Framing an election-winning  budget a priority for Hipkins-led team — but will inflation erode any benefit before it arrives?

Incoming Prime Minister Chris Hipkins has already indicated he intends making the tax system “fairer”.  That points  to the route a government facing an election could take to tilt the odds towards winning  in its favour, given Labour’s support in the  last  months  of the Ardern era had been drifting downwards.

Appearing on AM on Monday, Hipkins said he will focus on bread-and-butter issues, like the cost of living, in his new role. 

He also hinted that tax changes could be on the cards, saying “we should always look at how we can make the tax system fairer”.

“I think overall there are some New Zealanders who perhaps aren’t contributing their fair share [of taxes],” Hipkins told AM co-host Ryan Bridge

“You’ve asked about values so I will start right at the core value. If you work hard you should be able to get ahead. There are people now working really, really hard, some of them might be working multiple jobs and they’re not feeling that they can get ahead,” he said.

“They are contributing enormously to New Zealand and to our prosperity but they are feeling that they’re not able to get ahead. We need a tax system that recognises this, that actually makes sure that those who are really striving, who are putting in the hard yards, actually feel the reward for that.”

Such  a comment might  be  surprising, coming as  it does from a minister who belongs to Ardern’s inner  circle.  But it  does suggest that Hipkins  will be  leaning  heavily  on Grant Robertson (who is expected to retain the Finance portfolio)  to frame an election-winning budget,  and in the process make  the tax system “fairer”.

Whether  that  means  they will follow a prominent economist,  Cameron  Bagrie,  in  his  ideas in  overhauling  the  tax system  is  less certain.    

Bagrie said one way to help struggling Kiwis would be to completely overhaul the tax system by lowering income tax and increasing GST. 

“Certainly there’s some scope for getting rid of what we call tax thievery – that’s making sure that as your incomes move up, you don’t just shift up into a higher tax bracket,” Bagrie  said   

“But if I was going to design the tax system from an absolute square one, I would probably have higher GST and lower income tax. And some sort of wealth tax thrown into the mix as well. 

“Now whether the government of the day is yet bold enough to come out with that sort of platform, I suspect the answer is no. But the new Prime Minister has basically flagged that he’s going to have another look at that old chestnut called tax, so we’ll see where it goes,” Bagrie said. 

The way income tax currently works, each dollar earned up to $14,000 is taxed at 10.5%, then each dollar  between $14,000 and $48,000 it taxed at 17.5%. 

The next bracket is $48,000-$70,000, taxed at 30%, followed by the $70,000-$180,000 bracket, taxed at 33%.  And above $180,000 tha rate is 39% – the final bracket introduced by Labour after the 2020 election. 

Hipkins has confirmed his Government would stick to Labour’s tax promise for this term, which is no new taxes outside of the new 39%  tax rate.

The  problem for the  government is  that whatever  adjustments  the government makes to the tax system, inflation at  its current  level  could  erode  any income gains before they arrive.

One thought on “Framing an election-winning  budget a priority for Hipkins-led team — but will inflation erode any benefit before it arrives?

  1. I have always found it relatively easy to understand Labour’s tax policy. They rob Peter, give Paul money, and expect Paul to vote labour. Generally they are right, Paul votes Labour and Peter is powerless to do anything except possibly emigrate.

    Like

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