The opposition says it would cancel every new tax brought in by Labour to help control increasing living costs, but the government argues that will make things worse, Justin Giovannetti writes in The Bulletin.

Luxon promises tax rollback if National wins government.

With New Zealanders facing increasing costs for housing, at the pump and the supermarket checkout, National’s Christopher Luxon announced in his first state of the nation address that a tax cutting programme is needed. The NZ Herald reports that if National wins next year, Luxon will cancel most of the new taxes introduced by Jacinda Ardern’s Labour government and adjust income tax rates for inflation. That would mean cancelling the new job insurance programme, the regional fuel tax, a light rail tax, the bright line extension and resuming interest deductibility for rental owners.

The issue of income tax bracket creep.

Tax brackets have not been adjusted in years, which means as a worker’s pay increases with the rate of inflation, they could be pushed into a higher marginal tax rate. This has been identified as a problem, especially for lower-income New Zealanders. Stuff wrote about the issue a few weeks ago. Someone on the minimum wage now only needs to work 44 hours a week to end up in the 30% tax bracket. A minimum wage job probably shouldn’t be in the middle tax bracket. National’s solution is to increase the thresholds for each bracket based on the last four years of inflation. So instead of starting at $48,000, the 30% bracket would start at $53,500. That could mean significant tax cuts for people. Labour has said it doesn’t want to adjust the brackets.

Inflation is at a three decade high and Russia’s war will worsen it.

Luxon has argued that Labour has created a divided society, with some getting ahead and others falling behind. Two weeks ago he said in a major speech that the protesters outside parliament were a symptom of that division. Now he’s following a line of attack honed by his finance spokesman Simon Bridges, that government spending is driving inflation. As RNZ writes, Luxon said a cost of living “crisis” is the country’s biggest problem after Covid-19. His argument is not without many critics who say the current bust of inflation is global, with government spending having no impact on petrol prices topping $3 a litre. It’s unclear how removing the top tax rate will lower food prices. Brad Olsen, an economist, told Newshub that a “perfect storm” is hitting the economy.

What would National need to cut?

National says all the tax changes would cost $1.7 billion, a fraction of the $6 billion in extra allowance the government gave itself for the 2022 budget to spend on health and climate change. One News reports that Luxon said there would be no cuts in health and education. In a statement, finance minister Grant Robertson disputed the opposition’s numbers and said it would need to slash spending. “The reality is that Christopher Luxon’s proposals will just make things worse. There will be more congestion on Auckland’s roads, it will be harder for first home buyers to buy a house and those on low incomes will fall further behind,” he said. The minister didn’t provide examples of where he though National’s math was wrong.