Recently released budget figures show that New Zealand (NZ) is in sound financial shape, with a deficit of 9.7 billion dollars, less than half of what was predicted in the budget of 2022. This has prompted calls for tax cuts from the official opposition National Party and the Association of Consumers and Taxpayers Party (ACT).  In what could emerge as a defining issue in the next NZ election, expected late next year, the governing Labour Party and their Green Party coalition partner are adamantly opposed.  

There are both positive developments and cause for concern in the NZ economy. Unemployment is low, and the gross domestic product is growing. Businesses have hired more staff, thereby generating more tax revenues than expected, and expenses on COVID relief programs are down. On the other hand, inflation at 7.3% is the highest rate seen in NZ in 32 years, and interest rates are rising.

National Party finance spokesperson Nicola Willis urges the government “to just let Kiwis keep more of what they earn.”  The proposed tax cuts are weighted toward higher-income earners, including eliminating the top tax rate. ACT is critical of high government spending and rising debt and taxation. Both parties would cut public services because they blame government spending for fuelling inflation. They have not specified which services would go.

Labour Finance Minister Grant Robertson promises “incredibly rigorous” spending in a strong economy with a plan to reach budget surpluses by 2024/25.  Tax cuts are not part of the plan.  He urges caution in uncertain times with a volatile global environment, including supply chain issues and rising fuel costs.  Robertson notes that there is still a deficit and people still need government programs.  He is strongly opposed to “frittering away” NZ’s economic advantages on tax cuts to those who need it least.  In his view: “Cutting the top rate of tax at a time like this is completely crazy.” 

Everyone has something to say about the recent debacle in the United Kingdom (UK).  After taking office in September, British Conservative Prime Minister Liz Truss announced unfunded tax cuts that would abolish the top tax rate and cancel proposed corporate tax increases. This caused market turmoil. Investors sold off British assets. Borrowing and mortgage costs soared. The value of the British pound plummeted to a record low against the US dollar. Truss’s government was forced into an embarrassing U-turn on its tax proposals, and after little more than a month in office, Truss fired her Finance Minister.  

In NZ, Robertson argues that the proposed tax cuts would cause similar problems. The National Party says that the situation in the UK is different because the British government wanted to cut taxes while at the same time stimulating the economy by assisting consumers in paying their energy bills. The National Party also argues that cutting the top tax rate is necessary for NZ to attract foreign professionals.

With the UK in mind, Green Party Finance spokesperson Julie Anne Genter condemns the proposed NZ tax cuts as “wholly irresponsible, especially at a time when costs for most families are going up.” She predicts that the tax cuts would fuel inflation and leave the government with less money for important investments in education, healthcare, and infrastructure. Genter warns, “People should look to the UK Conservative Party for a sense of what could happen if the National Party got into power here. It should be a cautionary tale for us all.”

David Arnott

David Arnott of Toronto, recent graduate of Political Science from McGill University.

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