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Yet another reason to vote Labour (in search of a truly courageous politician)

Labour’s tax policy threatens to make tax interesting again.  Yesterday, Phil Goff announced that, if elected, it would scrap income tax on the first $5,000 of income and introduce a new top rate for the highest earners (the rate of tax and the threshold for that tax are not part of the policy announcement – that is being left up to the voters’ imagination).

Putting aside Labour’s worthy proposal to provide a tax cut for those on a paper round (most lower income working families already pay little or no income tax) I think the higher rate/threshold idea deserves a cautious endorsement from the tax advisory community for the following reasons.

  1. Advisors should welcome the re-introduction of a higher rate which has the potential to re-invigorate the current sorry state of the New Zealand tax planning industry.  The higher the rate and the threshold – the more demand for tax and legal advice. The more tax burden that can be shifted to those who can afford to pay advisors to come up with strategies to avoid it, the more interesting and rewarding our jobs will be.
  2. Capitalists (i.e. those who make their money from investment rather than working) will have nothing to fear from a higher rate of tax.  They can simply stick their assets into a managed investment such as a PIE and enjoy a rate of taxation that is already lower than the current top marginal rate of tax.  Incidentally the PIE regime was introduced by the previous Labour government (the irony of a Labour government introducing a tax regime which provided tax concessions for capitalists seems to have been lost on the electorate).
  3. The only ones who really have anything to fear from a rate/threshold increase are those poor schmucks who derive the majority of their income from salary and wages.  Those who are in business on their own account will still be able to claim deductions for their smart-phones, broadband, subscriptions to the NBR and all sorts of other sundry expenditures that wage and salary earners have to fund out of tax paid income (and pay GST on, but that’s another story).

Phil Goff will fund his tax cut for those on a paper round by taxing property developers.  The income and gains of property developers and their associates (a term of such breadth that the word has almost become meaningless in the tax context) are already taxed under the Income Tax Act.  The real difficulty Phil Goff and his band of merry men have with property is not developers but owners and, in order to tax property owners, Phil Goff would have to introduce a land tax.  That is a tax I genuinely could support – but I fear that would take more political courage than your average politician could ever muster.

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