Coalition Budget Tax Switch Will Hurt Most Vulnerable

The coalition budget announced today is little more than a regressive tax switch, with benefits for the wealthy - while vulnerable families suffer most, says Tax Justice Aotearoa.

Finance Minister Nicola Willis is simply fiddling at the edges - when greater change is required to make a fairer tax system that can provide enough revenue for rising 21st century demands.

“While the Government’s headline is a ‘tax cut’, the budget actually delivers a regressive ‘tax switch’”, says Glenn Barclay, chair of Tax Justice Aotearoa.“It makes the tax system less progressive - with tax cuts most favouring the well-off, while raising user charges and levies that hurt those least able to pay and people on modest incomes.”

“Most people will get an income tax cut, but will face increases in fees, charges and levies - such as for prescriptions, car registration, bus fares, and ECE fees for two-year-olds, partly replaced by a clumsy tax rebate that many low income families will find too difficult to claim. People reliant on benefits, such as those with disabilities, will be particularly hard hit.

“If the Government had wanted to give more help to people on low incomes it would have ditched increases to regressive user fees and levies.”

“Furthermore, there is a risk that any advantage families might gain from these tax cuts could be wiped out by the boost the cuts will give to inflation and house prices. Many commentators have identified this as a risk, along with the risk of increased unemployment.”

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Tax Justice Aotearoa is also critical of the move to reduce the brightline test to two years, and the decision to return interest deductibility to landlords and property investors, when a large part of their income is untaxed.

“These changes are highly regressive and benefit already wealthy and tax-favoured investors,” Mr Barclay says.“The evidence is that these measures will not meaningfully affect rents, but will increase competition for lower priced housing to the disadvantage of first home buyers.”

While TJA welcomed more funding for IRD to investigate tax evasion and the decision to retain the Digital Services Tax proposal, these are only minor changes at a time when we need to do so much more.

“Most importantly, we need to do more to tax those wealthy individuals who are often paying lower tax rates than average Kiwis,” Glenn Barclay says. “Options include a net wealth tax, a capital gains tax or an inheritance tax on the receipt of large bequests.”

“We should also look at making income tax more progressive rather than less - and introduce an excess profits tax, given the increasing evidence of excess profit-taking by big business”, says Glenn Barclay.

TJA believes New Zealand is not unique in facing significant challenges that can only be resolved with government involvement and better resourcing.

These challenges include reducing greenhouse gas emissions, responding to more frequent floods and droughts, the impacts of rising sea levels and new flood plains, an ageing population adding to rising health and care needs, the high levels of inequality which erode social cohesion, and the exposure of New Zealand to greater geopolitical risks.

“These problems all require significant additions to revenue - any government which pretends otherwise is not being up front with New Zealanders,” Glenn Barclay says.

“Current tax revenue is low compared to most other high-income countries we like to compare ourselves with, particularly smaller countries - and additional revenue needs to be raised in ways that don’t hit people on low and middle incomes.”

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