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

On January 19th, while conducting a television interview for TVNZ Labour Party leader Phil Goff indicated that tax will be a prominent issue in the 2011 New Zealand General Election, pointing to the price of everyday items, petrol and tax rates as major issues for taxpayers.

Phil Goff chose to remain vague about the exact changes that the Labour Party would seek to instate, but he explained his general intentions. Phil Goff summarized the Party’s intentions, saying that he will work towards a “fairer tax system”. He went on to say that New Zealand taxpayers are all experiencing harsh economic pressures, with middle-income earners feeling “really squeezed”, while low-income earners are “barely keeping their nose above water”. He added that while most New Zealanders struggled, the country’s 700 taxpayers who earn more than NZD 1 million per year, were on average NZD 1000 better off under the new income tax bracket. Phil Goff promised to address this disparity, although made no committal comments regarding whether there would be a reversal of previously instated personal tax-cuts for top-earners.

When questioned on the Labour Party’s intentions for future government spending, Phil Goff gave a brisk answer, saying, “We’ll be constrained in what we spend. What we’ll be focusing on, and I think it’s really important in social policy, is making New Zealand a great place for kids to grow up.” However, he did not comment on the possibility of increased parental leave for New Zealanders.

The Labour Party leader claimed that any low results that the party might have in opinion polls will be counteracted by a number of potential coalition partners. He indicated that the party would carry out talks with the Maori Party if it was in the “interests of New Zealanders to do so”. He added that working with Winston Peters was also an option.

Photo by Chris Gin

New Zealand’s unemployment rate rose to 6.8 percent during the June quarter, compared to a level of 6 percent in the prior quarter. The latest figure represents a 19 000 person increase in national unemployment, bringing the total to approximately 159 000. The statistics were released government’s Household Labour Force Survey, released on August 5th.

Last month Alan Bollard, Governor of the New Zealand Reserve Bank, predicted an unemployment rate figure of only 6 percent. National economists believe that the Governor’s recent decision to raise New Zealand’s Official Cash Rate (OCR) was based on the more optimistic prediction. Explaining the unexpected rise, Statistics New Zealand released a statement saying ,”This rise in unemployment follows an unseasonal drop recorded in the March 2010 quarter and indicates a period of volatility in the labour market.”

Opposition party leaders have already struck out at the National Party, claiming that the unemployment rate is a direct result of the Government’s poor economic policies. Phil Goff, Labour Party leader, said “Kiwis have had enough of gimmicks like the Jobs Summit and the cycleway – they want action from the government to get them back into work.”

Photo by The Labour Party

Phil Goff, Labour Party leader, announced on February 22nd that a two week protest bus-tour will be launched on February 28th to fight the possibility of a the GST rate being raised to 15 percent. He claimed that the tour’s aim was to visit New Zealand communities and “to show them just how unfair John Key’s plans to hike GST are.” The protest plan also includes several visits to local community groups like Grey Power, Citizen’s Advice Bureau, and any local budgeting services.

While introducing his protest-bus idea, Phil Goff claimed that the National Party had not campaigned with the promise that it would raise GST, and the “…Labour [Party] is going to campaign against it.” He went on to say that a GST increase is unfair and would hurt middle and low income earners across the country, while not delivering for families.

Opposition party members have already commented on the proposed bus tour, noting that while Phil Goff is protesting the GST rise he has not yet stated that his party would lower it if it came to power in the next election. New Zealand Prime Minister has stated that he is not concerned with the tour, and believes that most New Zealanders are reserving their opinions on the increase until they see the entire tax reform package in May.

Photo by Policy Network

On the 12^th of September at a Labour Party conference in Rotorua, Phill Goff, Labour Party leader vowed that if Labour were to be re-elected there would be no rise in personal taxation, GST or introduction of Capital Gains tax.

The concession on the capital gains tax remains that it applies exclusively to first homes and not investment and rental properties. It was also emphasized that any possible tax cuts will be prioritized and aimed towards low-income families. He described the party’s future focus as catering to average New Zealand households.

Further, Phil Goff made statements regarding a reform in the perception of the economy. He is encouraged by New Zealand’s recovery and that of its trading partners, like China. The relatively low level of governmental borrowing warrants some level of optimism for the future. He made reference to previous Labour party leadership and decisions, and apologized to the New Zealand public for mistakes made.

The Government has announced that as of the 1st of April 2009, the new minimum wage will rise from $12 to $12.50. The youth training and new entrant wage will also rise from $9.60 to $10. This equates to a 4.16 % rise in the minimum wage rate and the same in the new entrant wage. This percentage increase is above last year’s annual inflation rate of 3.4%.

New Zealand Prime Minister John Key was given three recommendations as to the minimum wage, leave it as is, raise it to $12.50 or finally raise it to $12.65. Mr. Key said the problem with the decision as to balance of the benefits to the lowest paid in the country and the possibility of too large a change impacting negatively on the number of employed.

Labour Party Leader Phil Goff has said that he wants the minimum wage to rise to $13 per hour, as according to him the new wages will only amount to an extra 9cents per hour post inflation. Maori Party co-leader Tariana Turia has said that in her opinion the minimum wage should be $15 an hour and that the first $25,000 of earnings should not be taxed.

The Free Trade Agreement (FTA) between China and New Zealand was signed on the 24th of July. It was passed with a 104 for and 17 votes against in the New Zealand Parliament on the 7th of April. The Trade Minister Phil Goff was quoted as saying that the new FTA offered great opportunity for New Zealand to move into the world’s fastest growing market (China).

The most noticeable effect that will be felt on October 1st, is the abolishment of some tariffs on exports to China. The initial tariff cut was to any tariffs that were at or below five percent, roughly equating to 35% of all exports to China and 38.6% of imports from China. It is intended that the FTA will eliminate tariffs on exports by 2019.

For more details on the exact tariffs under the new agreement can be found in the New Zealand China FTA website .