NZ Elections 2023 | basic-income-nz

New Zealand Election 2023

New Zealand held a general election on Saturday 14 October 2023. Voting started on Monday 2 October.

This page looks at the election and attempts to compare the Basic Income, tax change, and changes to universal services proposed by various political parties. No doubt it is incomplete. The page may be added to from time to time as we become aware of relevant information.

While we are comparing the policies of several parties, we have not done detailed costing of any of the policies.

Some twenty political parties have registered for the election. We do not have information on policies for all the registered parties but have attempted to cover those parties that previously had members in parliament, have members elected to parliament, or have promoted Basic Income.

This page looks at the election and the policies of the main political parties from a human rights and Basic Income perspective. We compare the Basic Income, tax changes, changes to universal basic services, the universality of payments, and the equitable distribution of wealth policies of the various parties, with particular emphasis on Basic Income payments, universal services, and equitable taxation changes.

This page does not consider all aspects of any party's policies. Anyone intending to vote in the election were asked to undertake their own investigations, consider other aspects and policies and make their own decisions based on their own knowledge and understanding. People were asked to consider the possibility that while a small tax cut for themselves could make them better off in the short term, a loss of government services might make them worse off overall, or that they or others could find themselves in poverty as a result of the tax cuts.

Basic Income and Universal Basic Services, such as free public education, free medical care, and other universal services provided by the government are regarded as complimentary, not mutually exclusive. Boosting universal services, such as providing free or subsidised dental care for adults, may give both individuals and families more financial relief than changes to taxation, and provide better targeting of government resources to an area of need, boosting the overall well-being of the nation. Similarly, a Basic Income paid to all provides better targeting of government resources to those that need it the most than tax cuts that invariably provide larger cuts for the wealthy than for those on low incomes.

While tax cuts will provide short-term relief to some individuals, tax cuts that are not carefully targeted toward those who need them the most, give a benefit that is often short-term term as prices will quickly rise to eliminate any gains. Broad tax cuts always provide more benefit to those on higher incomes, lead to reduced government income and are more often than not followed by cuts in government expenditure. Cuts to government expenditure lead directly to reduced taxation revenue for governments and calls for further expenditure cuts.

Cuts to government and universal services will result in people being worse off. Cuts in government expenditure are invariably followed by general economic downturns which can negatively impact the wellbeing of most citizens. When people have less money to spend, businesses suffer and there is less money available to pay those on higher incomes. A Basic Income provides a better solution as it broadly targets benefits to those on lower incomes who need it the most and ensure that everyone has at least a minimum amount of money to spend to keep the economy moving.

On this page

The following are introduced or discussed on this page. Scroll down to read or follow links to other pages.

The purpose of government
Government in New Zealand.
The economic situation in New Zealand
Taxation
- Goods and Services Tax (GST)
- Wealth tax
Universal Basic Services
- Free dental services
- Prescription charges
New Zealand Superannuation
Comparing the policies of the political parties
- Basic Income and tax change calculator
The policies of the political parties
- The Opportunities Party (TOP)
- Labour
- Green
- Te Pāti Māori
- National
- ACT
- New Zealand First

The purpose of government

The primary purpose of government is to ensure and enhance the well-being of all a nation's people, not some at the expense of others. To achieve this, governments will act to ensure:

law and order, justice, and protection against harm
protection against invasion by malevolent forces from outside the country
good quality education and health,
adequate albeit a basic standard of living for all citizens and
an equitable distribution of wealth

Many of the requirements for a government to achieve these objectives are outlined on our United Nations page.

To maximise well-being governments should ensure efficient management of government resources. This includes the management of the distribution of funds.

The more efficient a government is when it spends money, the more it can achieve with the income it receives from taxation.
Government efficiency is maximised, and intervention minimised when payments are made to all on an equal basis with broad targeting achieved with an appropriate tax system that ensures that those who have the most pay tax in proportion to their ability to pay.
In contrast, narrow targeting of benefits to individuals requires a greater use of government resources, and this results in more and less efficient government.
New Zealand Superannuation is a good example of an efficient system. Taxable payments are made to all on an equal basis so those with the highest incomes will pay tax on the income received from New Zealand Superannuation at their highest marginal tax rate. This provides broad targeting of the payments to those most in need. Government administration costs for New Zealand Superannuation are minimal. Money paid out is spent by those who receive it and taxes ensure the money paid out is returned to the government over a number of cycles. For more details see our New Zealand Superannuation page.
When money is collected as taxes, those who have the most should pay more in taxes than they receive from the government in payments while those who have little should receive more from the government than they pay in taxes.
Governments should avoid actions that transfer wealth from those who have the least to those who have the most.

Government in New Zealand

New Zealand has a unicameral parliament with a mixed-member proportional (MMP) voting system and a parliamentary period of three years. Although there are two larger parties, Labour, centre left, and National, centre right, most elections under the MMP system require a coalition between one of the larger parties and a smaller party to form a government. This has sometimes led to minor parties having disproportionate influence in government.

The economic situation in New Zealand

Past attempts to reform New Zealand's economy have led to a growing disparity between rich and poor. Gross domestic product grew by 35% between 1982 and 2011. However, almost half of the increase went to a small group who were already the wealthiest in the country. The average income of the top 10% of earners (those earning more than $72,000) went from $56,300 to $100,200, almost doubling, while the average income of the poorest tenth went from $9,700 to $11,000, an increase of just 13%!

The top 1% of the population now own some 16% of the country's wealth and the richest 5% owns 38%.

In contrast, 50% of the population, including beneficiaries and pensioners, earn less than $24,000.

Those on the lowest incomes struggle to make sufficient income to pay for food and accommodation. Households often have two adults working long hours just to ensure that they can meet basic requirements.

From this, we can see that there is a need for the government to enhance the well-being of those on the lowest incomes but there really is no need for any government to enhance the incomes of the wealthiest sectors of the population.

While there are many in the top 50% of the population who feel that life is financially difficult, the major reason for this is the shortage of housing, a result of a long-standing failure to increase the housing supply to match population increase. This shortage has led to increased house prices and rental rates. Increasing the housing supply is the best way to ease both house and rental prices. Simply providing more money to people with incomes in the middle range without increasing the housing supply is likely to lead to corresponding increases in both house prices and rental charges leaving people no better off.

Financial management or economics

Good financial management by governments is essential to maximise the well-being of citizens. Sound management ensures that services delivered to citizens are maximised and that money is not wasted on too many layers of administration and management. Providing services free of charge minimises the cost of providing the services as administration and management costs are almost eliminated. However, care needs to be taken in some cases to ensure that scarce resources are efficiently targeted to those most in need and not wasted. Broad targeting that does not require resources generally works better than narrow targeting that requires excessive resources for little gain and is prone to error.

There is, however, a significant difference between managing the finances of a small business or even a large corporation and being the minister of finance of a government. A minister of finance requires good financial management knowledge and skills but also a greater and broader knowledge than a financial manager.

Financial managers must ensure that a small business or a large corporation makes a profit to ensure the survival of the business. In contrast, the minister of finance of a government has a primary responsibility to ensure the well-being of all the country's citizens. This includes an obligation to ensure that all citizens have at least a basic level of income to avoid poverty. While a financial manager of a business can simply cut expenditure to keep a business profitable, a finance minister must ensure that an economy continues to function through an equitable distribution of wealth and that all people have that basic level of income essential for survival.

If too much money flows to a small portion of the population, an economy is likely to contract leaving large sections of the population with insufficient income and in poverty. Ensuring an equitable distribution of wealth, ensuring that everyone has just enough for basic needs, while ensuring that all are free to increase their incomes and wealth through their own efforts, eliminates poverty and enhances the well-being of all without an undue impact on the wealthy.

The understanding and skill required to do this is more than that required for the financial manager of a business. A finance minister needs to understand basic financial management but must also have a broader understanding of economics and the international and ethical requirements that a government should look after the well-being of all its citizens and not a few while others suffer.

There is always a danger that a finance manager, no matter how good they are at managing finance, who becomes a finance minister, may, while attempting to bring a country into surplus, unduly restrict the supply of money to those who are most in need resulting in increased poverty levels and economic retraction. Being a finance minister requires a broader knowledge and skill base and an understanding of and empathy for those less fortunate than themselves.

Taxation

Governments create money and distribute it to their citizens to provide a means of exchange. However, the circulation of money and trading invariably result in some individuals accumulating more money than others. The more money an individual has, the easier it becomes to accumulate more. The less money a person has, the more likely they will accumulate increasing levels of debt and pay others interest for that privilege. Unchecked, all money will accrue to a few individuals while the remainder will live in poverty.

To ensure that money retains its value, governments limit the amount of money in circulation. They do this through taxation and the control of interest rates. The most equitable way to tax people is to tax them in proportion to the amount of money they have and pay money to everyone equally in the form of a Basic Income. However, because there are difficulties with taxing wealth, rather than taxing wealth directly, governments have traditionally taxed incomes and expenditures.

New Zealand has a five-stage progressive income tax system. Income up to $14,000 is taxed at 10.5%, and income from $14,000 to $48,000 at 17.5%. From $48,000 to $70,000 the rate is 30% and from $70,000 to $180,000 the rate rises to 33%. All income earned over $180,000 is taxed at 39%. The average rate that a person pays, the effective tax rate, is always lower than the rate that a person pays on the last dollar they earn, the marginal tax rate.

The current tax rates were applied from 1 October 2010 except for the 39% rate that was introduced in 2022. Apart from the 39% rate, tax brackets have not been adjusted for inflation since 2010 resulting in "bracket creep". This means that as incomes have increased without adjusting the income tax brackets, taxpayers have ended up paying a greater proportion of their total income in tax. This leads to the argument that tax brackets should be adjusted to correspond with inflation, but this assumes that the tax rates and brackets were correct when they were originally set when they may well have been inappropriate or a matter of debate at the time.

Simply adjusting tax brackets for inflation will invariably result in greater tax cuts measured in dollars for those in the highest tax brackets. It is hypocritical, if not dishonest, for politicians who are not short of income themselves and never have been to represent such tax cuts as being for the benefit of those on low or middle incomes when the greatest tax cuts are for those who are like themselves in the higher income brackets from which they will also benefit. When asked about this, some politicians advocating tax cuts have either refused to answer the question or deflected the question by pointing to the smaller increases that those on lower incomes will receive claiming that they are significant.

If tax cuts are for the benefit of those on lower incomes, those advocating the tax cuts should also increase the tax rates for the higher incomes to stop those on higher incomes from gaining greater net increases in income than those on lower incomes.

For the 2023 election, all political parties considered here, except Labour, are proposing to either alter the tax brackets or both the tax brackets and tax rates, but with different objectives.

The Māori and Green parties are both proposing a reduction of tax rates for the lower tax brackets and increased rates for the higher tax brackets. This targets the tax changes to those on lower incomes. In contrast, National, ACT, and New Zealand First are proposing adjustments of the tax brackets for inflation which will provide a greater increase in net income for those on higher incomes. Changes to the IETC proposed by National and the introduction of the LMITO by ACT, which will presumably replace the IETC, are insufficient to offset the greatest net benefits flowing to the wealthy.

Even when tax changes are restricted to the lower income brackets, those on the highest incomes will always receive the greatest benefit.

The TOP tax changes are in the first stage similar to those of Māori and Green but in the second stage will provide a greater advantage to those with the highest incomes which they intend to offset with a Basic Income and property taxes for urban areas only where those with the most expensive properties will pay the largest property taxes.

More details of the proposed changes by each political party are included in the details for each party below.

Goods and Services Tax (GST)

A Goods and Services Tax (GST) is a way of taxing consumption rather than income. On the 1 October 1986, New Zealand introduced a comprehensive 10% GST to replace various sales taxes and lowered income tax rates. The purpose was to increase the net incomes of taxpayers and to allow people to increase their net worth by taxing consumption rather than incomes. Those who consumed more are taxed more. This, it was hoped, would lead to those on higher incomes who do not consume at a high level increasing their investment in the country. The GST rate has increased to 12.5% in 1989 and 15% from 1 October 2010.

To keep the GST simple and minimise the administration costs there were to be few exemptions to the GST. Food was not exempted as occurs in some countries.

Moves to remove GST from all food, or perhaps just fresh fruit and vegetables, are probably a well intentioned move to reduce the cost of living for low income families. Low income families spend a greater proportion of their incomes on food than wealthy families. However, wealthy families spend more on food so will gain a greater benefit measured in dollars from the removal of GST on food.

Experience in other countries has found that when GST is removed on some items but not others, the government loses tax revenue but the cost savings are not passed on in full to consumers. Legal battles often follow over definitions of what may or may not be included in the tax exemption. Supermarkets and other food retailers will have increased compliance costs which are added to the price of the exempted items, because these items are either regarded by the retailers as the cause of the administration problems or are regarded as an area that will stand higher prices. Supermarkets, like other businesses, charge what the market will stand.

A 2014 treasury paper found that if GST was to be removed from food, poor targeting to those on low incomes would occur and that greater targeting to low income families would be achieved by using the money to pay for a universal transfer (Basic Income). For this reason, removal of GST on food as proposed by the Maori and Labour parties is not supported here.

Read or download the paper here: NZ Treasury: Food Expenditure and GST in New Zealand (WP 14/07). (pdf version)

Wealth tax

Increasing the total wealth of the nation, or the average net wealth per capita or well-being of a nation, is not necessarily a problem. There are many people who have insufficient wealth now. There are people who have trouble affording food and are forced to rent because they cannot afford to buy a home. However, increasing the wealth of the wealthiest while the least wealthy continue to struggle to feed and house themselves resulting in a growing inequitable distribution of wealth is likely to be counterproductive as it slows the rate of total growth or wellbeing of a nation.

In New Zealand, the increasing accrual of wealth by a diminishing wealthy minority is a significant problem that can lead to a shrinking economy, increased inequality, and growing rates of poverty. A suggested solution to this is a wealth tax used to support a Basic Income rather than a capital gains tax.

However, care is needed with any form of wealth tax to ensure that it does not discourage people from saving for their own homes, their future needs, and for retirement. A wealth tax should be used for the development and overall good and well-being of the nation. With some forms of wealth tax, capital flight and tax avoidance may be a problem. For this reason, some political parties advocate a wealth tax but provide a tax-free exemption to allow people to accumulate a reasonable amount of money during their lifetimes. While a family home, holiday home, or a family farm, might be included in an exemption, it is questionable that the exemption should be extended to ownership of numerous rental properties or multiple investment farms.

Because of the problem of capital flight, some people suggest that a wealth tax should be restricted to taxes on land only as land cannot be moved out of the country to avoid tax and again some suggest that there are tax-free exemptions to avoid taxing family homes and owner farmers. It is also argued that restricting taxes to land only encourages commercial investment and will discourage land speculation which will benefit the nation and add to general wellbeing.

The Green and Māori parties are both proposing a net wealth tax with a significant tax exemption of two million dollars per person which would exclude tax on family homes for most homeowners.

TOP is proposing a land value tax, a restricted wealth tax, that only applies to urban land with no exemption for homeowners. The TOP land value tax will be significant for many homeowners, but it is largely offset by a proposed Basic Income. While the intent of the TOP land value tax is to stop speculative buying of urban land, we wonder why there is no exemption for homeownership and why there is no land tax to prevent rural land speculation which also occurs, and no tax on other accumulation of wealth.

Universal Basic Services

Universal Basic Services and Basic Income are complimentary. Practicable extensions to Universal Basic Services that will enhance the well-being of all people are to be welcomed. Only significant extensions that are part of various party's policies are discussed here.

Free Dental Care

Free dental care is a worthwhile extension of universal basic services and will play a part in improving the general well-being of New Zealanders. This is an area where New Zealand is lagging well behind the UK where free dental care was introduced in 1948. Australia is ahead of New Zealand with some free or subsidised dental care depending on the state or territory. In New Zealand, free dental treatment is limited to those under 18 and is otherwise extremely restricted and usually only available in emergencies.

New Zealand is known for poor oral health with cost being given as the main reason for not seeking dental care. There are reports of people extracting their own decayed or damaged teeth because they cannot afford a dentist.

In this election, Green are proposing free dental care for everyone. Labour and TOP are proposing free dental care for those under 30. Te Pāti Māori will provide free Dental Care for Whānau earning less than $60,000.

Labour has outlined a timetable for the first stages of the introduction of free dental care citing the need to increase the number of dentists as a reason for not immediately extending free dental care to all.

Prescription charges

Free medical prescriptions are a worthwhile universal basic service. In the past, all medical prescriptions were free. Prescription charges were introduced in 1985 and increased in 1988, 1991 and in 1992 increased from three to five dollars. The five-dollar part charge on prescriptions had the greatest impact on those who were chronically ill and those on low incomes. In some cases, people failed to pick up needed prescriptions because of the cost. The wealthy or those who have little illness do not notice the charges.

The part charge has also enabled large discount chemist chains to undercut traditional pharmacies by providing "free" prescriptions paid for from their profits. In some cases, this has forced independent pharmacies to close.

The $5 part charge on prescriptions was abolished on 1 July 2023.

Prescriptions require a doctor to examine a patient and prescribe a medicine, and this limits the number of prescriptions. Ensuring that those who require prescriptions can afford to pick them up is a way of ensuring the well-being of the community. The benefit of a part charge is broadly targeted to those most in need.

New Zealand Superannuation

New Zealand Superannuation is included here and discussed under the policies of individual political parties because it is a Basic Income that is restricted to those over 65. First paid in 1940 it is one of the world's longest-running Basic Incomes.

New Zealand Superannuation has worked well, has minimal administration costs, and has been very effective at reducing poverty among the elderly.

Proposals to increase the age of eligibility by some political parties are based on simplistic calculations relating to an "ageing population" while ignoring sound financial analysis that indicates that raising the age is not necessary in the foreseeable future. If the objective is simply to reduce the overall cost or to improve the targeting of the payments to those with the lowest incomes, there are better alternatives, such as coupling payments to a more appropriate tax regime.

The retirement commission has provided a list of myths promoted by poorly informed and unscrupulous politicians, KiwiSaver salesmen, and others. See: An introduction to New Zealand Superannuation, POLICY PAPERS 2021 | 03, page 2.

The myth that the age of eligibility must rise due to an ageing population is frequently promoted by Kiwi Saver salesmen trying to increase their sales by promoting fear of poverty to those who worry that they will have to retire at age 65 due to poor health and before they are eligible for an increased age of eligibility for New Zealand Superannuation.

Raising the age of eligibility disadvantages those who have poor health in their 60s or those with short life expectancies. It is also counterproductive as reducing New Zealand Superannuation payments will lead to reduced expenditure by those over 65 and reduced economic activity. The reduced economic activity leads to reduced GST and other tax revenue for the government and lower turnover and profits for companies.

It is unfortunate that some politicians and political parties have believed the simplistic myth that the age of eligibility must be raised and are intent on making the myth a self-fulfilling reality. Raising the age of eligibility will severely disadvantage those who do have poor or declining health in their mid-sixties and is likely to increase poverty in this age range.

Another political suggestion is that the age of eligibility should be lowered for some identifiable groups because of their shorter life expectancies. However, while an average shorter life expectancy can be identified for some groups or ethnicities it is an average. Life expectancy is always individual and there are short and long-lived people in every group or ethnicity. Lowering the qualification age for some groups or ethnicities is seen by some as discriminatory, and they suggest that it is preferable to determine the age on an individual basis.

It may be preferable to allow people who are medically determined to have poor health or poor life expectancy to be eligible from an earlier age, or alternatively, simply make everyone eligible from an earlier age, such as 60, when they are less likely to suffer from age-related health problems. New Zealand Superannuation was set at 60 in 1977 but increased from 60 to 65 between 1992 and 2001 for political rather than sound economic reasons.

Most OECD countries already have a population with a greater proportion of the population in the over-65 age group than New Zealand. The New Zealand Retirement Commissioner reports that "In New Zealand to be eligible for NZ Super you need to be at least 65 years of age. Currently, 70% of the OECD has a pension age of 65 or lower. While countries are increasing their pension age, the majority are only moving the age up to 65 over the next four decades. This means that by the 2060s 60% of OECD countries will still have pension ages of 65 or below." The OECD average pension age for men is currently 64.2 and for women 63.4. By 2060 the average for men will be 66.1 and for women 65.5.

The OECD ages are lower than the retirement ages proposed by National and ACT despite these other countries having a significantly older population! It is misleading to say that in raising the age of eligibility from 65 to 67 we are following the example of other OECD countries when they are following our example of unnecessarily raising the age from 60 to 65. See: OECD pension age comparisons.

For further discussion see our New Zealand Superannuation page.

See also:

Susan St John, 'Basic Income' for the old and the young in New Zealand, Economic Policy Centre, University of Auckland Business School, November 2022.
Jenesa Jaram, 2 March 2020, The Spinoff, Is NZ Super sustainable? The truth is, economists don’t know.
Jenesa Jaram, 18 December 2018, The Spinoff, Stop telling young people NZ Super is unaffordable.
NZ Initiative.
For the latest from the Retirement Commission see: Retirement Commission: Policy and Research - NZ Super.

Comparing the policies of the political parties

Several political parties have provided online calculators to enable people to see how their tax or after-tax income will vary if the tax plans of the party are adopted. These require you to input your income and it will calculate your net income or the change in your net income. We have checked these calculators for several parties and found them to be accurate. However, these calculators only check one income and the changes for one party at a time and do not give you the larger picture. You may well receive a tax cut, but those on much higher incomes may get a larger tax cut that they do not need, and your loss of other benefits and services may cost you more than you gain from the tax cuts.

Basic Income and tax change calculator

In order to check the claims of each party and to compare the Basic Income and tax change policies of the various political parties we developed a Basic Income and tax comparison spreadsheet. This spreadsheet which is available for download below enables you to input a particular income and see an immediate comparison of net incomes for each of the seven parties we have looked at.

A comparison table tabulating the results for all seven parties in $5,000 annual before-tax or gross income steps from zero to $1,000,000 enables you to see the larger picture. Who will really benefit, those on lower incomes or those on the highest incomes? It enables you to see if the political parties are being honest with their claims, or are they just claiming that their changes will benefit those on low to middle incomes when a greater benefit goes to those on the highest incomes?

You can also input a tax scheme and a taxable Basic Income of your own choice for comparison purposes.

The Basic Income and Tax Comparison spreadsheet comes preset with a Basic Income set at the level of the adult jobseeker support and a uniform tax of 33% up to an income of $180,000 with a tax rate of 39% above that. Note that with these inputs, those on no income will receive an additional $17,622 p.a. and that this will reduce to a constant $6,964 for those earning $180,000 or more. This indicates broad targeting of the Basic Income to those on low incomes, but the scheme will not be self-funding.

A Basic Income will replace welfare payments that are the same size or smaller and partially replace larger payments so this will provide some of the funding for a Basic Income. The tax scheme used in conjunction with the Basic Income payments will set the level of broad targeting, reducing the overall cost of the scheme, while increased taxes on those who have more than enough income will provide additional funding reducing or eliminating the need for other sources of funding.

With the calculator, you can change the Basic Income to any value you like and also change the tax rates and thresholds. The Basic Income can be deleted enabling you to just input an alternative tax scheme. If you delete the alternative tax rates and thresholds, the spreadsheet will assume the present tax rates and thresholds.

Try some alternative proposals. Try a Basic Income of $174.03 with a 33% tax rate up to $180,000 and 39% above $180,000. Those with no income will receive an extra $9,080 p.a. which reduces to zero extra income between $70,000 and $165,000 with those earning $180,000 or more paying an extra $813 p.a. in tax. The Basic Income is targeted at those on the lowest incomes and is partially funded through the extra tax paid by those earning over $180,000.

A Basic Income of $337.74 with the uniform tax increased from 33% to 39% for all incomes will increase the targeting of the Basic Income and all those earning over $180,000 p.a. will now pay an extra $2,258 p.a. in tax providing partial funding of the Basic Income.

Try a net Basic Income of $381.00 with a uniform tax of 39%. This will give a person with no other income $19,880 extra annual income. The extra income reduces progressively to zero for an income of $180,000 or greater. The rate of $381.00 is large enough to replace most existing benefits and some of the living allowances as well and will partially replace larger welfare payments providing some funding for the Basic Income. However, a higher uniform tax rate, a two-stage tax, or additional funding from other sources may be required to fully pay a Basic Income of this size.

These examples show how the combination of a Basic Income with an appropriate tax will target the benefits to those on the lowest incomes. In contrast, tax cuts where thresholds are increased, or tax rates lowered will always target the benefits to those on the highest incomes. The wealthy always get more. Try it.

You can download the spreadsheet here (xlsx format).

The policies of the political parties

In the sections below we will look at the policies of political parties relating to income and taxes to see who will benefit the most from the changes that are proposed.

The Opportunities Party (TOP)

The Opportunities Party is at the top of our list because they are the only political party to propose a Basic Income as a leading policy.

First Stage

Interestingly, TOP has a two-stage policy. In the first stage, TOP will change the tax rates and thresholds. They will introduce a $15,000 tax-free income threshold and increase the thresholds and tax rates for all subsequent tax bands. A 20% tax will apply from $15,000 to $80,000, 35% from $80,000 to $180,000, 42% from $180,000 to $250,000 and 45% on incomes over $250,000.

Introducing a tax-free threshold of $15,000 will provide tax relief for those on very low incomes who are currently taxed at 10.5% but will also benefit everyone with incomes higher than $15,000. Those earning under $15,000 will receive a tax reduction that is proportional to their earnings while everyone earning over $15,000 will receive the maximum possible value of the discount, $1,470. To counter this and avoid a tax reduction for those with very high incomes, it is necessary to increase the higher marginal tax rates. However, increasing marginal rates above 40% is known to lead to those on higher incomes looking for and finding ways to avoid taxation.

An examination of net incomes received shows that everyone earning under $255,000 will benefit from the TOP first stage tax proposal while those earning over $255,000 will progressively pay more tax due to the increases in the highest marginal tax rates from 39% to 45%. However, as those earning over $255,000 are only a small percentage of taxpayers, the extra tax raised is unlikely to be sufficient to balance the tax lost by reduced taxes on those earning less than $255,000.

Land Value Tax - stage one

To raise additional tax, TOP will introduce a 0.75% land value tax on all urban residential property paid annually. Commercial, rural, conservation, and Māori land will be exempt. Family homes will not be exempted. The annual tax on a mid-range property with a land value of $500,000 will be $3,750 to be paid annually in addition to rates. Those renting a home are likely to see increased rental charges as the property tax will be passed on to them by landlords.

A person with an income of $70,000 will receive a $3,020 income tax reduction but with an additional $3,750 in land tax on a property worth $500,000 they will pay $730 extra in taxes. A person on a lower income of say $50,000 will receive only $1,020 in tax relief so with a property with the same land value they will be harder hit needing to pay an extra $2,730 in taxes. A person on $95,000 will receive a $4,020 income tax reduction so they will be $2,700 dollars better off with a property of the same value. This policy favours those on higher incomes.

While this policy favours those on higher incomes who own homes of the same value, there is a tendency for people with higher incomes to buy more expensive properties with higher land values. Because the land tax is proportional to the land value, this tax will discourage people from buying or renting more expensive homes.

Second stage

In the second stage, TOP will introduce a $16,500 per annum tax-free Basic Income for everyone aged 18 to 65. New Zealand superannuation will remain unchanged for those over 65. The Basic Income will be topped up to existing benefit levels for anyone on an existing benefit. As the existing adult jobseeker support is $17,622 after tax it appears that a large proportion of benefits will require topping up.

The Basic Income will be accompanied by a 35% uniform tax rate for personal, company, and trust income. This increases the income tax rates for those on lower and middle incomes but lowers the marginal tax rate for those earning over $180,000. Those in the low and middle-income range will still be better off as they will receive more from the Basic Income than they will pay in increased taxes. Those on higher incomes will however receive a double benefit. Those who currently earn over $180,000 will see an increase in their marginal tax rates under the first stage but they will now see a reduction in their marginal tax in the second stage to 35% which is less than the present level of 39%.

Land Value Tax - stage two

The land value tax also increases by 0.5% from 0.75% to 1.25%, so the land value tax on a property with a land value of $500,000 will increase by $2,500 from $3,750 to $6,250. When the Basic Income, increased income tax and additional property tax are all considered, those on low incomes will be better off while those earning between $70,000 and $235,000 will be worse off. Those earning more than $235,000 will be progressively better off as their income increases.

With the TOP second stage proposal, we find that the net result is that those on middle incomes, from $70,000 to $235,000 will be paying additional tax to support increased incomes for those on lower incomes and for those on very high incomes. It would have been preferable to see those on very high incomes paying more tax.

If the Basic Income had been paid as a taxable amount, chosen to give the same after-tax amount as the tax-free Basic income to those on low incomes, in conjunction with an appropriate tax to ensure that those on very high incomes do not receive a tax cut, this problem might have been avoided and the objective of broad targeting achieved. An example of an appropriate tax might have been a two-stage tax with a 33% tax on incomes below $180,000 and 40% or more on incomes above $180,000.

As most New Zealand families aim to use their savings to pay their mortgages and end up with a mortgage-free home for their retirement, failure to exempt the family home from the land tax may be a disincentive to savings and disadvantage a large section of the population, increasing poverty in old age. The TOP policy allows payment of land taxes to be deferred by those on superannuation until such time as the property is sold. This will allow wealthy people with a large amount of accumulated wealth invested in areas such as rural land or shares to pass their wealth on to their children when they die while those who just own a family home will see the government take a share as land tax.

Exempting all rural and other land from the land tax is questionable as some wealthy individuals buy up large amounts of rural land in order to get capital gains and do not utilise the land well. This increases land prices while disadvantaging owner farmers who often make better and more productive use of the land.

Free Dental Care.

TOP will introduce free dental care for those age under 30 as part of their Teal Card proposal which will provide GP visits, primary dental care (e.g. annual check ups, x-rays, fillings), annual eye checks (including glasses), mental health care (including up to five sessions per year) and more for those under 30. Follow the Teal Card link for details.

New Zealand Superannuation

TOP will not change NZ Superannuation.

Labour

The Labour Party does not have a Basic Income policy and does not intend to alter the tax rates. Previously, some individual Labour members of parliament have expressed interest in Basic Income but it has never become official policy.

Labour prefers to extend Universal Basic Services.

Overall, Labour's progress toward a Basic Income has been very disappointing, although sometimes indicating that they are aware of Basic Income and suggesting that any move toward a Basic Income should come from public demand rather than from the government.

In May 2018, Labour established the Welfare Expert Advisory Group. The group's report was delivered in February 2019 and released in May 2019. Despite submissions received supporting Basic Income, and support for a Basic Income from within the group, Basic Income was not given serious consideration and received only a cursory mention in the final report. The submissions supporting Basic Income were ignored. It is understood that at the first meeting of the Expert Advisory Group, the chair, professor Cindy Kiro instructed the group that there was to be no discussion of Basic Income for reasons she did not disclosed. This appears to be active blocking of a Basic Income and this instruction did not appear in the terms of reference for the group. However, it is understood that the special advisor to the group, who only has a limited understanding of Basic Income and is opposed to it, prefers to tweak the existing system, his own area of expertise.

It is understood that during the Covid19 lockdown in 2020, the Labour government sought a means of distributing a temporary Basic Income to all New Zealand citizens to avert a possible economic recession. Other countries, such as the US were able to make one or more payments of this nature to all their citizens. However, in New Zealand, this possibility was reputedly resisted by both Inland Revenue and the Department of Social Welfare who said that they did not have the names, addresses and bank accounts of all New Zealand citizens. Consequently, money was distributed to employers and it was left to them to distribute it to their employees. Some companies passed the money on to their employees while others used it to boost their profits. If the objective is to boost the economy, the most efficient way to do this is to distribute the money directly to all citizens as a temporary or permanent Basic Income.

New Zealand is a country where natural events, such as earthquakes and tropical cyclones, occur at regular intervals. When such events occur, a pre-existing Basic Income would be an invaluable assistance to New Zealand citizens reducing the need for emergency payments. Although aware of this, the Labour government has not moved in this direction and failed to provide even a temporary Basic Income in response to Tropical Cyclone Gabrielle in February 2023. While money was available for Emergency payments, such payments have significant administration problems and often do not reach those in need.

Failure to index the Independent Earner Tax Credit (IETC) by increasing its value and thresholds with inflation has been noted. This tax credit assists those on low to middle incomes.

Winter Energy Payment

Labour introduced and have provided a tax free winter energy payment between the 1 May and the 1 October each year. While not a fully universal payment, this is a payment that is broadly targeted at those most in need as it is only paid to those who are receiving New Zealand Superannuation, Veteran's Pension, Jobseeker Support, Jobseeker Support Student Hardship, Sole Parent Support, Supported Living Payment, Young Parent Payment, Youth Payment, Emergency Benefit, or the Emergency Maintenance Allowance. Broad targeting to the most in need, particularly for those receiving New Zealand Superannuation, could be improved by making this a larger but taxable gross payment as this would reduce the overall after tax cost of the scheme.

GST

Labour propose removing GST on food. This is not a good idea for reasons outlined above. Labour would do better to support a Basic Income.

Free Dental Care

Labour have announced their intention to introduce Free Dental Care in stages. They intend to expand dental care to 18-23-year-olds by July 2023 and 18-29-year-olds by July 2026.

Prescription charges

The current Labour government abolished prescription part charges and does not intend to reintroduce them. This is a very positive move toward achieving equitable access to health care.

New Zealand Superannuation

Labour will protect the current age of eligibility of 65 for New Zealand Superannuation.

Green

The Green Party are promoting a Guaranteed Minimum Income while working toward a Basic Income. Their Households Livelihoods Policy states: "We will ensure that workers’ wages are sufficient and - while working towards a universal basic income - simplify the income support system, ensure that its levels are sufficient and that transition to work is non-punitive." They intend to implement a Universal Basic Income (UBI) underpinned by the following principles: Universality, Sufficiency, Equity, Simplicity, and Economic Sustainability. They will measure the success of a UBI by checking that the implementation results in a reduction in relative poverty levels and inequality and that no welfare beneficiary is financially worse off; and that implementation of the UBI does not adversely impact Aotearoa New Zealand’s progress as measured using its wellbeing and sustainable development indicators.

Taxation

The Green 2023 policy includes a six-stage tax scheme to replace the existing five stages. The first $10,000 of income will be tax-free, with 17% from $10,000 to $50,000, 30% from $50,000 to $75,000, 35% from $75,000 to $120,000, 39% from $120,000 to $180,000, and 45% on all income over $180,000.

The Green Party tax policy will reduce taxes on those with low or middle incomes but will progressively increase taxes on those earning more than $128,000. Those on the minimum wage will see a tax reduction giving an increase in net income of $957 per annum and those on the Living Wage a tax reduction giving an annual increase of $1,220. Those earning from $50,000 to $70,000 will receive a net income increase of $1,220. Those earning over $90,000 will receive a declining increase in net income that becomes a reduction in net income above $128,000.

Because the marginal tax rate for income over $180,000 is increased from 39% to 45%, a difference of 6%, the additional tax paid in dollars for those earning over $180,000 will climb progressively.

Income Guarantee

Because the marginal tax rate for income over $180,000 is increased from 39% to 45%, a difference of 6%, the additional tax paid in dollars for those earning over $180,000 will climb progressively.

The Green party propose an Income guarantee of $385 per week for an individual or $770 for couples. The most efficient way to guarantee everyone receives a minimum income, involving the lowest cost and least work hours to administer with the best outcomes is to provide a Basic Income. However, it appears that the Green Party is proposing to individually target the minimum income to individuals using methods such as a mixture of negative income tax and benefit payments. This type of targeting is known to be inefficient, and difficult and costly to implement.

To target payments this way, everyone's income must be assessed and then the decision made to either tax them or pay them. It can be done reasonably easily for a person in regular employment with a reasonable income and fixed and regular hours of work. The problem is different for those on low incomes. People on low incomes find it difficult to spread a relatively small annual payment over a year so require regular, perhaps weekly payments. Additional problems arise for those who are self-employed or have low incomes and are working part-time and occasional hours as their total annual income is difficult to predict and they will require payments that vary significantly from week to week. Determining how much they require each week in advance is often very difficult and prone to errors requiring back-payments or requiring individuals to refund overpayments which might create financial difficulties for people who have accepted money in good faith and spent it.

This type of problem already occurs with the present benefit system.

In contrast, a Basic Income ensures that everyone receives a guaranteed modest income that they can rely on and that they are free to enhance by working or by other legitimate means. A Basic Income is delivered with minimal administration costs and broad targeting is achieved with little administration by removing money from circulation with an appropriate tax scheme.

The Green party would do well to consider using a Basic Income as a means of delivering a Guaranteed Minimum Income.

Free dental care

The Green Party proposes the introduction of free dental care for everyone. However, it appears that the Green Party may intend to provide all free dental care through a new government-owned New Zealand Dental Service. While an expanded government dental service may be worthwhile, particularly in some areas, this may not be the best way to provide such a service. It may be preferable to also provide payments to existing dentists to enable them to provide basic services free to their patients or at a very much reduced cost rather than set up a full government monopoly on free dental care.

Most people prefer to see a dentist that they know and may find a nationwide dental service too impersonal. In the UK, free dental services are available through private suppliers.

Wealth tax

The Green Party propose introducing a 2.5% wealth tax on total net assets applied to total net wealth exceeding $2 million for an individual or $4 million for a couple where the assets are jointly owned. The tax will be on all net assets, after mortgages are deducted, and will include such items as property and shares that exceed the threshold.

Allowing a tax-free threshold of this magnitude allows people in the low to middle-income range to work and save for a family home, invest money for their future, perhaps own a holiday home, or own a rental property, without exceeding the threshold.

Restricting the tax to a tax on wealth over $2 million dollars will help achieve a more equitable distribution of wealth.

While the Green tax rate of 2.5% is higher than the 1.25% proposed by TOP in their second stage, the $2 million threshold ensures that only those who have high levels of net wealth will pay the tax. Statistics New Zealand estimated the average net wealth of New Zealand households at $397,000 in 2021 so this policy allows a couple to own ten times this amount before they start paying the wealth tax. Unlike the TOP proposal, which is restricted to urban properties and will impact all homeowners and renters while allowing the very wealthy to escape the tax by investing in rural properties, the Green policy will have little impact on homeowners buying their first home. However, the Green policy may discourage people who buy multiple urban properties for rental purposes.

New Zealand Superannuation

Green supports universal availability of NZ Super at age 65 for everyone with the possibility of those with medical conditions or special issues being able to receive it sooner, and earlier availability for those with shorter life expectancy such as Maori.

Te Pāti Māori (The Maori Party)

Te Pāti Māori (the Maori Party) propose a six-stage tax. The first $30,000 of income will be tax-free, with 15% from $30,000 to $60,000, 33% from $60,000 to $90,000, 39% from $90,000 to $180,000, 42% from $180,000 to $300,000, and 48% on all income over $300,000.

Te Pāti Māori tax policy will reduce taxes on those with low or middle incomes but will progressively increase taxes on those earning more than $207,000. Those on the minimum wage will see a net income increase of $4,704 per annum and those on the Living Wage an annual net income increase of $5,660. Those earning from $70,000 to $90,000 will receive the largest increase at $6,220. Those earning over $90,000 will receive a declining increase in net income that becomes a reduction in net income above $207,000.

The Te Pāti Māori scheme gives the greatest tax cuts for those on low and middle incomes of all the parties we have compared here with lower marginal tax rates but couple this with higher marginal tax rates of 39% on incomes over $90,000, 42% on incomes over $180,000, and 48% on incomes over $300,000. While only those earning over $207,000 will pay extra tax, those on higher incomes will progressively pay more tax and Te Pāti Māori will have the highest taxes when compared with other party proposals on incomes over $555,000.

In addition to the proposed tax changes, Te Pāti Māori will double baseline benefit rates and increase the minimum wage to $25 per hour.

GST

Te Pāti Māori propose removing GST on food. This is not a good idea for reasons outlined above. Te Pāti Māori would do better to support a Basic Income.

Free dental care

Te Pāti Māori support free dental care for whānau earning less than $60,000 per annum.

Wealth tax

Te Pāti Māori intend to legislate for a Net Wealth Tax to fund their policies, restore fairness, and end poverty.

Proposed rates are, 0% for net wealth under $2 million, 2% for net wealth over $2 million, 4% for net wealth over $5 million, and 8% for net wealth over $10 million.

The rates will be less mortgages and other debts owing and will be for individuals and the combined net wealth of couples. Te Pāti Māori say that at these rates, the Net Wealth Tax will not affect most family homes or retirement savings. The tax will be payable annually and will capture capital gains accrued.

If, as they say, the rates will be for "individuals and the combined net worth of couples", this will limit a couple to a total net worth of $2 million. This may be a major disincentive for some people to form permanent relationships. Te Pāti Māori might do well to follow the Green example of allowing a couple to combine their limit and only be taxed on a combined net worth greater than $4 million.

New Zealand Superannuation

Te Pāti Māori have indicated that they are opposed to increasing the age of eligibility beyond 65 and would support lowering the age for identifiable groups such as Māori who have shorter life expectancies.

National

The National Party will retain a five-stage tax but will adjust tax brackets to compensate for inflation. The first-rate of 10.5% will apply to income up to $15,600 (previously $14,000), 17.5% from $15,600 to $53,500 (previously $48,000), 30% from $53,500 to $78,100 (previously $70,000), 33% from $78,100 to $180,000, and 39% on all income over $180,000. The final threshold of $180,000 remains unchanged.

National party tax policy will reduce income taxes for all income earners earning more than $14,000 per annum. Those with no income or earning less than $14,000 per annum will receive no benefit. Those on the minimum wage will see an increase in net income of $112 per annum and those on the living wage an increase of $800 per annum. Everyone earning over $80,000 will receive the largest tax cut or increase in net income of $1,043. This tax policy clearly provides the largest net income increases for high-income earners.

However, to add additional net income for working income earners in the low to minimum income range, the Independent Earner Tax Credit (IETC), which currently provides a tax credit of $520 for anyone earning from $24,000 to $44,000 and then abates to zero at $48,000, will be extended. National's proposal will extend the $520 payment to anyone earning $24,000 to $66,000 and abate to zero at $70,000. The IETC is not available to anyone on a benefit or those receiving NZ Super.

While the upper limit for payment of the IETC has been extended, it is notable that the value of the IETC, which has not been adjusted for inflation for many years, remains unchanged with National's proposal and is not adjusted for inflation. While extending the upper limit compensates for inflation, full compensation for inflation can only be achieved by increasing the value of the payment.

As eligible persons earning from $24,000 to $44,000 are already receiving the full IETC, only those earning $44,000 to $70,000 will benefit from the changes to the IETC. With the IETC, those on the minimum wage will see their net annual increase increase from $112 to $551, while those on the living wage, or anyone earning between $55,000 and $66,000 will see their annual increase increase from $800 to $1,320. Those earning more than $80,000 will receive no additional increase above the $1,043 that everyone receives from the tax bracket adjustments.

National presents its tax cuts as being for the benefit of low and middle-income or "the squeezed middle". However, while a couple earning a combined total of $120,000, $60,000 each, will could receive a combined increase in net annual income of $2,640 with the IETC, National avoid mentioning that those couples with a combined income of less than $40,000 will either receive no increase at all for the lowest earners or at the most, $224 per annum and completly avoid mentioning that all couples earning a combined total of $160,000 or more may receive a combined increase in net income of $2,086.

While the tax cuts and IETC changes National propose appear to be targeted at middle-income voters they give nothing to those on the lowest income and also give a clear and significant benefit to those on higher incomes who do not need tax cuts. National knows that they need the support of those on middle incomes as well as those on higher incomes.

While it is those on the lowest incomes who have been hit the hardest by inflation, not the "squeezed middle" as National claims, National's proposed income increases for those on low to middle incomes are very small. It is somewhat disingenuous, or hypocritical, of them to present the tax cuts as being for the benefit of low and middle-income earners and as significant when much larger tax cuts are provided for those on high or very high incomes who really do not need them.

When directly questioned on the tax cuts for high-income earners, National leaders avoid answering the question and point to the much smaller gains for lower-income earners claiming that they are significant or launch into an attack on the mismanagement of the Labour government. A failure to answer questions is akin to lying by omission and is also considered a sign of narcissism and a lack of empathy for those less fortunate than themselves.

National would do well to consider increasing the size of the IETC to keep pace with inflation or increasing it further and making it large enough to replace some of the welfare system. The money wasted on tax cuts for the wealthy who do not need the money could be used to make the IETC available to all. Doing so would provide better and broader targeting of the money to those most in need. This would help reduce the big government wasteful employment of people who do little more than adjust people's welfare payments on a weekly basis to achieve individual targeting in an attempt to minimise the total payments in order to give greater tax cuts to those on high incomes.

Tax deductibility

A proposal by National to restore tax deductibility on interest rates for rental properties may put further presure on house prices and not reduce rental rates. Allowing tax deductibility will allow owners of multiple rental property to increase the number of homes that they own further putting additional presure on house prices and making it more difficult for first home owners to buy a house. Experience show that rental property owners are quick to pass increases in rents on to tenants when house prices are rising or when there is inflation but are reluctant or slow to lower rentals or pass savings on to tenants.

National have presented this proposal as being for the benefit of the average mum and dad investors who want to buy a rental home to save for their retirement, but in present day New Zealand, the average couple are struggling to buy a first home and do not own rental properties. This policy will provide the greatest benefits to the wealthy owners of multiple rental properties such as the current leader of the National party. There are other ways for those with higher incomes to save money, such as investing their money in New Zealand commercial businesses or putting their money into Kiwi Saver.

Sale of houses to overseas buyers

New Zealand has a long-standing housing shortage. National propose removing the ban on the sale of houses to overseas buyers for houses valued at over $2 million and will impose a 15% tax on such sales to raise money to partially pay for the tax cuts. They hope to raise $740 million p.a. this way. As there is both an overall shortage of houses and also a shortage of houses on the market worth over $2 million, this will require the construction of around 2,480 new houses each year worth over $2 million dollars to be built specifically for sale to overseas buyers.

This is of concern because building these houses will use scarce resources, such as carpenters, who cannot then be used to construct houses for New Zealanders. The same number of carpenters who might build 2,500 houses worth $2 million might build 5,000 houses worth $1 million, or 10,000 houses worth $500,000. That is 10,000 new houses that are then not available to house New Zealanders. This policy will exacerbate the housing shortage.

If there was no housing shortage and a surfeit of carpenters, building houses for sale on the international market so they can sit unoccupied most of the time might be an option. But building houses for sale on the international market is likely to increase a housing shortage, push house prices up and keep them unnecessarily high.

The biggest benefitors of this policy are likely to be the property developers who can make more profit on expensive houses than they can on low cost houses. Perhaps this is why property developers have funded the National party.

New Zealand Superannuation.

National have indicated that they will change the age of eligibility for New Zealand Superannuation from 65 to 67 twenty years after they come to office. The 20 years is to allow people to make alternative arrangements for their retirement. The reason given for the increase in the age of eligibility is the ageing population. No sound evidence is presented for doing so and it is widely believed that this reason is a myth and just another reason to force people to invest in the private Kiwi Saver funds. (See NZ Superannuation above).

The reason given for giving 20 years' notice is to allow people to make changes to prepare for their retirement. However, the fact that people need 20 years' notice indicates that many people will still need to and will continue to retire at 65. This counters the claim by both National and ACT that people will live longer and not need to retire at 65. Also, it is known that those on lower incomes who have poorer health and are more likely to need to retire at 65 and less likely to have been able to save to retire at this age.

Similarly, National and Act will both allow people to continue to withdraw Kiwi Saver at age 65, again indicating that this will continue to be the nominal retirement age. Forcing people to use their Kiwi Saver funds for two years if they need to retire at 65 to supposedly save wealthy members of the community from having to pay a little extra tax is a dubious policy. Not only does it penalise those forced to retire at 65 but the savings are dubious as cuts to Kiwi Saver expenditure will result in reduced expenditure by the elderly and reduced government tax income.

There is also a danger that National in coalition with another party may agree to increasing the age of eligibility much earlier. Increasing the age of eligibility will increase poverty in the 65 to 67 age group and reduce government expenditure but also lead to a corresponding reduction in tax revenue as a direct result.

Conclusion

National are presenting their tax cuts as a core policy that will benefit the "squeezed middle" in an attempt to attract the votes of middle-income earners while carefully avoiding any mention or discussion of the significant benefit the tax cuts deliver to high-income earners. Failure to adjust the level of the IETC in accordance with inflation throws their claim that they are cutting taxes in line with inflation and are concerned for those on low to middle incomes into question.

Policies designed to force people into low-paid work with threats of sanctions are dubious. Lifting the age of eligibility for New Zealand Super based on poor analysis when there are better alternatives is questionable and shows a lack of concern for those who need to retire early. Overall, National party leaders show little empathy for those in real need for no fault of their own or less fortunate than themselves.

If National were really concerned for those on low to middle incomes as they claim, rather than tax cuts that target the greatest benefit to the wealthy, National would have done better to have used the money to increase the value of the IETC and extended its availability to a greater number of people.

National's proposal appear to do more to enhance the wealth of their party leaders than help those on lower incomes or the squeezed middle as they claim.

ACT

ACT released a revised "Alternative Budget" proposal on 21 September 2023 which proposes a three-stage tax scheme, 17.5%, 30%, and 33%, to replace the existing five-stage tax scheme, 10.5%, 17.5%, 30%, 33%, and 39%. The proposal also replaces ACT's previously proposed two-stage tax, 17.5% and 28%. The new proposal uses two higher tax rates than the previously proposed maximum of 28% reducing the size of the previously proposed tax cuts for those on higher incomes.

The benefits proposed by ACT for those on low incomes are near zero and the smallest for all the political parties compared here while the tax cuts and benefits for the wealthy and super wealthy are the largest for all the parties! It would appear to be clear that ACT's objectives are to target benefits toward the super wealthy.

Tax proposal released on 21 September 2023

On 21 September 2023 ACT released a new "Alternative Budget". With the new alternative, ACT proposes to alter tax rates and thresholds in three stages over three consecutive years to reduce the current five-stage tax to a three-stage tax. ACT originally proposed a two-stage tax with their "Alternative Budget" released in May 2022. With the latest "Alternative Budget", tax on the lowest income earners will be increased from 10.5% to 17.5% while tax on the highest earners will be reduced from 39% to 33%!

ACT also proposes to pay an $800 "Low and Middle Income Tax Offset" (LMITO) to low and middle-income earners that will partially offset the higher tax that low to middle-income earners will be paying. ACT says that "the tax offset, together with the Carbon Tax Refund, will ensure that no household pays more tax". The proposed $800 LMITO is insufficient to offset the additional tax without the Carbon tax refund.

In the first introductory stage, ACT intends to abolish the lowest 10.5% tax rate, which applies up to $14,000, and charge tax for those in this band at 17.5%. This will reduce the number of tax bands from five to four. The 17.5% tax band will be extended from the previous $48,000 maximum up to $60,000, 30% will apply from $60,000 to $70,000, 33% from $70,000 to $180,000, and 39% above $180,000.

In the second introductory stage, the 33% tax rate will be abolished. This reduces the number of tax bands from four to three. 17.5% will apply up to $60,000, 30% from $60,000 to $180,000, and 39% above $180,000.

In the third and final stage, the 39% tax rate will be reduced to 33%. The three stages will now be, 17.5% up to $60,000, 30% from $60,000 to $180,000 and 33% above $180,000.

Without the LMITO or other compensating payment, from the first introductory stage, all those earning less than $58,000 will see an increase in tax. This increase in tax will be zero for those without income but increase progressively to $980 with an income of $14,000. The increased tax will remain constant at $980 from $14,000 up to $ 48,000 and then decline to zero at $55,840. All those earning above $56,000 will see a reduction in tax that increases progressively with income. Those on very high incomes can expect to see an 8.5% increase in net income!

Above $55,840, everyone benefits from tax cuts. The benefit increases steadily with income. A person on $70,000 will see a $520 increase in net income, (0.9%) and someone on $180,000 will see an increase of $3,820 (3%). In both net dollars and as a percentage, the increase just keeps getting bigger. A person with a million-dollar salary will see an increase of $53,620 or 8.4%.

If we look at net incomes with the LIMTO but without the Carbon Tax refund, those on the minimum wage can expect to be $180 per annum worse off, those on the living wage $102 per annum better off, those on $180,000 will be $3,820 per annum better off, and those on $720,000 will be $36,220 better off.

Low and Middle Income Tax Offset (LMITO)

It is assumed that the LMITO proposed by ACT will replace the current IETC although they do not say so. The LMITO is essentially the same payment as the IETC. However, the LMITO at $800 is a larger payment than the $520 IETC, is phased in between $2,000 and $12,000 compared with the sudden introduction of the IETC at $24,000, and is phased out between $48,000 and $52,000 compared with $44,000 and $48,000 for the IETC.

ACT states on its tax web page ( https://www.act.org.nz/tax ) that:

"In order to ensure that every earner would receive a tax cut, ACT would also create a new Low and Middle Income Tax Offset (LMITO), starting in fiscal year 2022/23. This tax offset would be worth $800 per annum for all earners earning between $12,000 and $48,000. It would gradually grow at a rate of 8% from $0 per year for taxpayers earning $2,000 to the full $800 for taxpayers earning $12,000. At incomes above $48,000, the offset would abate at a rate of 8%, reaching $0 at an income of $58,000."

However, as taxpayers in the $14,000 to $48,000 range will pay $980 extra in tax, the LMITO will not completely offset this tax increase and people in this range will be $180 per annum worse off. Any claim that "every earner would receive a tax cut" with the LMITO alone is incorrect.

Those on the minimum income will pay an extra $980 per annum in tax without the LMITO, or $180 extra with the LMITO. Those on the living wage will pay an extra $197 per annum in tax without the LMITO but will be $102 per annum better off with the LMITO.

This would appear to be a case of those on lower incomes paying extra tax in order to pay for the tax cuts of those on high incomes.

Carbon Tax Refund

ACT is proposing that the money collected through the Emissions Trading Scheme (ETS) be refunded on an equal basis to every person in New Zealand including dependent children. The payments for dependent children will be paid to their caregivers. ACT estimates that this will produce an annual payment of between $180 to $250 per person over the next four years. ACT say that this will allow carbon taxes to discourage carbon usage while making the taxes more politically acceptable as everyone will gain a benefit from it and the payments will help people meet the cost of living.

This proposal is a move toward a Basic Income payment similar to the Alaska Permanent Fund dividends and is to be welcomed for this reason.

Healthcare

ACT say they will "establish Public-Private Partnerships (PPP) with large, global infrastructure developers and investors for new build and long-term facility lease arrangements. PPPs would be used for the refurbishment and upgrades to existing facilities, and would be converted to long-term lease backs."

This proposal is of concern as it will in the longer term lead to the net transfer of wealth to priviate sources and a net flow of wealth out of the country.

New Zealand Superannuation

ACT say that they will gradually increase the age of eligibility for New Zealand Superannuation to 67, at a rate of 3 months per year from the 2024/25 fiscal year. Once the age of 67 is reached it will then be indexed to life expectancy. This, they say, will ensure that each generation will receive the same proportion of their life on the pension as previous
generations.

ACT would do well to read and understand our New Zealand Superannuation page. As explained on this page under the heading "Suggested changes to New Zealand Superannuation", a better solution is to couple New Zealand Superannuation to an appropriate tax regime. This will require those who accept New Zealand Super to be taxed with an appropriate tax regime that achieves improved broad targeting of the payments to those with the lowest total incomes. Doing this achieves greater savings than raising the age of eligibility.

Increasing the age of eligibility can be discriminatory against both individuals and groups who have limited life expectancy.

Conclusion

ACT's proposals need to be taken with a great deal of caution. Greater efficiency in public services are certainly a good idea if they ensure that services are delivered with the lowest possible overhead costs and not wasted on excessive levels of management and other inefficiencies. However, tax cuts often lead to corresponding cuts in government services which are likely to have a negative impact on those with low incomes.

Tax cuts proposed for those on very high incomes serve little real purpose and are likely to lead to an increasing accrual of wealth by a small percentage of people who do not need additional income or wealth. Increased narrow or individual targeting of benefits to reduce total payment costs can result in larger and less efficient government. It is preferable to use low-cost broad targeting of expenditure with an appropriate tax regime.

ACT would do well to consider the possibility of increasing the size of their LMITO and making it available to all and large enough to replace some of the welfare system. This would eliminate the big government wasteful employment of people who do little more than adjust people's payments on a weekly basis to ensure individual targeting in an attempt to minimise the total payments. The maximum tax rate could be kept at the current level to provide broad targeting of income to those who need additional income the most without a negative impact on high earners.

Proposal before 21 September 2023.

This section is here for historical reasons. ACT originally intended to replace the present five-stage tax with a two-stage tax. In ACT's "Alternative Budget - A Time for Truth", released in 2022 they propose a 17.5% tax on incomes up to $70,000 and a 28% rate on incomes above $70,000.

While a two-stage tax simplifies the tax system, only taxpayers with incomes greater than $55,840 per annum would have benefited from this proposal. Those earning less than $14,000 would have seen their tax rate increase from 10.5% to 17.5%. The extra tax paid increases up to a maximum of $980 dollars for an income of $14,000. From $14,000 to $48,000 the extra tax paid remains at a constant $980 and then declines to zero at $55,840.

Above $55,840, everyone benefits from tax cuts. The benefit increases steadily with income. A person on $70,000 will see a $1,770 increase in net income, (3%) and someone on $180,000 will see an increase of $7,270 (6%). In both net dollars and as a percentage, the increase just keeps getting bigger. A person with a million-dollar salary will see an increase of $97,470 or 15.5%.

The extra tax paid or reduction in net income for those with incomes less than $55,840 is partially offset with a new Low and Middle Income Tax Offset (LMITO) grant valued at a maximum of $800 per annum.

New Zealand First

New Zealand First state: "We will ensure tax income brackets are adjusted to inflation."

As previously noted, simply adjusting tax brackets for inflation assumes that the tax brackets were correctly set in the first instance. Doing so will result in tax cuts that increase progressively as incomes increase with those with incomes in the highest tax bracket receiving the largest tax cuts.

There is no indication of how New Zealand First might raise additional taxes to compensate for the loss of tax revenue resulting from the adjustment of tax brackets. New Zealand First has given no indication of how or if benefit rates might be varied.

New Zealand Superannuation

New Zealand First states that "There will be no change to the age of eligibility for Superannuation under New Zealand First." This party has a long-standing history of protecting New Zealand Superannuation, one of the world's longest-standing Basic Income payments and probably the best superannuation scheme in the world. It delivers universal benefits to all eligible New Zealanders and a larger percentage of the retired population at no more cost than more restrictive schemes in other countries. Administrative costs for New Zealand Superannuation are negligible.

Have you checked our Frequently Asked Questions page?

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Revised: 4 October 2023, 231009, 231014., 231016.; 231024.