Parker sets crosshairs on untaxed earnings
Revenue Minister David Parker has signalled that he is not interested in lifting income tax brackets as inflation rises, saying his focus remains on identifying untaxed income.
Addressing Parliament’s finance and expenditure committee, Parker said he had not sought advice from officials on how inflation, and thus rising wages, are bumping people up into higher income tax brackets.
“I think the major problems in terms of progressivity of the tax system don’t lie where tax bands sit, so much as what income we don’t see, and don’t know whether it is taxed,” Parker said.
“[This] is why my focus has been to try to get better information on that.”
The National Party is promising to lift income tax thresholds if it wins next year’s election.
It is campaigning on lifting the upper limit of the bottom bracket (taxed at 10.5 per cent) from $14,000 to $15,600; the limit on the next bracket (taxed at 17.5 per cent) from $48,000 to $53,500; and the limit on the next bracket (taxed at 30 per cent) from $70,000 to $78,100.
National expects this adjustment to cost $1.66 billion.
Fielding questions from National finance spokeswoman Nicola Willis, Parker clarified that he did not need help from officials to understand the concept of bracket creep.
“It’s very easy to compute,” he said.
He noted it was more difficult to know, based on Statistics NZ’s Household Economic Survey, how much income is going untaxed.
Parker has directed Inland Revenue to collect data on how much tax the country’s wealthiest individuals are paying.
He has also asked it to gather information on how much GST people in differing income and wealth groups are paying.
Parker said this was simply a “statistical evidence-gathering exercise”.
“The information is highly relevant to tax policy, to get an understanding of whether the tax system is fair,” he said.
“I have no plan to commence any work on other taxes, because I’m committed to our promise that we will not introduce new taxes [in this term of government].”
Nonetheless, this didn’t stop Parker making his fondness for a capital gains tax clear.
He believed the Government’s interest limitation rule was inferior to a capital gains tax.
“You can argue that what we did in respect of interest deductibility is an imperfect remedy, because of the inability of the country to get to more rational remedies,” he said.
Asked by Willis what these were, Parker said, “We as a party tried to get a capital gains tax across the line, because we thought that would be a good remedy. We didn’t and we said that we won’t do it. Therefore, you’re left with worse remedies.”
The interest limitation rule prevents residential property investors from deducting interest as an expense from their incomes when paying tax. Investors with mortgages secured against new builds, less than 20 years old, can continue making these deductions.
Critics of the rule say it is overly complex and creates distortions in the tax system.
But in Parker’s view, the higher interest rates go, the more the rule does to prevent distortions in the system.
His argument is that it is essentially one thing for an owneroccupier to bid against an investor at an auction when the investor can write off interest of say 3 per cent, but the owner-occupier can’t do the same to lower their tax bill. It’s another thing when that mortgage rate is 7 per cent, for example, and the investor can enjoy the deduction, but the owner-occupier can’t.
Parker said he was still “very proud” of the Government evening the playing field by preventing investors from being able to deduct interest as an expense.