Forget about tweaks to the pension age, it's time to talk tax

Monday, 26 August 2019

Do you understand how our tax system works?

OPINION: How well the Coalition Government is performing depends a bit on whom you speak to.

But one thing is clear – National missed a big opportunity to set itself apart from the Government when it announced its economic agenda on Monday.

There's one obvious area where it could score a big hit but so far it's sailed on by. And it's that typical hot button love-it-or-hate-it issue that everyone seems to have an opinion on: Tax. And more specifically, tax cuts.

Many New Zealanders think the time is right for a tax cut. The Coalition Government rolled back plans that would have put more money back in the pockets of New Zealanders. It has a surplus, and we've already seen the Reserve Bank slash interest rates to a record low to stimulate the economy in the face on international black clouds (Trump tariff war ring any bells?)

* Capital gains tax: Tax Working Group announces support for capital gains tax, cuts to income tax

* Wealthiest Kiwis would pay vast majority of capital gains tax**

National can be the counter voice to a Government that is keen to run surpluses and limit its debt, all at the expense of the taxpayer.

'Bracket creep' is seeing more of us pay more tax every year. At present our top tax rate kicks in at income of $70,000 or more, meaning it's capturing people in jobs you'd be hard-pressed to think of as big earners.

And many people have criticised the way Working for Families and other benefits are structured, clawing back their support at high rates past certain income thresholds, reducing the incentive to work and earn more.

Working for Families has also led to a situation where some of our wealthiest households are receiving Government support. Do they really need it?

More than 18.8 per cent of households earning more than $150,991, and 24 per cent of those earning between $100,001 and $150,000 are getting money from the Government.

And what cost are we paying to administer Working for Families which leads to more of our tax dollars leaking on administration costs?

But in its latest economic discussion document, the National party is merely committing to raise the superannuation eligibility age by two years – but not for almost 20 years, yawn — although it did confirm its previously announced policy to keep tax brackets indexed with the cost of living, dealing with that dastardly tax bracket creep.

National missed a big opportunity to set itself apart from the Government when it announced its economic agenda on Monday.

Where is the sizzle Simon?

It is also proposing cutting the corporate tax rate from 28 per cent. But this isn't a policy, just something to talk about. It also wants to look at targeted tax cuts for small businesses.

Where's the introduction of a tax-free threshold for low-income earners? Tax breaks for businesses that keep people in work or who are facing a tougher export environment?

The Tax Working Group (TWG) may have focused its efforts on a capital gains tax, but with that off the table other changes should be very much on it.

It considered a tax-free threshold for low income earners, thought to be up to $7000 a year, so it's not a wacky idea. Currently all income earned is taxed, with the lowest threshold 10.5 per cent on earnings up to $14,000.

What about a tax-free threshold for the same amount, or a little higher at $15,000? The offset could come at the top end, likely with an increase in the top tax rate which is low by international standards at 33 per cent (but as we've seen kicks in at $70,000).

The TWG estimated a $5000 tax free threshold would cost about $1.6 billion but on some of its options people could end up up to $1120 a year better off.

At $15,000 or even $20,000, that tax cut would flow to a significant number of taxpayers, with 20 per cent of taxpayers falling into the lowest threshold and a further 45 per cent falling into the next current bracket which taxes income from $14,000 to $48,000, Tax Working Group data showed.

'If the Government wishes to improve incomes for certain groups of low- to middle-income earners, such as full-time workers on the minimum wage, then cuts in lower marginal tax rates or increases in lower tax thresholds can provide support for these groups and make personal income taxes more progressive. All higher-income groups would also benefit but low- to middle-income earners would receive the largest proportional benefits,' the group's final report said.

It was most in favour of raising the lowest tax threshold to more than $20,000. Any of these ideas are more exciting than what we got from National.

Or what about rebates for low-income families to bolster the economy? Even scrapping the benefit system as we know it and replacing it with a universal payment to everyone to remove the hurdles to getting into work would be worth floating. And hey, it would be canny politics too.

While in opposition, National has the chance to float some radical ideas and show it has the solutions to help New Zealand's economy shake off international tensions. It should be bold, after all, this Government has been pretty boring on that front after losing its nerve on CGT.

It can be the counter voice to a Government that is keen to run surpluses and limit its debt, all at the expense of the taxpayer. That money, after all, doesn't grow on money trees outside the Beehive — a lot of it comes from us, individual taxpayers.

Individuals, the 2019 Budget data shows, will pay $36 billion in tax for the 2018 financial year and in the 2019 financial year wage earners and individuals will pay an estimated $37.4b in tax, growing to more than $40b in 2020. And as the Tax Working Group noted, personal income tax is the largest source of revenue for the Government.

It's the job of a strong opposition to keep these issues in the spotlight.

Give us something to talk and argue about. A small adjustment to the retirement age in the still-quite-distant future isn't going to do it.