Politics | Whakatau 2023

Economics professor questions National’s tax policy to put more money in people’s pockets

National’s Back Pocket Boost tax plan to “not only restore hope and confidence but also help people in the most practical way”, announced by leader Christopher Luxon today, is being seen by Professor Matt Roskruge as a win for families - but he still has doubts.

The policy, targeting what National calls the “squeezed middle class”, will cost $14.6 billion over four years.

The plan includes four main tax changes:

  • shifting income tax brackets to compensate for inflation;
  • expanding tax credits to reach more modest income earners;
  • introducing the FamilyBoost childcare tax credit; and
  • increasing Working for Families tax credits for working families (from April 1, 2024). These are the same as Labour has promised. National will increase the In-Work Tax Credit by $25 from $72.50 to $97.50 and lift the abatement threshold to $50,000 in 2026, again the same as Labour’s plan.

Not much for low incomes

Roskruge says it’s not much of a tax cut for those on low incomes, saving approximately an extra $10 a week, while high earners could get around $125 a week extra.

“Families do particularly well out of the tax relief side of it but it’s not a huge amount of money. I think the sticker price is very high but it’s not a huge amount of money in people’s pockets.

“For $14 billion, that’s a lot of money that we could be putting into our health, education, justice, infrastructure - there are all sorts of sectors really struggling that need that state support.

“But, people will vote for who they vote for, if they’re after a bit of cash in the back pocket, which is what [National will] be hoping for here.”

To make up for the costs, four new tax hikes include:

  • $740 million from a 15% foreign buyer tax on home purchases over $2 million;
  • $525 million on average a year from ending the tax break for commercial building depreciation;
  • $179 million on average per year from taxing online gambling; and
  • $123 million to user-pays immigration charges, excluding tourist visas.

Little ‘for Labour to attack’

Proposed cuts on spending include:

  • reducing spending on “back-office functions in government departments” by $594 million on average annually, excluding non-core and frontline agencies - this would come on top of Labour’s cuts announced on Monday;
  • $400 million on average a year reduction in government spending on consultants - this would come on top of Labour’s cuts announced on Monday; and
  • $590 million on average per year “climate dividend”, taking money from the Emissions Trading Scheme, which levies taxes on polluters. Currently, such funds are set aside only for programmes supporting emissions reductions.

But Roskruge says the cuts “don’t look deep enough” to foot the bill and that the Greens would jump on the attack, particularly around the climate dividend cuts.

“For a National Party, it’s quite centrist.

“I don’t think Labour is going to be able to find an awful lot of room to attack around here. The climate dividend, the Greens have a lot of oxygen to attack this policy, Act will, of course, say it’s chicken feed and it’s not enough money in the back pocket, it’s not going to address the cost of living crises.”

Public Interest Journalism