Taxing time for everyone

Tax is lining up as a prime election issue.

It is a matter on which all parties are vulnerable. Most voters want more government-funded services in areas they care about.

Most do not wish to pay more taxes to fund the multitudinous demands on the public purse.

The Greens and Te Pati Maori, from the left, would tax us more, including wealth taxes. The country’s prosperity would be redistributed in a "more just" way.

The problem, of course, is that heavier taxes could well shrink the pie size to be shared.

Money and enterprise could flee offshore. Aspirations would be dampened, and New Zealand could become less able to compete in a highly competitive world.

New Zealand is such a small fry and so dependent on world markets that truly independent economic policy is well-nigh impossible.

Under the brief prime ministership of Conservative Liz Truss, much bigger Britain tried a different approach. The financial reaction quickly forced her resignation and brought the country into orthodox thinking.

Finance Minister Grant Robertson and Revenue Minister David Parker were working on a wealth tax. Prime Minister Chris Hipkins ruled out that bold move, and Mr Parker has resigned from that ministerial post. It was "untenable", he said, for him to continue.

Mr Hipkins is giving every indication of being risk-averse and following focus group guidance.

Hence the planned, or so National says, removal of GST from fresh food and vegetables.

Should this be part of Labour’s tax policy, it will represent another dead rat Mr Robertson must swallow. It is a bad idea and a cynical, disturbing and damaging sop to populism.

While polls show majority support, most voters are yet to understand the issues.

Although businesses would cope as they have overseas, additional bureaucratic burdens and costs, complications and disputes would arise. All this would be for little benefit.

It is poorly targeted, with the heaviest eaters of fruit and vegetables being the educated and better-off classes.

There are also doubts about how much of the cut would be passed to consumers.

Imagine, too, $14 a kilo of out-of-season tomatoes being GST-free, while cheap nutritious canned tomatoes were not. As Mr Robertson noted, when rubbishing the idea earlier this year, not many poor people bought fresh beetroot.

Meanwhile, GST would continue on the likes of rates, sanitary products and milk and bread.

All the lost GST income would have to be made up from somewhere else. The Michael Cullen-led tax working group of 2018 was firmly against taking GST off food.

The nation’s deteriorating deficit and the elevated debt after Covid make it difficult for both Labour and National.

Labour might have wanted to spike National’s guns on tax thresholds, but the amount of money lost for something significant is huge. Anything tiny and the infamous "chewing gum" tax-cut line that nearly lost Labour the 2005 election, would be thrown around.

Bracket changes also flow through to benefit the higher paid.

National will want to seem economically prudent and fiscally responsible. This will limit its options. It has already had to ditch, for now, at least, plans to abolish the 39c rate for income over $180,000.

It will, nonetheless, need to follow through on threshold changes. Bracket creep has been an effective way to raise much more revenue through these insidious tax rises.

But inflation adjusting brackets to pre-Labour days would cost about an unaffordable $4 billion.

Labour will press National, as it should, on how taxes can be reduced without cutting core spending.

Smaller parties with no chance to lead the Government can afford to be loose with their figures and predictions. New Zealand First’s tax and spending policies simply do not come close to adding up.

The public needs to consider party tax claims with scepticism. That could be on the practicality of wealth taxes, especially on unrealised gains like the value of farms, on GST off fresh fruit and vegetables and on the realism of tax cuts.