OPINION: Property investors will be breathing a collective sigh of relief at Labour's proposal to introduce a new 39 percent top tax rate on anyone earning over $180,000 a year. Not because anyone likes to pay more tax, but because investors are all too well aware that the policy could have been aimed at them.
Landlords have been subject to some pretty harsh treatment by the Government over the past three years, and few would have been surprised at yet another round of measures designed to punish them for their foresight. Yes, it’s true that the Prime Minister, Jacinda Ardern, ruled out any capital gains tax during her term of leadership, but that promise had already been broken by the earlier extension of the bright line test (which is a form of capital gains tax).
There were fears that Labour might adopt the Greens much more aggressive wealth tax policy, which is also another form of capital gains tax, but the party has instead opted to hike the highest tax rate with a promise that there will be no further tax increases during the next term of government if re-elected in October.
Frankly, it’s a smart policy. On the one hand, it’s a sop to Labour's left-wing flank who want higher taxes for the rich. The fact that the three percent of New Zealanders who earn over $150,000 already pay almost a quarter of all personal income tax is irrelevant to these people; they just want more tax on the wealthy as a simplistic panacea to society’s ills.
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At the same time the policy will calm the nerves of middle New Zealanders who have been spooked by Nationals portrayal of Ardern as "Taxinda" and by the frightening projections of the impact of Covid-related debt on this and future generations. Virtually none of these people will be affected by the proposal, removing one obstacle to voting Labour for those who might otherwise have been inclined to do so. In fact, it’s my view that Labour's internal polling has probably highlighted that this has been an area of weakness for them and that this proposal is their response to that concern.
But even those who are affected by the policy will probably be relieved. For the two percent of Kiwis who earn over $180,000, the new rate is not onerous and few of these people are likely to quibble, even though they are already the largest contributors to our tax base by a huge margin. For example, someone earning $200,000 a year would pay an additional $23 per week in tax, or around $1200 per annum under this proposal, which is arguably unfair, but hardly enough to foment the seeds of a revolution.
But now for the bad news.
Firstly, claims that this tax increase is intended to help a future Labour Government to repay debt are nonsense and the proposed increase is being done for political, rather than economic, reasons. The amount which would be raised by the policy – around $550 million – pales into insignificance against the sums being borrowed and spent by this Government and if they were genuine about dealing with debt they could save several times this amount, in any given year, simply by being more targeted in their spending.
Secondly, just because this is their declared policy doesn’t mean that it’s what will actually happen, even if Labour gain the most votes in the October election. In our MMP system parties can bring their policies to the table during coalition negotiations – but that doesn’t mean that those policies will necessarily make the final cut. If we end up with an election result in which Labour need the support of the Greens to govern, all bets will be off when it comes to tax policy and we may well still end up with the Greens' disastrous wealth tax proposal, which would tax people with a net equity of over $1 million dollars in their home (a very large number of Kiwis).
For this reason, we can relax for now, but we won’t really know how Labour would treat investors, or anyone else, until the final votes have been counted and we see what a new Government might look like.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
* A earlier version of this article incorrectly stated the Greens' proposed wealth tax would affect all homeowners. We have amended the copy to reflect what the policy would cover.
