

The TLDR is that we've reached the "high water mark" of centre right government, and for the next decade can expect only more redistributive policies.