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The BulletinJuly 28, 2023

A ‘radical’ tax policy vies with a rumoured GST cut


Te Pāti Māori released a massive (and controversial) tax plan, but all eyes were on Labour’s plan for GST on fruit and veges, writes Catherine McGregor in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

Te Pāti Māori unveil an ambitious tax plan

If prime minister Chris Hipkins was looking a little harried yesterday, he had good reason. Having ruled out a wealth tax should Labour be returned to power, Hipkins is now faced with two potential coalition partners promising exactly that. The Greens have already announced their plan for a wealth tax on assets above $2 million, and now Te Pāti Māori (TPM) are going a step further, pledging a scaled wealth tax ranging from 2% on wealth over $2m to 8% on wealth over $10m. The policy is part of the party’s “radical” new tax package that would see business and the rich pay a lot more, while cutting taxes for most workers. Under the plan the corporate tax rate would be hiked from 28% to 33% – a policy the Greens are also pushing – and a Foreign Companies Tax of 2% would be levied on companies who move offshore. There’d be a new top tax rate of 48% for income above $300,000, and the current top tax rate of 39% would kick in at $90,000.

Tax cuts for (almost) all

Te Pāti Māori say 90% of Aotearoa would receive significant tax cuts under their plan, primarily coming from the creation of an income tax-free band of $0-$30,000, and a 15% rate for income between $30,000 to $60,000. While some of the cost of these tax cuts would come from higher taxes for the rich, TPM also plans to raise $7b by eliminating tax avoidance entirely, which it says it will do with a $500m investment in the Serious Fraud Office and Inland Revenue. National says the country should beware. “Te Pati Māori’s radical high-tax agenda would send a wrecking ball through New Zealand’s economy,” said National campaign chairperson Chris Bishop, calling it “a terrifying glimpse into what a re-elected Labour government would be like”.

Is Labour about to unveil a GST cut on food?

Removing GST on all food is longstanding TPM tax policy, and Labour too has plans to cut GST on fruit on and vegetables – at least according to National’s Nicola Willis, who claims to have been leaked Labour’s yet-to-be announced tax policy. Her press release made hay from the fact that finance minister Grant Robertson is publicly opposed to such a policy, arguing it was a sign that cabinet couldn’t agree on a unified approach to the cost-of-living crisis. Robertson is not alone in opposing cutting GST on fruit and vegetables. Economist Brad Olsen tells The Post (paywalled) that the government would struggle to make up the $3.4 billion lost to such a tax cut. “The Government has ruled out a wealth tax, it’s ruled out a capital gains tax, it’s pooh-poohed the idea of changing income taxes and so there’s not a lot of additional room to manoeuvre to find that additional money that might need to pay for these sort of tax changes.” While it may not have much support among economists, the policy is very popular with the public – a 2022 survey found that 76.6% of New Zealanders supported cutting GST from food.

The view from overseas

Australia, the UK and India are among the countries where some or all food items are not subject to GST/VAT. The rules around what can and cannot be taxed can lead to disputes, such as a 2011 Australian court case over whether Italian mini ciabatta was a “cracker” (and therefore subject to GST) or “bread” (and therefore exempt). Research by AUT taxation lecturer Ranjana Gupta found that GST cuts have had little measurable effect on encouraging healthier eating and that “the costs of tampering with New Zealand’s current GST system far outweigh the benefits likely to accrue from such a change”, she writes in the Conversation. A better solution would be to bring in a targeted smart-card scheme along the lines of SNAP in the US, which provides low-income earners monthly funds to buy groceries, Gupta says.

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