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Indexation Is Not The Answer

“National and Labour can spend all the time it wants arguing over whether The National Party’s policy of Tax Indexation is in or out – but the argument should be about whether this is good public policy. ACT says it’s not,” says ACT Leader and Finance spokesperson David Seymour.

“Tax bracket indexation a good start, but at the end of the day it’s exactly what it sounds like. Labour's policy adjusted for inflation. It’s not a tax cut. It’s tax tinkering that effectively freezes Labour policy in time.

“Either Labour's polices are a failure and we need real change, or Labour are doing a good job and we just need to tinker. It cannot be both. Tax changes are a good start, but the change has to be real.

“When our productivity growth is in the tank, the median wage gap with Australia is nearing $25,000, young people are leaving in droves, it’s time for real change.

“ACT exists to create better public policy. Tinkering around the edges might make you look busy, but it doesn’t improve New Zealanders lives.

“Successive Labour and National Governments have made our tax system more complex and less efficient – we now have six tax rates.

“The result is endless opportunity for tax avoidance, and that is not productive activity. Psychologically, it tells you that the money is not yours. We tell kids to study hard, work hard, save hard and invest carefully. Then the Government’s tax system ensnares them in a labyrinth of punishment. Talk about mixed messages.

“ACT is the only party that has released a fully costed Alternative Budget. ACT’s Alternative Budget for Real Change shows how the Government could reduce spending without touching any frontline service, and then deliver significant tax cuts to middle income New Zealanders.

“ACT’s Budget adds $1.5 billion of new spending for paying good teachers more, matching Australia with defence at two per cent of GDP, and sharing GST on construction with local councils to get housing built.

“That allows $3.3 billion of tax cuts, reducing the middle income tax rate down from 30c to 17.5c in the first year. A Nurse with one child, for example, earning $70,000 would receive around $2,300 in tax relief.

“People earning between $2,000 and $48,000 will get a Low and Middle Income Tax Offset of up to $800 that offsets the additional $980 in income tax. They will also receive an additional $253 in carbon tax refunds for every person in their household, leaving them better off overall. ACT’s tax swap leaves everybody better off.

“The net effect of these changes is that ACT’s changes reduce the deficit by $2.3 billion in the Financial Year 2022/23. The net effect is a reduction in fiscal impulse, pulling back inflation.

“Subsequent further tax cuts, reducing the 33 per cent rate to align with the Company Tax Rate of 28 per cent, would be implemented as soon as inflationary and fiscal conditions permit. Implementing them in Financial Year 2023/24 would allow a Government following ACT’s budget to return to Surplus by 2024/25 on current forecasts.

“Importantly, our plan results in operating allowances that exceed Labour’s from Budget 2021 in most years and equal theirs from Budget 2022 in 2023/24. We are able to deliver tax cuts without touching a single nurse, teacher, or front line public servant. In fact, they will all be better off thanks to ACT”s tax relief.

“However, tax cuts are not only possible, they are essential if New Zealand is going to break out of its post-COVID funk and become competitive in a world crying out for investment and talent.

“Our plan for a simple, fair and competitive tax system would reduce the fiscal impulse – whether fiscal policy is adding to or subtracting from inflation – below Labour’s in the first year and get to surplus in 2024/25.

“We are retaining the option of delaying the cut in the 33 per cent rate to 28 per cent if inflationary conditions continue for longer than expected. However, our goal is a two-rate income tax system by 2023/24.

“We need to put the values of aspiration in our tax system, making it fairer, simpler and more competitive. It’s not only possible, it’s essential.

“It’s time to stop arguing whether indexation is in our out and agree the policy is not up to the challenges we face.”

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