David Parker identifies error in Labour’s tax policy

Labour needs to defend the basis of its tax assumptions in its fiscal pamphlet and respond to attacks from Labour MP David Parker that New Zealanders will simply avoid paying their higher tax rate, National’s Finance spokesperson Paul Goldsmith says.

“But there are now more questions about the credibility of Labour’s fiscal pamphlet and how much tax revenue they expect to collect.

“Labour claims it will raise an additional $550 million per year in additional revenue by increasing the tax rate on earners over $180,000 to 39 per cent and up to $90 million from a Digital Services Tax.

“These increased taxes are what Labour are using to fund their higher spending, so it’s important the numbers are credible.

“The problem with Labour’s higher tax rate is that it creates a large gap between the top income tax rate and the trust and company tax rates.

“In 2014 when Labour last proposed to increase the top tax rate, then Finance spokesperson David Parker outlined in Labour’s Fiscal Plan ‘in the past, when the top income tax rate was misaligned with the trustee income tax rate, trusts were commonly used as a tool to avoid that top tax rate. Aligning the top income tax rate with the trustee income tax rate avoids this issue.’

“Even David Parker knows there is a problem with Labour’s tax policy and their optimistic tax numbers simply aren’t credible.

“Tax experts, including Robin Oliver, have also observed that many high income earners will be able to avoid paying the higher rate because of the widening gap between the trust, company and top personal tax rates.

“This means high income earners will be incentivised to restructure their affairs to avoid paying the higher tax.

“Labour needs to explain whether they accounted for any behavioural change. If not, then Labour’s estimate of $550 million in additional revenue isn’t credible and should be updated.

“Labour’s fiscal pamphlet also assumes they will raise up to $90 million a year from implementing a Digital Services Tax. This doesn’t align with Grant Robertson and Stuart Nash’ own discussion document put out in 2019 which stated a Digital Services Tax would only raise between $35 million and $80 million.

“That means Labour’s fiscal pamphlet assumes it will raise $10 million more revenue from a Digital Services Tax than the maximum amount Grant Robertson claimed it would raise, or $32.5 million more than the midpoint.

“If Labour’s lofty revenue assumptions are even slightly too high, as it appears, then there will be an even bigger gap between the revenue Labour expects to raise and how much they expect to spend.

“For example, if these new taxes raised just 25 per cent less than Labour claim, then this will add more than $2 billion to New Zealand’s debt by 2034.

“Labour needs to front up and release the basis of its tax claims. Its fiscal pamphlet is becoming less credible by the day.

“Only National understands how to grow the economy and create jobs. We will prioritise letting Kiwis keep their own money instead of raising taxes.”