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Lost – Billions in Revenue

Andrew Williams MP
Spokesperson for Revenue
7 May 2014

Lost – Billions in Revenue

The National Government’s ill-advised income tax cut in 2010 for higher earners has cost New Zealand over $4 billion in lost revenue, says New Zealand First.

“This was a totally misguided and irresponsible action that ignored the welfare of New Zealanders as a whole,” says New Zealand First Revenue Spokesperson Andrew Williams.

“In Parliament today Finance Minister Bill English struggled to provide adequate answers to questions on the subject and claimed additional revenue from GST, and property tax, offset the loss. The figures dispute everything he is saying.”

The Government reduced the tax rate on incomes over $70,000 from 38 per cent to 33 per cent in the 2010 Budget.

“Given all the cuts to public services in the four years since then, including conservation, biosecurity services, and a multitude of other cuts to agencies and important programmes, New Zealanders have paid a big price for this mismanagement of our finances.

“The New Zealand purse has also lost the benefit of dividend streams as the government sold state assets, against the wishes of a majority of New Zealanders.

“The lost revenue from three power companies – Meridian, Genesis and Mighty River - and Air New Zealand totalled about $146 million in the last six months alone. Imagine the services this revenue could have funded.

“The Government has ignored the overall welfare of most New Zealanders by cutting taxes for the higher earner and foregoing dividends by selling performing assets.

“The Government also stopped contributions to the New Zealand Superannuation scheme. The lost income from both the tax cuts and the dividends could have been invested for New Zealanders retirement super.”


Income tax reduction

From 1 October 2010 the top income tax rate was reduced from 38 percent to 33 percent for incomes over $70,000.

The estimated cost of this income tax rate reduction is shown in the following table. Note that as the top income tax rate was reduced, the Crown would have received additional revenues through GST, excise duties and company taxes. This is because households would have spent some of their additional net disposable incomes, leading to further tax receipts in these other areas. Therefore, I have included two sets of numbers. The cost of reducing the top income tax rate, and the net cost after taking into account estimates of additional revenues through these other sources.

Year ended 30 JuneReduction in the top income tax rate from 38% to 33% (lost revenue ($m)Increase in revenue from additional GST, excise duties, and company tax revenues ($m)NET estimated cost of reducing the top income tax rate from 38% to 33%
9 months ended 30 June 2011642-132.0724
Total of above ($m)4,015-651.83,578

The estimated cost of reducing the top income tax rate from 1 October 2010 through to 30 June 2014 is estimated at $4.0 billion. After taking into account additional GST, excise duties and company tax revenues, the net cost over this period is estimated at $3.6 billion.

Source: Parliamentary Library

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