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New Zealand PM Ducks ‘Bizarre’ Questions About Paying for Relief

Posted on May 11, 2020

As legislatures announce pandemic relief measures that collectively will cost trillions of dollars, New Zealand’s prime minister said questions about whether her coalition will raise taxes to pay for the country’s stimulus measures were “bizarre.”

The issue of how national governments will finance the unprecedented programs appears to have gotten short shrift as political leaders scramble to keep people and businesses afloat during the COVID-19 crisis. The question took center stage, however, during the New Zealand Parliament’s question time May 7, when opposition leader Simon Bridges grilled Prime Minister Jacinda Ardern about whether her government will introduce a capital gains or wealth tax or increase personal income taxes to fund its response to the pandemic. Ardern responded that she was not “going to bring in a [capital gains tax].” Bridges then said, “Can we take it from that answer that [you are] considering a wealth tax?” Ardern replied, “No.” 

Bridges followed up by asking whether Ardern would rule out an increase in personal income taxes. “I have to say, I find it bizarre that when we're in a scenario where we are doing everything we can to support and increase the incomes going [to] families [during] this one-in-100-year event, the member would start asking questions like that,” Ardern replied. Bridges "should make no assumptions, no hypotheticals — but as you can see from everything we've done, we're focusing on increasing the incomes going [to] lower-middle-income earners and supporting us through this incredibly tough time.” 

Ardern then jabbed back at the opposition, which was led by Bridges’s center-right National Party until her Labour Party teamed up with the New Zealand First Party to form a minority government after elections in 2017. “I can confirm that, obviously, the last government did believe in bringing in tax cuts that would have disproportionately benefited people in this House,” she said. “You will have seen from decisions made by this government, actually ministers in cabinet decided that they would take a pay reduction to support and acknowledge those who, at the moment, are doing it tough.” 

Before it lost power, the National Party’s coalition had announced a series of personal income tax cuts to take effect in 2018, but Ardern’s government later canceled them. 

Robin Oliver, a director at OliverShaw Ltd., a tax advisory firm, said that while it is natural for a center-left government to focus on the benefits that it claims its actions are producing, it is equally natural that the center-right opposition would want to focus on the cost of those efforts. “The government seems to have committed to spend something like 15 percent of our GDP in response to the epidemic in financial support,” Oliver said. “In addition, it seems the economy will operate for some time at a much lower level, reducing tax revenue and increasing costs of the benefit system, etc. These costs ultimately will have to be borne by the taxpayer in one form or other. When it is appropriate to consider how that will be done seems a matter of political judgment over which people may legitimately disagree.” 

John Bassett, a lawyer with Bell Gully, said the media should also be asking some of the questions that Bridges put to the prime minister. “It is the constitutional role of the opposition, and the fourth estate, to query action the executive has taken or may take,” he said. “Either could legitimately have asked the question, although the fourth estate in New Zealand is currently not mindful of this role. No doubt you will draw your own conclusions from [Ardern’s] answer, but it does indicate some testiness because the question was answered more by way of indignation rather than recognizing the importance of the issue.” 

Bassett said the government’s budget proposals, which will be introduced May 14, will likely include no reference to new or increased taxes. “That topic will be left to the election manifesto for the upcoming election,” he said. “Tax can be a toxic political issue, and advantage may be seen in deferring raising it as a current political issue.” 

New Zealand’s last fiscal shock came after the earthquake in Christchurch in 2011, Bassett said. “The government of the day accepted liability for the not insubstantial rebuild cost for the city,” he said in an email. “The approach taken was to fund the cost not by increasing tax, but through a growing economy that would increase the tax take, accompanied by greater spending discipline applied to existing commitments, later stigmatized as ‘austerity.’” 

Bassett said countries around the world will soon need to grapple with what he described as the extremely difficult issue of how to pay for the sudden spike in sovereign debt. “In most countries, it could be expected that the tax lever comes with political risk because the extent of increased tax is likely to be commensurate with the degree of opportunity created for political opponents,” he said. “No easy answer here, I think.” 

Ardern’s comment about the previous government’s proposed tax cuts “that would have disproportionately benefited people in this House” apparently referred to members of Parliament, whose incomes are higher than those of the average citizen, Oliver said. “Presumably, the reference is to National’s past and [its] intention of reducing tax rates on higher incomes,” he added. 

Bassett agreed. “Parliamentarians are paid more . . . and so all would pay less tax if rates were reduced or tax bands widened,” he said. “As to whether the benefit would be disproportionate, the logic may be suspect. Unless the cut is truly substantial rather than a mere tinkering, the higher a person’s income, the smaller the effect of a tax cut on total income.”

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