Income Tax: Slice creep not the big deal, says Parker

Revenue Minister David Parker has indicated he is not interested in increasing income tax brackets as inflation rises, saying his aim remains to identify untaxed income .

Speaking to Parliament’s Finance and Expenditure Committee, Parker said
he had not sought advice from officials on how inflation, and therefore rising wages, pushes people into higher tax brackets.

“I think the main problems in terms of the progressivity of the tax system are not in the tax brackets, but rather in the income that we don’t see and don’t know if it’s taxed,” Parker said.

“[This] That’s why my goal has been to try to get better information about it.”

The National Party promises to lift income tax thresholds if it enters government in next year’s election.

He is campaigning to raise the upper limit of the lower bracket (taxed at 10.5%) from $14,000 to $15,600; the limit of the next bracket (taxed at 17.5%) from $48,000 to $53,500; and the limit of the next bracket (taxed at 30%) from $70,000 to $78,100.

National expects this adjustment to cost $1.66 billion.

Responding to questions from national finance spokeswoman Nicola Willis, Parker clarified that he did not need officials’ help to understand the concept of slice creep.

“It’s very easy to calculate,” he said.

He noted that it was more difficult to know, based on Statistics NZ’s Household Economic Survey, how much income was not taxed.

Parker asked Inland Revenue to collect data on how much tax the country’s wealthiest individuals pay.

He also asked the ministry to collect information on how much GST people in different income and wealth groups pay.

Parker said it was simply an “exercise in gathering statistical evidence”.

“The information is very relevant for tax policy, to understand if the tax system is fair,” he said.

“I have no intention of starting work on other taxes, as I am committed to our promise not to introduce new taxes. [in this term of government].”

Still, that didn’t stop Parker from showing his fondness for a capital gains tax.

He went so far as to admit that he believed the government’s interest limitation rule was less than a capital gains tax.

“You can argue that what we’ve done on interest deductibility is an imperfect remedy, because of the country’s inability to come up with more rational remedies,” Parker said.

Asked by Willis about the nature of these ‘more rational remedies’, Parker said: ‘We as a party tried to pass a capital gains tax because we thought that would be a good remedy. We didn’t and we said we won’t. Therefore, you are left with worse remedies.

The interest limitation rule, which began to be phased in last year, prevents residential property investors from deducting interest as an expense from their income when paying tax. Investors with secured mortgages on new construction, less than 20 years old, can continue to make these deductions.

Critics of the rule, including the National Party and Chartered Accountants Australia New Zealand, say it is too complex and creates distortions in the tax system.

But according to Parker, the higher interest rates rise, the more the rule prevents distortions in the system.

His argument is that it’s essentially one thing for an owner occupier to bid against an investor at an auction when the investor can write off 3% interest, for example, but the owner occupier cannot do the same to reduce his income. tax bill.

It’s another thing when that mortgage rate is 7%. 100, for example, and that the investor can take advantage of the deduction, but not the homeowner.

Parker said he’s still “really proud” the government is leveling the playing field by preventing investors from being able to deduct interest as an expense.

He also pointed to the likes of the Reserve Bank as acknowledging the rule as one of the factors that helped cool the housing market.

The slowdown in property price growth also coincided with the Reserve Bank’s lifting of the official exchange rate, tighter loan-to-value ratio restrictions, a spike in construction consent issuance and updates to the Credit Agreements and Consumer Credit Act requiring lenders to conduct more thorough stress tests. potential borrowers.

Looking ahead, Parker is expected to begin consulting the public soon on a set of tax principles, which he would like to incorporate into legislation.

He wants to hold tax officials to formally report on the performance of the tax system against these principles.