Is now the right time to have tax cuts?
OPINION: With cuts to services, job losses, demands for higher pay for police and infrastructure needs increasing is it sensible to continue with tax cuts? An MP from each side of the House gives their views.
ARENA WILLIAMS, LABOUR MP, MANUREWA
Tax cuts in the current environment are senseless, and the OECD’s 2024 New Zealand Survey has warned against borrowing for tax cuts. As the cuts to frontline services become more apparent by the week, the Government’s stubborn insistence on tax cuts at any cost will hurt all of us in the long run.
National had to set out its spending commitments ahead of the election. Nicola Willis promised that her tax plan would not be inflationary, would require no additional borrowing and could be delivered regardless of where the economy was tracking.
They also repeatedly promised that cuts to public services wouldn’t hit our frontline. But already we are seeing hospital budgets being cut and kids’ classrooms put on hold. This is a Government that chose to spend $2.9 billion on a reckless tax cut for landlords.
In fact, National refused to confirm how the $15b in tax cuts would be paid for and would not release the modelling behind their estimates, with Christopher Luxon stating, “We’ve given you all you need to see”.
It is now clear how empty those commitments were.
National’s foreign buyer tax and its estimate $3b of revenue never saw the light of day. Its offshore gambling tax change is only going to raise a fraction of what it estimated.
The cruel change to the indexation of main benefits will generate savings of almost $1.4b less than National had banked on, while the interest deductibility tax break for landlords will cost over $800m more than it had estimated.
One of the few areas where National has raised more revenue than it planned to is also a shameful story – an additional $1.5b over the forecast period from tobacco excise revenue through repealing Labour’s smokefree legislation.
Nicola Willis has since conceded that National will borrow more through Budget 2024, but somehow insists that this is unrelated to the billions that will be required for their tax cuts.
It is important that New Zealanders are supported with the cost of living. But reckless and untargeted tax cuts are a poor way of doing so.
National has now backtracked on its promised changes to Working for Families abatement thresholds, which would have delivered extra support for low to middle income families.
Cheap public transport for young people, which the Government cut at the beginning of this month, was estimated to save some households more than $30 a week. Even their childcare policy leaves families worse off financially than they would have been under a Labour Government – our policy to extend 20 hours free ECE would have saved families with 2-year-olds up to $130 a week.
New Zealanders earning up to $48,000 a year would only receive slightly more than $2 a week from National’s proposed tax cuts.
National have shown they cannot be trusted to manage the books.
STUART SMITH, NATIONAL MP, KAIKŌURA
We will prioritise investment in our frontline resources, instead of growing the bureaucracy as the last Government did, and our Budget at the end of this month will reflect that.
To rebuild our economy, we must face some hard truths and make tough decisions.
Many low and middle-income New Zealanders are feeling the pinch of inflation, which is pushing their earnings into higher tax brackets. This means they’re paying more in taxes, keeping less of their income, and finding it increasingly difficult to afford everyday expenses. It’s crucial that we provide meaningful tax relief to alleviate the financial strain on New Zealanders. Personal income tax rates and thresholds haven’t changed since 2010, which we believe is unjust.
Tax cuts will be financed within our budget allocation through a combination of savings, reallocating funds, and generating additional revenue. This means we won’t need to borrow more money to provide tax relief, nor will we contribute to inflationary pressures.
Our priorities for Budget 2024 are straightforward. We aim to find ongoing savings across government departments while maintaining strict control over government spending.
We’ll allocate funds to focusing on improving public services in areas like health, education, and law enforcement. Additionally, we’re committed to developing a sustainable plan for infrastructure investments to benefit all New Zealanders.
We’ve already saved $7.5b this year by discontinuing ineffective programs like Let’s Get Wellington Moving and Auckland Light Rail.
We’re also reducing spending on consultants and contractors and streamlining the public service, which has grown substantially in recent years. This is because no government can sustainably spend beyond its means.
Under previous administrations, government spending ballooned, leading to a significant increase in borrowing, yet this didn’t translate into better outcomes for New Zealanders or value for taxpayers.
The private sector has long grappled with these challenges, which is why we’re unveiling an affordable and responsible tax package in the upcoming Budget.