Tax reform has a history of influencing election outcomes and this will be especially true of the 2023 election.
It is useful to remember though that tax collection is just a means to an end, collecting funds to allow the Government of the day to implement its spending priorities.
The different parties’ policies on the big issues – climate change, crime, the cost of living crisis and housing affordability for example – will dictate how much money they need and then their individual approaches to income and other taxes will determine what, if any, tax changes become part of their campaign promises.
The unexpected resignation last month of Jacinda Ardern as leader of the Labour Party, coupled with the desire to win a further term in Government, should mean we see some degree of change in approach to tax policy for the Labour Party.
We may also see the other key parties flex the tax policies they have previously published as a response to the big hikes in inflation and the cost of living.
So let’s take a look at some of the key tax changes implemented or proposed by Labour in their terms in power, and whether they might survive following the election:
- Personal tax rates – while previously very vocal about dropping the 39% tax rate introduced by Labour, National has now said current economic conditions mean this would not be possible under a National government, so this seems likely to stay regardless of the outcome of the election. We may see, though, movement in the tax brackets as a real way to counter tax bracket creep and deliver more money into the hands of the majority of New Zealanders.
- Brightline test – while initially introduced by National, the brightline period has been extended twice by Labour, to five and then 10 years (although new builds remain subject to a five year brightline period). National has indicated it will unwind only the most recent extension, taking the brightline period back to a consistent five years. At the same time it would also unwind the very unpopular interest deductibility rules.
- Unemployment insurance – this is another proposal that is expected to be ditched by National who have been very vocal in opposition to the scheme. Even the Labour party under its new leadership may scale back, or do away with, the scheme.
- Platform economy and GST – legislation currently before Parliament includes proposals to even the GST playing field for participants in the accommodation and ride sharing/delivery parts of the gig economy, by requiring the various platforms to return GST on transactions even though the underlying provider is not GST registered. This has become quite an emotive issue, especially for bach owners who rely on income from renting out the bach to help pay the mortgage on it. With the proposed implementation date being 1 April 2024, even if this is pushed through by Labour before the election it could still be repealed by National before coming into force.
- Public transport exemption from FBT – this is another current proposal, aimed at helping encourage employees away from personal car transport, but is so limited it is hard to see much value to all but a few employers. We do expect there may be a widening of the current proposals to make them more applicable, but personally I would hope that more emission friendly tax changes could be made, such as no FBT on electric vehicles for example.
Of course politics is an ever changing arena, so what the parties are signalling now as their tax policies could well change significantly before the election.
But it goes without saying that it will be fascinating to watch over the next few months and it will particularly exciting for tax advisers as we endeavour to keep up to date on the various policies and what they mean for our clients.