Labour has announced its tax policy, and it is surprisingly conservative. Labour is proposing that if it is re-elected then it will introduce a new top rate of 39% kicking in from $180,000. On Labour’s numbers this affects only 2% of taxpayers and will only bring in a relatively modest $550m.

The policy rules out any other new taxes, or tax increases. The only exception to this is regular increases to the taxes on tobacco and alcohol.
Surprisingly, the trust tax rate is being left at 33%. Inland Revenue’s policy division has previously shared the view that they would never allow the top tax rate and the trust rate to be different again after the fiasco that emerged after the 39% tax rate was introduced by the previous Labour
Government in 1999. Instead of changing the trust tax rate, Stuart Nash and Grant Robertson said that Inland Revenue resources will be used to enforce the Penny v Hooper decision where abuse occurs.

Those on the far left of the political spectrum will probably see today’s announcement as weak, and as a wasted opportunity. Those on the right will argue the change is nothing more than an envy tax.

The beneficiaries of this conservative approach maybe the Green Party whose tax policy is a bit more extreme. The Greens are currently teetering on the edge of not returning to parliament on current polling, so taking some votes from Labour would greatly benefit their cause. Grant Robertson wouldn’t specifically rule out parts of the Green Party’s policy is implemented though.

Labour’s conservative tax policy seems to be a bit of an admission that their prior tax policies have hurt them badly at the polls. You might recall that when Jacinda Adern ousted Andrew Little prior to the 2017 election, she promptly ditched Labour’s tax policy and instead deferred any decisions on
tax to a post-election working group.

Today’s announcements are politically astute and seem to be aimed at not alienating swing voters in the middle of the spectrum. Further, these changes are so minor that they will likely have caught National by surprise and I’m sure Labour will be trying to entice National to counter with tax cuts. This feels like a trap for National. If National did counter with tax cuts, Labour will undoubtedly try to make them out to be reckless.