For so called economic geniuses National sure struggles to understand how to properly cost fiscal policy.
Who can ever forget the 2017 election campaign and serial economics paper failer Steven Joyce’s claim that there was an $11.7 billion hole in Labour’s fiscals. Even though pretty well everyone in the country who has a qualification in economics disagreed. Maybe this was not surprising.
Or in 2020 when Paora Goldsmith managed to release policy with multiple mistakes in it.
I said this about the policy release at the time:
It has been a complete and utter shambles. A clusterf&*k of epic proportions. A week in and they are still being hammered about it. Because if there is one part of National’s reputation that needs to be defended at all costs it is the perception that they are competent financial managers and making multiple billion dollar mistakes in your alternative budget at election time is the one thing over all else that will hurt that part of your reputation.
You would think that any released fiscal policy would have previously been checked and rechecked and rechecked. And checked again just to be sure.
But this appears not to be the case.
About the latest policy release I said this a couple of days ago:
National’s rhetoric is deceptive. Luxon in his speech said:
Even after accounting for the $1.7 billion cost of these tax cuts, the remaining $4.3 billion would still be the biggest allowance for new spending initiatives ever. Or Robertson could even use some of it to pay down debt – but that’s not really in Labour’s DNA.
The $1.7 billion is the cost of reindexing tax rates back to 2017 levels and takes no account of the cost of the further tax cuts proposed. And to keep Auckland’s Transport projects on track a further $4.3 billion will be required to be found. National’s sums do not match up.
This is not the first time it has engaged in misleading rhetoric about tax cuts. Remember back in 2009 when they claimed that tax cuts they implemented would be fiscally neutral?
Surely it could not get worse.
But yes dear reader it has got worse for National.
At Interest.co.nz Jenne Tibshraeny has looked at the proposal and made these comments:
As for the cost of the tax cuts, there is some murkiness around this too.
The figure Luxon has used when discussing the cost of his party’s tax policy – $1.66 billion in 2022/23 – only relates to the cost of adjusting income tax thresholds to take account for bracket creep.
This figure assumes the top income tax rate of 39% for income over $180,000 remains in place, although National has committed to removing it.
The party told interest.co.nz it is yet to say when it would remove this top tax rate, and when it would repeal all the other tax changes it has committed to undoing.
National has pledged it would enable residential property investors to write-off interest as an expense when paying tax, bring the bright-line test back to two years from 10 years, and remove Auckland’s fuel tax.
Highly variable projections suggest the cost of National’s tax policy would be $2 billion in 2022/23, and lift to around $3 billion by 2024/25, should it have made all its changes by then.
That’s a fair bit more than the $1.66 billion Luxon has been discussing (interest.co.nz has asked National to share how it came to this figure).
And the Herald has suggested that the cut if enacted would wipe out all new spending that National could have in its first budget.
From Thomas Coughlan at the Herald:
National leader Christopher Luxon will not say when he plans to introduce his tax package when in Government, saying only that he would implement the cuts in the package in the party’s first term.
Debate has swirled around the cost of National’s tax plan, which would lift the tax thresholds, effectively giving every income tax payer in New Zealand a tax cut. The party costed that policy at $1.7 billion. National also plans to repeal the 39 per cent tax bracket, and allow landlords to deduct interest costs from their taxes.
National has not formally costed those policies, but most estimates suggest they would cost in the vicinity of $1.3b a year at first, giving National’s total plan an annual cost of $3 billion.
This is a problem for the party as the 2024 Budget, which would be National’s first budget should it win the next election, currently has only $3 billion of new operating spending allocated to it. This would be totally absorbed by the tax package, unless National plans to deliver no new services, or cut spending elsewhere.
National has been trumpeting how inflation is such a severe problem for the country. The problem for Luxton however is that its tax cut proposals would make the situation worse.
The tax cut would, for the 1.1 million people on the lowest tax bracket, improve their situation not one iota. And for those on the next tax bracket by my rough calculations the up to $100 per year saving in tax paid would be the same as a 0.2% wage increase.
The other cuts will make a difference for the wealthy, rental property owners and for a short time Auckland motorists until congestion hits them where it hurts as ATAP fails for insufficient funding.
All in all this feels like a half baked policy designed to gather support from those who hate paying taxes. With no idea of what the consequences may be or how it is going to be funded. And I wish the media would hold National to account the way they have in days gone by with Labour policy announcements.
Update:
This passage is also from Coughlan’s article:
Luxon continued, “at $79,000 when you kick into 39 per cent that’s a challenge. That’s not a lot of money I’d say $70,000 to $80,000. Yes it’s a lot more than others but you’re still feeling the cost of living squeeze here”.
In fact, the top tax bracket kicks in not at $79,000, but at $180,000. IRD’s most recent estimates suggest only the top 3 per cent of income tax payers pay the tax.
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