Tax Tales: How the 2023 Election Could Reshape New Zealand's Tax Landscape

Brace yourselves: New Zealand's 2023 General Election is upon us, and the taxation policies proposed by our major political parties could significantly alter the financial playbook. Let's navigate this maze and uncover the potential impacts.

1.   National: Respite for the Middle
National's blueprint promises a sigh of relief for the middle class. With plans like:

• Compensating for inflation via shifting tax brackets,

• Expanding tax credits,

• Introducing the Family Boost childcare tax credit,

• Upping the Working for Families credit.

National also takes a firm stance against Labour's taxes. Their proposals can be summarised as follows:

• Restoring 100% interest deductibility for rental properties in stages by 2026,

• Reversing Labour's brightline test duration to two years in July 2024,

• Abandoning planned fuel tax hikes,

• Eliminating the Auckland Regional Fuel Tax,

• Cancelling the App Tax.

While the 39% top tax rate stays on individuals and trusts, National's approach aims to ease the burden on many.

2. Labour: A Mix of Fresh Produce and Fuel

Labour’s stance is unique, with a prime focus on axing GST from fresh or frozen fruits and vegetables. They're also advocating increased support via 'Working for Families'.

However, eyebrows were raised with Labour's announcement of a 12-cent increase in fuel taxes over five years. Electric vehicles (EVs) are still spared from any taxes/RUCs.

The real twist in their tale came with their stand on the wealth tax. While flirtations with introducing a wealth tax were evident, Chris Hipkins backtracked in July 2023, citing significant economic risks for New Zealand.

3. ACT: A Simpler, Broader Relief

ACT proposes a clear, enticing narrative: simplify taxes. They’re championing:

• Reducing personal tax brackets from five to just two.

• A Low and Middle Income Tax Offset catering to those earning between $2,000 and $58,000.

• Restoring interest deductions for rental properties.

• Eliminating the bright line test, which they argue is redundant.

4. Green Party Aotearoa: Progressive Changes

The Greens have laid out some groundbreaking changes, particularly for the high earners and corporates. Their plan includes:

• A $10,000 tax-free threshold.

• Tax hikes for those earning beyond $75,000.

• The introduction of wealth taxes for high-net-worth individuals and trusts.

• Elevating corporate tax rates to 33%.

Given their past collaborations with Labour, one wonders: will they together with Te Pāti Māori sway Labour's policies this time around?

5. Te Pāti Māori: Social Reforms in Tax

Te Pāti Māori's tax proposals bear a striking resemblance to the Greens' but with added flavour:

• Removal of GST on all food.

• Revised tax brackets favouring those earning less than $90,000.

• Tax exemptions for pensions and benefits.

• New taxes, including a wealth tax and a vacant house tax.

6. New Zealand First: The Dark Horse

NZ First is a wildcard in this election. Their manifesto includes:

• Indexing tax brackets to inflation.

• Introducing tax incentives without clear details.

• Removal of GST from basic foods.

The Underlying Narrative: The Tax Debate

One of the fiercest debates this election revolves around tax.

Some critics say that aggressive tax rates, like the proposed 35%+ from relatively modest income levels, could see Australia benefiting as a potential exodus of skilled Kiwi workers looks west.

Labour’s dalliance with the wealth tax turned heads. Their exploratory phase, as part of Budget 2023, saw them seek counsel from the Treasury. The consensus? It could deter investment in New Zealand. The logic is straightforward: wealth is mobile. The Treasury estimated that a mere 1% increase in wealth tax could drive 5% of the impacted population to relocate, taking their assets and businesses with them. This is alarming for a country like New Zealand, known for its mobile population. Prime Minister Hipkins' decision to shelve the wealth tax was influenced by these potential risks, making his stance against it crystal clear in recent statements.

The Verdict

As all of New Zealand braces themselves for the election, the tax debate continues to simmer. The outcome? Only time will tell! Stay tuned as we keep a close watch on this captivating tug-of-war.

For full details of the major political party’s tax policies see: There is an excellent summary of the major political parties’ tax policies here.