We believe every New Zealander deserves the chance to make an informed decision on Election Day. We’ve answered some of the most common questions on our 2020 tax policy, including how much money will be raised from our new top tax rate, and how this will be used to control debt and help our economic recovery from the impacts of COVID-19.
Q: What are Labour’s proposed changes to tax?
A: For 98% of New Zealanders, there will be no income tax changes. If you earn less than $180,000, your income tax won't change, and there will be no further rises for the next three years.
The new top rate will affect 2% of earners – those earning more than $180,000 – and would apply only to income earned above $180,000. This means someone on $180,000 won’t pay any more tax. A person earning $200,000 a year will pay an extra $23 a week. This revenue will go towards supporting our economic recovery. Check out this new tool to check if your income tax will be affected,
Our policy on this won’t change over the term. We’re committing now to no new taxes and no further income tax changes for at least the next three years. That includes no fuel tax increases for the whole of next term.
Q: How much money will be raised?
A: A new top tax rate on income above $180,000 is forecast to generate $550 million of revenue a year. The digital services tax proposals to level the playing field by making multi-nationals pay their fair share will raise between $30 million and $80 million a year, depending on the final design agreed by the OECD.
Q: What will you do with the money that this new top rate raises?
A: New Zealand, along with the rest of the world, is facing a 1-in-100 year health and economic shock as a result of COVID-19. While we’ve borrowed to cushion the blow through emergency measures like the Wage Subsidy, we will continue to manage the Government’s books carefully. The money raised will go towards keeping debt under control and making sure we can balance continued investment in critical public services like health and education.
Q: What other tax policies will Labour announce this election?
A: This announcement is the full extent of Labour’s revenue policy for the 2020 election. We have already said we will not raise fuel taxes next term (2021-23), and we are committing to not implement any further new taxes or any further increases to income tax next term. Other Government levies and duties will be adjusted as per normal government practice, and as set out in each year’s Budget documents.
Q: How will New Zealand’s top tax rate compare to other countries?
A. New Zealand’s top tax rate will still be in the bottom third within the OECD – a group of 36 advanced economies – and will be lower than many of the countries we compare ourselves to, including Australia. For example, Australia has a top income tax rate of 47% for income above A$180,000. Australia also has a 39% tax rate for income above A$90,000 (both rates include Australia’s 2% Medicare levy).
Q: Why did you choose $180,000 as the threshold for the new top rate?
A: It’s about balance. This threshold means no change for 98% of people. The increased contribution from the top 2% of income earners means we can protect essential services like health and education and keep debt under control as we respond to COVID-19. New Zealand previously had a top income tax rate of 39% during the 2000s. The $180,000 threshold also matches the threshold for Australia’s top income tax rate – although New Zealand’s top rate will be lower (at 39% vs 47% in Australia, including the 2% Medicare levy).
Q: Will New Zealand put a digital services tax in place if the OECD can’t reach an agreement?
A: It’s only fair that multinational corporations pay their fair share. If the negotiations at the OECD level don’t reach an agreement, then New Zealand will follow other countries that have already announced that they will introduce digital services taxes. We’re already doing the work on this so that we can move quickly if the OECD doesn’t reach agreement.
Q: Is the new 39% tax rate calculated just on my income or including my partner/household income as well?
A: This new rate is based on individual income. It won’t apply to you if your household earns more than $180,000 combined, as long as your individual income is $180,000 or less. For example, a household with $240,000 of income through two people who both earn $120,000 will see no change - as both individuals are below the new top rate threshold of $180,000.
Check out this cool new tool to check if your income tax will be affected, and read more on Labour’s tax policy here.
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