Offering the carrots, or are they?
It was a relatively quiet week on the tax front, so with Election 2020 just around the corner, I thought I would use this week’s edition to outline the various parties’ tax policies. So commencing with the incumbent:
- No income tax changes for 98% of Kiwis
- On personal income earned over $180,000 a new top tax rate of 39% will apply – this change affects 2% of earners
- Extra revenue raised will be used to protect health and education, control debt, and support the recovery plan
- No new taxes, or further increases to income tax next term
- We also won’t raise fuel taxes
- We’ll continue closing tax loopholes to make sure multinational corporations pay their fair share
- We will not introduce a capital gains tax under a Jacinda led Labour government
This policy is forecast to generate $550 million of revenue a year. The new tax rate for the top 2% of earners will help keep debt under control, while protecting vital services like health and education.
The new threshold matches Australia’s top tax threshold of A$180,000, but Australians earning over this threshold pay a higher rate of 47% (including a 2% Medicare levy).
My 5c worth:
No mention of a shift in the trustee tax rate of 33%, so identical to the last hike to 39%, there will be the usual game playing to attempt to shelter pre-taxed income in interposed structures like companies and trusts, with IR likely to counter with an increased work programme focussing on the application of the ‘attribution rule’ to personal services income sheltered within the walls of these entities.
No CGT under Jacinda – does the phrase beg the question of whether Jacinda’s at the top for the whole next term, or off to create a sibling for Neve (the timing is probably right and she must be tired of putting on that smile all the time, when she continually says “we’ll do this together”), opening the door for a CGT to be introduced once she’s no longer at the helm?
Likely timing of introduction – 1st April 2021, with effect from 2021/22 and later income years.
National’s promising a short-term package of tax cuts – worth about $4.7 billion – to kick start the economy, which it says would put $46.50 each week in the pocket of the average earner. 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. So they will:
- 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
- Increase the low-value asset deduction from $5,000 to $150,000 for two years
- Increase the provisional tax threshold from $5,000 to $25,000
- Raise the GST registration threshold from $60,000 to $75,000
- 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
My 5c worth:
Nothing earth-shattering on the tax threshold front (arguably any Government of the day should be keeping on top of the thresholds in any event, to ensure they are reflective of wage rise inflation – there has been no change to the thresholds since 2011) so you may say why bother, however it does now provide you with the option of choosing the purple carrot – that’s if you could say Labour was offering an orange one in the first place!
The Green’s have a Fair Tax Plan, the aim to have a fairer tax system to help redistribute wealth from those with the most wealthy to support those with the least. Proposed:
- We’ll tax wealth fairly by introducing a new tax on individuals’ net wealth over $1 million. This means those who have their own wealth worth more than $1 million – not including mortgages and other debt – would be asked to pay a small annual contribution to fund stronger social support for all New Zealanders. This would only apply to the wealthiest 6% of New Zealanders. It is proposed to have a 1% wealth tax, for net wealth over $1 million but less than $2 million, with a 2% wealth tax on any amount over $2 million.
- We’ll update progressive income tax so those earning much more income contribute a little more to help fund better social support for everyone. We’ll introduce new income tax brackets of 37% for income over $100,000 and 42% for income over $150,000. We expect this to generate approximately $1.3 billion a year, which will fund improvements for public health, education, income support, and environmental protection, amongst other things.
- We’ll close tax loopholes and minimise tax avoidance by taxing big digital giants such as Facebook and Amazon (if the OECD cannot agree a multilateral solution to tax digital revenues by 31 March 2021, then impose a unilateral digital services tax of 3% of gross revenues from digital services consumed in New Zealand).
My 5c worth:
Time for a change of career path – valuation perhaps – particularly if Jacinda’s off for baby number two and we see a CGT introduced as well.
ACT says it will cut taxes. It would:
- Temporarily cut GST to 10 percent (ending June 2021)
- Permanently cut the marginal tax rate paid by those on the median wage from 30 percent to 17.5 percent, simplifying the tax system to three rates.
So, on your first $14,000, you would pay 10.5 percent. On your next $56,000 you would pay only 17.5 percent, while the rate on income above $70,000 would remain 33 percent, under ACT’s plan.
My 5c worth:
So assuming the new Government doesn’t have its first sitting until early in the New Year, then has to draft and pass through the legislation to effect a GST rate reduction from say 1st April 2021, so in essence a three month rate reduction – hmm. And further, so those on a bi-monthly odd filing cycle, would have a 31 July 2021 GST period where they have to compute June’s transactions at 10% and July’s at 15% – double hmm.
Difficult to locate any concise tax policy on their website, however I understand that they are proposing:
- No tax rate rises
- Accelerated depreciation for new investment
- Introduce a ‘give it a go’ scheme to provide tax concessions for start-ups in certain rural and regional New Zealand
- Have an immediate deduction for asset purchases up to $3k for SMEs with turnover of less than $1m
My 5c worth:
It’s Winston, what more can one say…