Why the big focus on tax? - Campbell Squared
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18 Jul Why the big focus on tax?

Posted at 09:36h in Communications, Government Relations, News, Politics by

It’s game on and Election 23 is underway with political parties from across the spectrum talking tax, the first debating point in the lead up to election day on October 14. Despite being on the other side of the globe meeting world leaders, Leader of the Labour Party and Prime Minister, Chris Hipkins made a Captains call on a Wealth Tax and Capital Gains Tax. The Reserve Bank also decided against another move of the Official Cash Rate. While the OCR is settled for now, the polls are all over the place. So, what does this all mean? Here’s a quick run-down on the key announcements and the reaction including what impacts these decisions might have for New Zealanders.

Why the big focus on tax?

Cost-of-living pressures remain top of the agenda for Kiwis. How political parties are perceived to deal with those pressures in the lead up to the election will go a long way to ensuring their success at the polling booths. New Zealand is in a recession, with two consecutive quarters of negative economic growth, and the job losses have started. 

Policy on taxation methods and income tax brackets in New Zealand are always polarising and are generally the biggest division point between the centre-left and centre-right of New Zealand politics. This year, policies really matter, with thousands of Kiwi mortgage rates set to rise and fast. Many will hit at the same time as the election, and it won’t be banks that get the blame, it will be the Government.

Who said what?

Labour Party

  • Prime Minister and Labour Party Leader, Chris Hipkins has ruled out a Capital Gains Tax (CGT) or Wealth tax while he is Prime Minister, saying that with Kiwi households struggling “now is not the time for a shake-up of our tax system.”
  • He concedes that Treasury was working on policies related to taxing capital gains and a wealth tax, but he decided to pull the pin as we are in “uncertain economic times” and it was his view to “keep things simple”.

National Party

  • New Zealand’s largest opposition party said in response to Labour’s announcement, that “they could not be trusted on tax”, and there was still “internal” politics within the Labour party about their tax policy, with Grant Robertson (Minister of Finance) and David Parker (Minister for Revenue) both previously publicly supporting the move. Christopher Luxon, Leader of the National party went onto say, this was a deliberate move in response to a poor poll earlier in the week which had the Labour party dropping 6 percentage points to 31 percent.
  • National party policy on tax includes adjusting tax brackets for inflation, so that the average earner can keep almost $1,000 per year of their own money.

Green Party

  • The left-leaning Green Party has said that “fair tax changes have never been more urgent”, slamming the Labour party and saying that “nothing Labour says now will stop the Green Party from fighting for a fairer tax system”.
  • They have strongly advocated for a capital gains and wealth tax, saying “Right now, just 311 families own more wealth than the bottom two and half million New Zealanders. That inequality is not an inevitability. It is a political decision.”

ACT Party

  • Right-leaning ACT have told New Zealanders to forget what Labour has said on tax, because a Capital Gains Tax and Wealth tax would be implemented in a coalition with the Greens and Māori Party, who are both likely coalition partners according to the latest poll.
  • ACT would instead have a two-tiered tax system which would see the average tax burden on New Zealanders be reduced by more than $1,236 per year.

 Reserve Bank of New Zealand

  • Reserve Bank Governor, Adrian Orr announced yesterday afternoon that the Official Cash Rate (OCR) will remain at 5.5 percent, saying that interest rates where they sit now are constraining spending and reducing inflationary pressures.
  • The Reserve Bank did concede that the OCR would need to remain at a restrictive level to ensure that inflation returned to the target range of between 1 – 3 percent, it currently sits at 6.7 percent.

What does this mean for my business?

There is no doubt New Zealanders are focused more on the economy in this election than any since 2008, during the Great Financial Crisis. Wallets are strained, mortgages are up, and household bills continue to rise, as inflation remains staunchly high. That focus will likely remain top of mind right through the election campaign.

When engaging with Government or political parties between now and the election, it’s important to remain relevant to the issues of the day. Show them how your business is solving a problem, that could be making it easier for Kiwis to access a service or making it more affordable for families to undergo a certain task. Linking your product, service or general messaging to a current and relevant issue in a way that seeks to solve a problem is what politicians will engage with more.

Staying on top of the current events is critically important when engaging with the political parties, they are having to respond to what New Zealanders are feeling and if you can do that alongside them that will stick in their minds. There is still 94 days to go until the election, so expect to see much more on the economy in the lead up.

But as tempting as it might be, our advice is not to react to everything you hear between now and polling day. Chris Hipkins was speaking as the Leader of Labour, that’s not policy… yet, and may never be. C2 will be following the campaign closely and we will be on hand if you need some help navigating the noise.

Analysis

The Labour Party ruling out further taxes will be welcomed by many New Zealanders who are doing it tough and risked having to fork out more than what they are already doing, post election. However for some of Labour’s base voters, who want to see more of the highest-earning New Zealanders paying more, they will likely be disappointed, and this move could bleed votes to the Green Party or the Māori Party who have categorically said that would introduce a Capital Gains Tax and wealth tax.

Chris Hipkins and senior Labour Party Ministers are likely concerned with the latest polling, and this could have been a deliberate announcement to highlight how focused they are on middle New Zealand. Hipkins has brought a more pragmatic approach to policy than his predecessor, focused on what he calls the “bread and butter” issues for New Zealanders. This is another example of that sentiment, alongside his policy bonfire earlier this year. He is trying to get the Labour party back to basics, and draw more attention to policy announcements like this, rather than ones which garner more negative attention on the Government.

Sentiment of the announcement has been largely neutral, however as the dust settles and New Zealanders get their teeth stuck into what this means for them, we can expect to see some different views. It should also be noted that in a recent Newshub-Reid Research poll, majority of New Zealanders favoured a wealth tax. Only time will tell exactly how that lands with the New Zealand electorate.

For the opposition parties, they have already ruled out introducing any new taxes. Both National and ACT have said they would reverse a number of taxes introduced by the Labour-led Government, including the regional fuel tax in Auckland, the 10-year bright-line extension and the removal of interest deductibility on rental properties. If the Labour party had come out in favour of further new taxes, they would have seen this as being a huge win, but now that Chris Hipkins has ruled it out, tax will likely take the back seat for some time until more is revealed about each political parties specific revenue manifesto.

As for the Official Cash Rate, mortgage holders across New Zealand will be relieved that the OCR has remained on hold. That being said, a number of mortgages still have not been refixed, and many home owners with rates of between 2 and 3 percent are set for a substantial jump when they refix this year. Mortgage and credit card arrears are up, with reports in May 2023 suggesting that almost 20,000 homeowners are past due on mortgage repayments. Many New Zealanders will be hoping that this is the peak of the Official Cash Rate, however inflation remains well above the target range and there is still plenty to go under the bridge before the Reserve Bank meet again to discuss any changes.

Ultimately, New Zealanders are still laser-focused on the economy and their back pockets. That doesn’t look like it’s going away any time soon either, many commentators have suggested that this election will be won or lost on how each party plans to manage the economy. For an incumbent Government that is difficult as they have a track-record to defend, but even for the Opposition, they need to be crystal clear on how their plan affects all New Zealanders and what specifically they will do to stop inflation biting at the heels of Kiwis.