Key and Goff Spar Over Taxes

January 27, 2011 New Zealand Taxation

United Future AnnouncementThe Labour Party and the National Party are already squaring off for the upcoming general election, having begun making promises concerning tax cuts, tax exemptions, and an improved economic performance for New Zealand.

Over January 25th and January 26th both Prime Minister John Key and Labour Party leader Phil Goff kicked off the election year by giving their own respective speeches announcing their views on the New Zealand economy and the country’s tax future.

On January 25th Phil Goff gave his State of the Nation speech, in which he revealed the party’s primary taxation promises for the 2011 general elections. The most ambitious proposal was to create a “tax free zone” on the first NZD 5000 of personal income earned annually by all taxpayers. He added that the party also intended to remove all GST from fruits and vegetables. Phill Goff went on to say that, if elected, Labour would set up an Anti-Avoidance Tax Taskforce to deal with closing existing tax loopholes surrounding property investment and clamping down on tax evasion. The Labour Party leader also indicated that top personal income taxes would be raised, although did not specify the potential rate.

In his responses, John Key was critical of Phil Goff’s proposal, describing the ideas as being in “fantasyland”. The Prime Minister stated that the concept of a “tax free zone” is fiscally irresponsible in the current economic environment and would necessitate extra government borrowing. He added that attempting to close tax loopholes would be a wasteful endeavor, as sophisticated investors could easily circumvent any changes put in place. According to National Party estimates, the Labour Party would require an additional NZD 1.1 billion per year to implement their plan. According to Revenue Minister Peter Dunne, Labour would need to raise the top personal tax rate to 47 percent, in order to fully fund the proposed “tax free zone”. He added, saying, “I don’t think New Zealanders will find ramping up the top tax rate by half acceptable.”

In his own speech the Prime Minister did not propose any tax changes, but suggested that the National Party would consider selling off state-assets, in order to reduce the national deficit. He said that the Government could sell up to 49 percent of its investment into Mighty River Power, Meridian Energy, Genesis and Solid Energy. The move could raise up to NZD 10 billion. John Key assured New Zealanders that the sell-off would not be detrimental to New Zealand, as the Government would retain 50 percent voting share in all the companies, and preference would be given to New Zealand investors while stocks are sold.

Photo by nznationalparty