National’s tax plan: Bold, cynical — and a rort

The National Party’s response to grim economic forecasts out this week is a huge — albeit temporary — tax cut for middle- to upper-income earners.

Yesterday the Opposition released its fiscal plan, which shows middleand upper-income earners being given a chunk of tax relief for 16 months.

Finance spokesman Paul Goldsmith promises lower debt and a return to surplus, but does so by raiding a fund Finance Minister Grant Robertson set aside for the yet unseen needs which Covid-19 will present.

Through a marked increase in income tax thresholds, anyone earning more than $14,000 a year would see some savings, but the

16-month lift would benefit those on average to high incomes the most.

Those earning more than $90,000 a year would get around $4000 in savings over 16 months. A doubleincome household would get more, with all individuals seeing the saving.

This is a counter-punch to Labour’s tax plan, which sees no one but extremely high-income earners paying more; National will deliver noticeable savings for the middle.

In a move aimed at boosting investment, National is also doubling the depreciation rate for investment in plant, equipment and machinery, effectively giving businesses a tax cut for spending. The fiscal plan, looked over by the New Zealand Institute of Economic Research, also sees National pull back from its already vague promise to cut government’s net debt as a share of economic output to 30 per cent by 2030. Labour had attacked the plan as amounting to a promise of savage cuts to public services.

Now National’s target is 35 per cent by 2034, compared to Treasury’s projection in the pre-election fiscal update (Prefu) that debt as a share of gross domestic product would only fall to 48 per cent.

Where Treasury projects no surplus at any point until at least

2035, National’s plan sees it promising a return to surplus in 2028, midway through what would be its third term in government.

This week, Robertson described National’s fiscal plan as something like the “Bermuda triangle”, with promises of more spending and lower debt even though it was seeking less tax revenue. The attack is likely to continue; National’s plans see it running a smaller deficit than Labour even in the years when it is offering income tax cuts worth $4 billion.

To do this, National is raiding the $14b Covid relief fund, part of which will be used to pay down debt. It will also run slightly lower operating allowances — around $1.8b a year — than the $2.4b Treasury has assumed in its forecasts.

Where Robertson’s plan leaves around $14b to respond to the impacts of Covid-19 as they emerge, National will be required to come up with new, so far unallocated spending should the pandemic demand it.