June 26, 2014 3:00pm by David Farrar

Herald on Labour’s tax the rich pricks more plan

Taxing the rich seems a defining policy of the Labour Party. It plays especially well to its left wing, a point underlined by the Council of Trade Unions’ hearty welcome to the announcement that Labour proposes lifting the top personal tax rate from 33c to 36c for those earning more than $150,000 a year. On other grounds, however, the policy doesn’t make a lot of sense. Not only is it unnecessary but it will surely raise far less additional revenue than anticipated.

Labour says the new top rate would raise almost $200 million in the 2015-16 year, increasing to $350 million a year by 2020-21.

It won’t. The 2000 tax hike for those earning over $60,000 did not produce any significant extra revenue, and may in fact have reduced it. It will just drive high earning NZers to set up a company (28% tax rate) or to move their tax base overseas.

Nor is much of value likely to come from its plan to clamp down on tax avoidance by internet-based multinational corporations such as Google and Facebook. As welcome as this instinct may be, and as unwelcome as the practice of avoidance is, there is little hope that its approach will yield anything like $200 million a year.

It won’t bring in $1.If anything, it will see them pay less tax in NZ, as they close their NZ subsidiaries, and just have people deal with say their Australian one.

The only was one can deal with global companies choosing a tax base in a low tax country, is through international agreement. Not press releases.