If Labour hikes taxes, Australia will gain

Luke Malpass writes:

The Labour Party is expected to release its policy within the next week or so. There are increasing murmurs that this could include an income tax hike for higher earners. There have been many around Labour who have always thought the cutting of the top rate to 33 per cent by John Key and Bill English was anti-progressive policy that exacerbated inequality, and should have been repealed.

But hiking the top tax rate would be a big mistake. First, in order to make it politically palatable, it would have to apply to relatively few people, which would mean it would not bring in much money.

Second, Labour has done a good job of appealing to aspirational New Zealand and those who want to get ahead. Ardern nixed a capital gains tax on this basis. NZ First wouldn’t support it and, even if it had, it would have killed Labour politically.

The other problem is a more long-term one. While current Labour MPs are very proud of Michael Cullen’s fiscal management, he unambiguously failed on one big metric under his stewardship: there was a steady and growing exodus of Kiwis to Australia that shot up to nearly 40,000 a year.

One of the things that helped change that equation during the Key years was a Kiwi economy performing better, with an overall lower tax burden. Should Labour propose to jack up the top rate again, most Kiwis will be left with salaries that are an average of 25 per cent less, and taxes that are the same or higher.

Australia already has tax cuts legislated for both 2022 and 2024. The 2024 cuts, which are admittedly a while away, will see all Australians taxed a maximum of 30 cents in the dollar up to $200,000.

If we increase taxes while Australia cuts them, then I have no doubt we will lose people to Australia. Once the Australian tax cuts are implemented, NZers will be paying more tax on all incomes up to $250,000. Here’s a table of the differences:

IncomeNZAustExtra tax NZ
 $    10,000 $    1,050 $           –   $          1,050
 $    20,000 $    2,520 $        342 $          2,178
 $    30,000 $    4,270 $    2,242 $          2,028
 $    40,000 $    6,020 $    4,142 $          1,878
 $    50,000 $    8,020 $    6,592 $          1,428
 $    60,000 $  11,020 $    9,592 $          1,428
 $    70,000 $  14,020 $  12,592 $          1,428
 $    80,000 $  17,320 $  15,592 $          1,728
 $    90,000 $  20,620 $  18,592 $          2,028
 $  100,000 $  23,920 $  21,592 $          2,328
 $  110,000 $  27,220 $  24,592 $          2,628
 $  120,000 $  30,520 $  27,592 $          2,928
 $  130,000 $  33,820 $  30,592 $          3,228
 $  140,000 $  37,120 $  33,592 $          3,528
 $  150,000 $  40,420 $  36,592 $          3,828
 $  160,000 $  43,720 $  39,592 $          4,128
 $  170,000 $  47,020 $  42,592 $          4,428
 $  180,000 $  50,320 $  45,592 $          4,728
 $  190,000 $  53,620 $  48,592 $          5,028
 $  200,000 $  56,920 $  51,592 $          5,328
 $  210,000 $  60,220 $  56,092 $          4,128
 $  220,000 $  63,520 $  60,592 $          2,928
 $  230,000 $  66,820 $  65,092 $          1,728
 $  240,000 $  70,120 $  69,592 $             528
 $  250,000 $  73,420 $  74,092 $           (672)

So someone on $160,000 a year will be paying $4,000 a year more income tax in NZ than Australia. And Jacinda and Grant want to increase that gap even more.

Yet Jacinda and Grant want to increase taxes, while Australia cuts them.

Also the median FT wage in NZ is around $60,000 and in Australia almost $80,000. So this means the median FT worker in NZ will be taking home $49,000 and in Australia around $64,500.

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