On Friday, National leader, Judith Collins and Finance Spokesman, Paul Goldsmith has announced National’s bold fiscal plan.
National’s bold tax policy is a stark contrast to Labour’s very conservative tax policy. Labour’s policy seemed to be aimed at not offending middle New Zealand voters, whereas National seem to have set their sights on wooing middle New Zealand voters.
Friday’s announcement covers an entire economic plan, but we are going to focus on the tax changes here.
Tax Cuts
The cornerstone of the Friday’s announcement is the promise of temporary tax cuts for individuals. These cuts will put around $3,000 back in the average income earner’s pockets. The tax cuts would be through a temporary adjustment to thresholds.
The table below shows the current and proposed thresholds:
| Current threshold | National’s temporary threshold | Tax rate |
| Up to $14,000 | Up to $20,000 | 10.5% |
| Over $14,000 and up to $48,000 | Over $20,000 up to $64,000 | 17.5% |
| Over $48,000 and up to $70,000 | Over $64,000 up to $70,000 | 30% |
| Remaining income over $70,000 | Remaining over $90,000 | 33% |
The temporary tax threshold changes would last 16-months from 1 December 2020. The cuts are estimated to cost $4.7b, which will be funded out of Covid fund.
National says that New Zealanders should choose how to spend their money, not the Government and that putting money back in earner’s pockets will help stimulate the economy. This policy is certainly a policy aimed squarely at enticing swing voters in the middle back to National.
Beyond the temporary changes, National promises to inflation index the tax thresholds moving forward.
Other proposed tax changes
National promises to increase the small asset write-off threshold from $5,000 to $150,000 and double depreciation rates for new asset purchases over $150,000. These policies are designed to stimulate business spending and encourage businesses to invest.
National also promises to make the following tax changes for small businesses:
- Allow a business to write of a depreciable asset once its written down value falls below $3,000.
- Increase the provisional tax threshold from $5,000 to $25,000.
- Raise the GST registration threshold from $60,000 to $75,000.
- Shift the second provisional tax payment date for March balance dates to 28 February.
- Review IRD use of money interest rates to make them more “appropriate” [presumably more in line with market rates]
- Change the loss continuity rules to be a “same business test [aligning NZ with Australia and other countries – note that Inland Revenue have been looking into this for the past year]
These small business changes are aimed at reducing compliance costs for SMEs. The changes are under the umbrella of a small business policy, but there is no guidance on what constitutes a small business for these purposes in the policy.
Finally, from 2023/24, National proposes to reduce the “bright line” test back to 2 years and repeal loss ring-fencing for residential land.
Our take
Tax policy is generally a battleground in New Zealand elections, and it is normally an area where National outperforms Labour. Under the long shadow of Covid-19, it seemed tax would be a non-event in this election. However, a month out from the election, that has changed, and things have finally become interesting.
Labour’s tax policy announcement (or lack thereof) a week or so aga was politically astute in the sense that they increased taxes far less than anticipated. National’s bold plan is equally astute as they have come up with a bold strategy that also exceeds expectations. There is no doubt that National has offered up a very different alternative to a Labour-led Government.