National promises $4.7bn in tax cuts in economic and tax policy
National’s promising a short-term package of tax cuts – worth about $4.7 billion – to kick start the economy.
Watch the announcement here:
Leader Judith Collins and finance spokesperson Paul Goldsmith announced the policy in Wellington this morning.
The changes would be made by significant increases to income tax thresholds, but would only be in place for 16 months, from December this year until March 2022.
National says this would put $46.50 each week in the pocket of the average earner.
The tax cuts would be paid for out of the $14bn Covid Recovery fund the coalition had set aside in the event of, for example, a second wave.
Other key aspects of National’s economic plan are a revised debt repayment target, more generous tax write-offs for new business assets, and a tighter budget for new spending.
- Lift the bottom tax threshold from $14,000 to $20,000, the middle threshold from $48,000 to $64,000 and the top threshold from $70,000 to $90,000, from 1 December 2020 until 31 March 2022 – estimated cost $4.7bn
- Offering a 12-month tax incentive for investments over $150,000 for businesses that invest in new plant, equipment and machinery and double the depreciation rate for such businesses – estimated cost $430m
- Winter Energy Payment would not change
- The previously announced JobStart scheme, paying businesses $10,000 for every new job created
- The BusinessStart scheme, allowing
New Zealanders who lose their job to claim $10,000 tax credit and up to $20,000 from KiwiSaver for working capital for a new business
National says it would achieve that by a more disciplined approach including suspending Super Fund contributions, and scrapping spending on initiatives like tertiary fees free and KiwiBuild.
It would return New Zealand to surplus by 2028, the party says, and the package also leaves $10.2bn in unallocated operating allowances over the next four years.
It says it would achieve that by a more disciplined approach including suspending Super Fund contributions, and scrapping spending on initiatives like tertiary fees free and KiwiBuild.
It also plans to invest $31bn on transport in the next 10 years, $1.1bn extra in education, $800m in health, $900m in social development and $170m in law and order, and set up an infrastructure bank to ensure well-managed investments and minimise debt.
The party also plans to set up a Border Protection Agency to help manage Covid-19.
The party says it would trim back the amount of money available each year compared to Labour, allowing it pay debt more quickly. Under National the cap would be $1.8bn compared to $2.4bn as laid out by the government in this week’s pre-election Economic and Fiscal Update.
The party pulled back on its original plan to have debt to 30 percent of Gross Domestic Product (GDP) within a decade, with a new target of 35 percent by 2034. That compares to 48 percent under Labour’s plan.
The announcement follows the release of the Treasury’s analysis of the government books ahead of the election in the pre-election economic and fiscal update on Wednesday, and official GDP figures yesterday that showed New Zealand in its first recession since 2010 – and the deepest fall in living memory.
National’s finance spokesperson Paul Goldsmith says the pre-election update showed their original plan would not be “practical or feasible” given the economic forecasts.
“The numbers in prefu in terms of debt were much worse and so we’ve taken what we think is a fairly pragmatic step which is to say it was never a religious conviction, it was a desire to reduce our debt faster than the Labour government is,” Goldsmith says
“Our plan right now is still substantially faster than Labour to reduce debt.”
Its plan would also require a “more disciplined approach” to spending, he says.
“Suspending Super Fund contributions, eliminating wasteful spending like Fees Free and KiwiBuild.”
That would not represent a cut to public services, insists Goldsmith.
“It’s not a cut, it’s not a cut to social spending or anything like that, there’s just more discipline to the extension of spending over the extended period of time.”
National says more than 2.6 million taxpayers would benefit from the tax cuts, including more than a million who would get more than $2500 over the 16 months.
Goldsmith says the tax cuts would be funded out of the Covid-19 fund.
“Well, $4.7bn of the tax cuts is funded out of the Covid fund, we’ve allowed another $4bn for potential spending and then we’re working on the assumption that we’d be able to use the rest of it to pay off debt.
“We’ve got about $9bn available in the Covid fund as it stands. Obviously if we go into another heavy lockdown we may have to adjust but we’ll be doing everything we possibly can to avoid that.
He says the party would like to keep the tax cut permanently, but cannot promise that now given the state of the books.
“It’s a temporary tax cut and it’s a lot better than they’ll be getting under Labour, which is nothing.
“It’s a stimulus, what we’re seeing right now is that New Zealand is in a deep economic hole … are we gonna be going in and out of lockdowns?
“Obviously we want to do everything we can to avoid that but that is having a real toll on the economy and that is why a short-term stimulus is so important to reduce the damage.
He says it has been targeted “very much at the average income earner”.
“We’ll be trusting them to decide what they want to do with their own money, that’s the oint of tax relief, but I’m sure this will help particularly helkp those hospitality and tourism sectors which are really struggling.”
In the lead-up to today’s announcement, Labour finance spokesperson Grant Robertson said National’s economic stance was in a “Bermuda triangle” of trying to achieve three incompatible things at once.
“They both want to increase spending, reduce revenue and dramatically reduce debt. You can’t do all of those things at once credibly and I think their plan is lost somewhere in that triangle.”
Robertson repeated this criticism this morning, targeting National’s leadership spills this year and the likelihood of a coalition with ACT.
“National is a shambles, with multiple leaders, incoherent policy this year and growing factions,” Robertson said in a statement. “Now their health spokesman is talking about his leadership ambitions.”
He said National would be forced to implement severe cuts – including to incomes of the elderly in winter as a price of working with ACT, which could exploit internal divisions to demand radical changes as the price of government.
“On current polling, if National are to have any hope of forming a Government, ACT will have to play a big role.
“ACT’s radical austerity plan puts popular programmes like KiwiSaver, Superannuation, the Winter Energy Payment and Working for Families at risk, right at a time when people need certainty and continuity.”