The 2020 election is different to any previously. The world and its economy sits precariously as COVID-19 ravages on. New Zealand has not been spared from the economic damage.
The PREFU forecasts a decade of deficits amongst a general sea of red ink. A far cry from the economic situation three years ago.
It is against this background that parties have had to plan their economic and tax policy responses.
The two major parties have taken differing approaches to tax policy
The Labour Party has opted for a “steady as she goes” approach to tax, in favour of direct Government stimulus for the economy. A higher top personal tax rate is the only signalled change if it is re-elected. Other tax increases and new taxes have been ruled out in the next term.
The National Party has promised tax reductions – temporary threshold increases for individuals to deliver personal tax cuts and increased write-offs for business assets – as part of its wider stimulus package.
The other parties’ polices reflect their specific focus areas and constituencies.
Similar to our previous election taxmails, we leave our readers to make their own judgements on which policies are best.
Earlier this year we provided a framework for evaluating different tax policies in Repairing Government Finances: Some taxing options? There is no perfect tax; each policy will have trade-offs. How you value those trade-offs will determine whether you agree or disagree with a particular policy.
Some additional things to think about when comparing election tax policies
- The Tax Working Group Final Report made a number recommendations, only some of which have been formally adopted by the current Government. How do the various election policies compare against the recommendations? Should the Government’s “out” decision on a capital gains tax be overturned?
- When changing tax rates or thresholds, what are the practical consequences of this? Do other rates also need to change, or better align, to prevent distortions and inconsistencies? For example, FBT and PIE rates and thresholds with changes to personal tax rates or thresholds?
- Has the impact on the systems that calculate the relevant tax been considered? Is there enough time for business and intermediaries to implement and operate the changes?
- If changes to tax settings are temporary, what are the incentive effects? And is there a risk that those changes, once implemented, may not be able to be (easily) reversed?
- What is the likely reaction of Inland Revenue and the Treasury to a policy? Are they likely to recommend changes to the implementation of the policy?
Finally, KPMG’s Reset outlines the opportunities for New Zealand to reset our economy, businesses, institutions, and how we engage with the rest of the world, the environment and with each other. The role of the tax system in helping to shape the future economy and society we want to have will be critical. When evaluating the different options and/or what is missing, consider the end goal – what should the new normal be?
Election 2020 tax policy webinars
Webinar recording: Is tax love? with Dr Deborah Russell
At the beginning of July we held a webinar with Dr Deborah Russell, the Labour MP for New Lynn and the Chair of Parliament’s Finance and Expenditure Committee. The theme was on the role of tax policy in a post-COVID-19 world, including if/how the tax system should be used to re-balance the economy and repair the Government’s fiscal position.
You can watch the recording of our webinar here.
Webinar recording: Election 2020 tax and economic policies
In early October we held a joint webinar with the Green Party of Aotearoa New Zealand, New Zealand First and ACT New Zealand. With COVID-19 and the global economic outlook uncertain, the next Government will face significant challenges in rebuilding and re-setting New Zealand’s economy (and possibly the tax system to help support it).
You can watch the recording of our webinar here.
Webinar recording: Resetting New Zealand’s tax system for the post COVID-19 economy?
To share his thoughts and National’s election tax policy, we were delighted to host Andrew Bayly, the National Party's Spokesperson for Revenue, Commerce, State Owned Enterprises, Small Business and Manufacturing as our keynote speaker for our webinar in October. The webinar explored whether a tax system “reset” is also required and, if so, what the future tax settings should look like.
You can watch the recording of our webinar here.
