The cost of the National Party’s promised changes to tax thresholds has blown out by $1.5 billion – to a total of $8.2 billion over four years, according to fresh analysis by the New Zealand Council of Trade Unions.
The CTU’s analysis incorporates new forecasts from Budget 2023 and has been independently verified by tax consultant Terry Baucher, director of Baucher Consulting.
“Voters deserve to know now how National intends to fund these even more expensive tax cuts, which favour those on higher incomes and landlords,” said CTU economist Craig Renney.
“National said its tax bracket adjustments would cost $1.66 billion annually when announced as policy in March 2022. This represents $6.64 billion over four years. The revised cost is now $8.2 billion – a $1.5 billion blowout.
“On top of this, National has also committed to another $890 million annually in tax breaks for landlords.”
National’s costing appears to be based on 2021 wage data. The new analysis, based on Treasury’s Budget 2023 wage growth data, conservatively calculates the cost of the bracket adjustments at $1.94b in 2024/25, rising to $2.14b in 2027/2028.
“The question is, how will this be funded? The scale of these tax cuts is around the same cost as cutting the entire annual Police budget. We’re not talking about spare change that can be made up by cutting a few consultants.
“National needs to show how it can fund these tax cuts and also meet rising cost pressures in health, education, climate change and superannuation – not to mention funding a cyclone recovery. Voters deserve to know how it’s all going to add up.
“ACT published its alternative budget last week. Labour in opposition published its election year alternative budget shortly after the Budget, and then updated that budget at the Pre-Election Fiscal and Economic Update. The scale of the changes being proposed here demands that National do the same.
“There is no need to wait until the Pre-Election Fiscal and Economic Update. National has all the data it needs now. They can do a line-by-line review of the Budget and tell voters what they would cut to fund their tax cuts,” said Craig Renney.
The analysis of the cost of threshold adjustments uses wage growth figures from the Budget 2023 Economic and Fiscal Update to calculate the cost of raising the income tax thresholds as announced by National last year. National has since made comments about raising the thresholds further to account for subsequent inflation but has not released firm policy on this. This analysis also, conservatively, does not account for population growth, or account for in-year wage growth. It is based on ordinary hourly wages which excludes things like bonuses and overtime. The cost of the policy if delivered would likely be higher as a consequence.
Landlord tax changes: National has never released a public costing of restoring tax breaks for landlords. It has also said these policies could be phased in over time, although Christopher Luxon said interest deductibility would be restored “immediately”. The annual cost of restoring the landlord tax breaks that Labour has removed would be $890m, based on Treasury’s estimates when those policies were implemented.
National’s estimated fiscal impact of the tax bracket changes are taken from the “Income Tax Inflation Reset – Fact Sheet” released in March 2022. National has made recent public comments stating the annual cost of the tax bracket changes is $1.8 billion. Even based on that number, the overall cost of the changes still blows out by $1 billion over a four-year period.
|Years||Current Tax Forecast||Revised Tax Forecast||Policy Cost||Proposed Cost||Difference|
|24/25||60,477,154,913||58,536,421,146||– 1,940,733,767||– 1,660,000,000||280,733,767|
|25/26||64,742,094,482||62,704,343,015||– 2,037,751,467||– 1,660,000,000||377,751,467|
|26/27||68,630,980,569||66,545,020,369||– 2,085,960,200||– 1,660,000,000||425,960,200|
|27/28||72,490,073,434||70,345,187,002||– 2,144,886,432||– 1,660,000,000||484,886,432|
|Totals||– 8,209,331,866||– 6,640,000,000||1,569,331,866|