It will be intersting to see how this all plays out come election time.
Labour’s tax plan sends ‘perverse signals’ – accountant
Published: 5:47AM Friday July 15, 2011 Source: ONE News
Labour maintains it has struck a fair balance with its new tax plans despite criticism it will encourage people to dodge paying, and lead to an exodus of the wealthiest New Zealanders.
Phil Goff announced his party’s tax plans yesterday which will target high earners and introduce a capital gains tax, if it wins the election.
The new tax threshold for high earners under a Labour-led Government would be 39% and will kick in for people on incomes of $150,000 or more. That’s up from 33%, and will affect about 2% of the population.
Labour’s plans also include a proposal for people not be taxed on the first $5000 they earn.
“Under this plan we hit surplus in the same year as National, we pay debt down to zero but keep our assets and promote growth by getting the tax incentives better for business rather than just property speculation,” Labour’s Finance Spokesman David Cunliffe told TV ONE’s AMP Business.
“Only about 1.7% people will be in the top tax rate, most people will get an improvement in their tax position,” he said.
Wealthy targeted
The Chairman of Accountants Price Waterhouse Coopers, John Shewan told AMP Business the plan unfairly targets the better off.
“To me this package sends a signal that if you’re in the top 10% don’t hang around,” he said.
“We talk about fairness, it’s probably not well known that half of New Zealand households pay no net tax at all, the top 10% pay about 60% – 65% of net tax and the top 2% pay over 20%. In terms of fairness we’re saying that very top group needs to pay more? To me that sends some very perverse signals.”
He said Labour seems to have ignored most of the advice it was given by the Tax Working Group and believes its strategy would get a mark of “three out of 10” if it was to be reviewed by the OECD.
And Prime Minister John Key said Labour’s proposed tax strategy will encourage more people to rip off the system.
He said high earners could get around paying by putting some money into family trusts, which are taxed at 33%, and declare lower incomes.
But Cunliffe said Key seems to be scared of any new tax, and is even out of step with his finance minister on the issue.
“Some critics like Bill English say the problem is it’s not comprehensive enough – it doesn’t tax everybody,” he said.
“(But) John Key uses the Chicken Little argument ‘the sky is falling in, he’s never seen such a big bad tax’, I think the Government needs to decide which side of the argument it’s on.”
Cunliffe said he was not afraid of wealthy Kiwis moving away from the country.
“You might go to Australia where the tax rate is 46 cents in the dollar, not 39 as we’re proposing, or where the Capital Gains Tax is 33 cents at the marginal rate not 15 cents… I don’t think so.”
“We think we’ve hit a fair balance here. Most people won’t pay the (capital gains) tax, probably only 8% of New Zealanders in a given year. There’s no retrospective component, the family home is exempt and personal property is exempt. We’ve even got Canterbury out of the net for the next five years after the election.”
Goff said the capital gains tax rate will be 15% – as revealed last week by ONE News – and will cover property, shares and business investments including farms with an exemption on all real estate, land and buildings in the Canterbury quake zone for at least five years.
The tax would raise $26 billion over 15 years, Labour said, and would be introduced from April 1, 2013. It will not be retrospective, meaning people would pay tax on any gains after the introduction of the tax. To find out more about Labour’s tax plans click here .
Labour is pitting its tax plan against National’s state asset sales policy ahead of the November 26 election.
Goff said the tax changes would tackle the country’s debt and state assets would not be sold off.
