From $76bn to $108bn – that adds up to a hefty lift in the tax take in just five years

Covid’s impact on New Zealand  may be  diminishing but it still has injected a feverish tone  to  the  debate  on the  state of  the  government’s  books this  week.

Labour  and  the  Greens  reject  Opposition parties’ calls  for  tax  cuts  as  “unaffordable”. They  contend  tax  cuts would  just add  to  inflationary pressures.

National  and  ACT  insist  tax  cuts  are  needed to  ease the  pressure  on  household  budgets  as costs soar.

Meanwhile  Reserve Bank  governor  Adrian Orr seeks  to  check  inflation  by  raising  interest rates again.

In all the  fog, what’s  clear  is  that  in five years the  Ardern  government  has lifted  the  tax  take  by  43%, from  $76bn to $108bn.

Finance  Minister Grant Robertson tends  to  under-rate  his  taxing  ability as  he  attacks  National  for  advocating  tax cuts. He  also ignores the  fact his  higher  tax take is  due in part to people  moving  into  higher  tax  brackets.

The NZ  tax  system  sets   higher  rates at  what  some  would  say  are  absurdly low  levels. Overall core  tax  revenue is 30.2% of  GDP, higher than   at any  point  since 2008  (guess when a  Labour government  was last in power).

The Green Party’s  finance spokesperson, Julie Anne Genter, said tax cuts were “wholly irresponsible, especially at a time when costs for most families are going up”.

But the  Opposition parties  contend  those  families are  precisely the  ones  who  need  tax  cuts.

You have to turn to  economists for  arguments  in favour of  tax  cuts, for individuals and for  business. With  an  eye  on  trying to  raise NZ’s  very  low  productivity, they say  it  is  important to lower the rate of taxation on business income because   the  company tax rate  deters foreign investment.

According  to  Thomas  Coughlan  in the  NZ  Herald, Robertson

“… unwrapped  a $9.3bn surprise, revealing that the government’s books were nearly $10bn closer  to  surplus than  forecast in May, helped by  a  tax  take  that  topped  $100bn for  the  first  time”.

And:

“The  bonus was  partly thanks to  a  healthy  year for corporate  profits, with  companies  paying 26.2%  more in  tax  on their  earnings than  last year—an increase  of  $4.1bn” .

It  may be, as National’s  Nicola Willis says,  that Robertson does not have an  income problem  but  a  spending  problem.  She  calculates there is room for tax cuts  at  the  same  time  as  boosting spending

ACT  leader  David Seymour  believes  government  spending  is out  of  control. He  points  out Labour spent $9bn more  than they taxed, even though taxes    were up $9.9bn.

“The  government  has  abandoned  any  pretence of  being a  careful economic  manager”.

 For  their  part, Labour and the Green Party have used the UK’s financial meltdown as a warning against tax cuts after it provoked a turbulent reaction from financial markets which weakened public finances.

“We have seen evidence in the United Kingdom to just how wrong they are,” Robertson said.

He  made  it  clear  he  doesn’t  think it is  time “to fritter away”  any  cash the  government  holds  or  might gain in  the  years  ahead on tax  cuts  for  those  he  calls  the  “wealthiest  New Zealanders” .

In a  final dig  he  says:

“Anybody thinking  about significant  changes to the  tax  system needs  to  be  able  to  make  it  add  up.”

Just  as  Bill English  and  Steven  Joyce  did.

One thought on “From $76bn to $108bn – that adds up to a hefty lift in the tax take in just five years

  1. How is it that profligate spending by the government is not inflationary but spending by households on essential items like food and fuel is? Give us our money back!

    Like

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