The ACT Party has launched its campaign for the November elections, with a push towards lowered taxes, reduced government spending, and a slashed corporate income tax rate. The party revealed its major policies at the campaign launch held in Auckland on November 13th.

The key points were delivered by ACT leader Don Brash, in a speech during the launch. He said that one of the party’s primary goals was to drastically cut the corporate tax rate to 12.5 percent. The reduced levy should drive greater investment into the country and allow currently formed businesses to prosper.

The party has continuously campaigned for a 20 percent to personal income tax rate, however, Don Brash now says that the rate would be impossible and ACT would push for a rate of 25 percent.

In order to make the lowered rates a realistic possibility, the government would need to significantly reduce spending. The ACT party proposed that government spending should be tied to the country’s economic performance. To coincide with the spending cut, the government should also drastically reduce bureaucracy.

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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.

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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.

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On July 2nd Bill English, Finance Minister of New Zealand, praised the country’s planned corporate tax rate decrease. The statement came as a response to the Australian Government’s announcement that its national corporate tax rate will not be reduced below 29 percent until fiscal conditions permit.
According to Bill English, the New Zealand 28 percent tax rate, combined with previously announced Budget measures will aid national businesses with the incentives to invest and increase exports. The Minister explained that New Zealand’s relative advantage over Australia will allow the country to draw greater international investments. He elaborated further, saying that New Zealand’s corporate tax rates will be 2 percent lower than Australia’s for at least two years.

Bill English continued to say that New Zealand has a unique tax package, which has allowed significant tax rate decreases in an international environment of tax rate increases. The Government will also “tilt” the economy away from unsustainable increases in spending, continued borrowing, while increasing investing in productive elements of the economy.

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On May 17th John Key, Prime Minister of New Zealand, appeared in a television interview and made it clear that the upcoming budget will feature cuts to personal taxes across all levels, but with special emphasis on top-marginal rates. John Key’s comments led economist to believe that the anticipated increase in Goods and Service Tax (GST) will also be announced within the Budget, to offset the decreased tax personal tax revenues.

When questioned on the fairness of increased tax cuts for high earners, John Key claimed that the move was vital for the future economic situation of the country. According to the Prime Minister, it is important that efforts are made to retain the highest skilled workers in the nation, both for their large tax contribution and provided services. He summarized the intentions of the change, saying, “Part of what you are going to see on Thursday is a deliberate attempt to get people to say here and contribute to the economy.”

Overall, John Key stated that the Budget will be aimed at improving the economic growth of the entire nation. He said that it will also deliver increased benefits, opportunities and welfare for everyone in the economy.

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Confirming the Tax Working Group’s analysis of the New Zealand tax system, Bill English delivered a speech on March 23rd calling the taxes burden faced by an average working family “unfair and inequitable.” According to the Minister the root of the problem resides in the current definition of income and the proliferation of differing tax rates, which become apparent when individuals or families with relatively similar incomes have significantly dissimilar tax obligations.

Bill English illustrated an example of taxation inequality by drawing attention to a hypothetical self-employed individual who would typically pay over NZD 27 500 annually in tax. He contrasted this with the situation whereby the self-employed person forms a company which is owned by a separate entity and assigns themselves a salary of NZD 48 000, automatically reducing their tax liability by NZD 3000. The reduced income would then entitle them to a Working for Families benefit, which allows them NZD 8 500 entitlement. Further tax obligation reductions could be achieved by claiming losses from a leveraged property investment. According to Bill English, it is conceivable for an income of NZD 100 000 to face NZD 10 000 in taxes, while a typical earner would exceed NZD 27 500.

Explaining the Government’s dedication to ratifying the misbalance, the Finance Minister said: “In the Budget, the Government will make the tax system fairer by closing this type of loophole. We will make sure that taxable income more accurately reflects true economic income – and that the system is fairer to all taxpayers.”

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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.

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Bill English put a blunt message forward to New Zealand, the time of tax cuts has passed. On the 2nd of August at National Party conference in Christchurch, Bill English stated that “There is no possibility of just cutting taxes.”

Bill English said that the government is projecting deficits of up to NZ$12 million, which leaves no room for tax cuts. There has already been an effective cancellation of the National Party’s promised personal tax cuts.

Further, Bill English commented on the upcoming “first-principals” review of the Australian tax system, and not wanting to be caught out with previous tax engagements by some possible innovative change that might be made. Some speculated that these blunt tax statements might just be preparation for some radical tax announcements in coming months.

The changes to taxation brought about by the new budget have been passed through Parliament under the Taxation (Budget Tax Measures) Bill. It was introduced under urgency n the same day as the budget, the 28th of May, it passed and received Royal Assent the following day. The weekend and public holiday meant that it was only enacted on the following work day, the 2nd of June.

The Taxation (Budget Tax Measures) Bill repealed sections of the Taxation (Urgent Measures and
Annual Rates) Act 2008, which pertained to future cuts to personal taxation, as promised by the National Party during their election campaign.

The second section of the Taxation (Budget Tax Measures) Bill deals with the abolishment of the Kiwisaver mortgage diversion facility. Specifically, every section pertaining to the enactment of mortgage diversion now reads that to sign up one had to apply before the 1t of June, effectively rendering it an impossible task.

While opposition is expected to any budget announcement, this year’s has seen a significant amount of vehemence. Labour Party Leader Phil Goff has been one of the key figures in the opposition to the budget announcement.

The two key points that Phil Goff has been opposing is the “deferral” of the personal tax cuts and suspension of superannuation payments. While the personal tax cuts are indefinitely deferred, Phil Goff was adamant that this means that they are never to be seen. He also suspects that while the Superannuation has been suspended officially for at least one year, it will be almost a decade before payments will be seen again.

Phil Goff voiced concern about the effect that these suspensions will have on future generations of New Zealanders. He commented on the amount of attention that seems to have been paid to credit rating agencies and their view of New Zealand, as opposed to the well being of New Zealanders.