Bad timing for bad tax

Just a day after announcing they’ll let people earning less than $70,000 keep $27 a week more of their own money temporarily, Labour pushed legislation that will take much more off all of us permanently.

The Government is using dirty tactics as it pushes through enabling legislation to increase PAYE revenue by 10% under the cover of yesterday’s Budget, says the New Zealand Taxpayers’ Union in response to the Income Insurance Scheme (Enabling Development) Bill.

Union spokesman Jordan Williams says, “This is a tax branded ‘insurance’ by spin doctors to try and make it palatable. They are polishing a stinker. The ‘premium’ is not risk-based or reflective of individual circumstances. It is in practice a massive extension of PAYE, increasing revenue from the PAYE system by 10%.”

“The audacity of the timing cannot be understated. Labour is pushing it through first reading in a special Friday session of Parliament, less than 24 hours after a massive Budget that taxpayers, the media, and the Opposition are still busy digesting. This is cynical politics – Labour is playing dirty to push through a tax it knows will not stand up to public scrutiny.”

“Even worse, the Government is pushing this new tax as the costs of living spikes. The tax on workers will reduce take-home pay by up to $1,820 a year – far more than the temporary cost of living handouts announced yesterday. The additional tax on employers will in practice be passed on to workers, or translate to higher prices adding fuel to the inflation fire.”

“‘Unemployment insurance’ might be the name the PM’s media advisers have come up with, but Kiwis are smart enough to see right through it. It’s a nasty tax on employment, at the worst possible time. It’s also a recipe for rorting: family businesses will manufacture redundancies to take advantage of the generous handouts; and people on salaries as high as $131,000 will take six month sabbaticals between jobs, on 80 percent pay, courtesy of tax-paying workers.” 

Just one day later, Saturday, was tax freedom day and it came 10 days later than last year.

. . . Baker Tilly Staples Rodway has calculated New Zealanders will pay 10 days’ worth of taxes more in 2022 than they did last year, largely because of last year’s reintroduction of the 39 percent top tax rate.

It says the tax increase works out at 15 percent more than last year and brings tax freedom day back to where it was in the early 2000s.

Another significant concern is “bracket creep”, where an individual receives an increase in their salary, pushing them into a new higher tax bracket on their marginal earnings.

“The effects of bracket creep are becoming more obvious as more Kiwis receive pay rises,” Baker Tilly Staples Rodway tax director Mike Rudd said.

“That’s having flow-on effects such as Working for Families payments essentially being paid directly back to the government after tax.” . . . 

That’s two working weeks’ of tax paid before subtracting even more for the insurance scheme, the merits of which are questioned by many accountants:

. . . Chartered Accountants Australia and New Zealand said about half of its members supported the scheme as it could help people in sectors where redundancies were not offered and give people who had lost their job more time to find another role that matched their skills.

But members also had major concerns about the proposed timeframe, its cost, its effects on low-income families and the potential for the system to be gamed, he said.

“Many of our 31,000 Kiwi members have significant reservations about whether the scheme should go ahead, regardless of whether they support the policy rationale in principle,” CA ANZ New Zealand country head Peter Vial said.

Accountants had also been unable to review any of the detailed data and modelling for the scheme, or how it would be funded, Vial said.

“That’s a pretty concerning lack of transparency for a scheme that will impose significant costs on all New Zealand employers and employees – and considerable cost to the public purse. . . 

Vial said it would be “ambitious” to try and have the scheme up and running by the end of 2023 and suggested it would take a couple of years to develop the program to work out details, such as how it would work for low-income employees who would be least able to afford the levies.

“If the government does introduce a scheme, it needs to be as fair and efficient as possible, and economically viable, and must be careful that the proposal does not act as a disincentive for people to go back to work.”

Vial said there were alternatives that could be considered, such as expanding the scope of the Accident Compensation Act to include insurance cover for health events and disabilities that people away from work, as well as implementing an Australian-styled system which would provide minimum redundancy entitlements. . . 

We’re already paying more tax through bracket creep and inflation’s impact on GST. The flawed, compulsory insurance scheme will take even more from us.

It’s doubtful there’s ever a good time to impose a new tax on people.

Doing it now when the economic impacts of Covid and inflation are overstretching so many budgets for households, businesses and charities, would be bad enough. Doing it for a scheme that is unfair on people on lower incomes and so open to rorts is even worse.

This is bad timing for a bad tax that demonstrates yet again how out of touch the government is with how difficult finances are already for so many.