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Christopher Luxon on the fence about reviving Bridges-era tax indexation

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National Party leader Christopher Luxon’s tax bracket indexation is a one-off at this stage. Photo / Mike Scott

National leader Christopher Luxon is on the fence about whether National will continue to index tax brackets to inflation beyond the one-off adjustment his party has promised.

Former leader and finance spokesman Simon Bridges promised to pass legislation that would adjust tax brackets with inflation automatically every three years. He introduced a members’ bill to this effect, but it was voted down.

Earlier this year, Bridges as finance spokesman, promised a one-off adjustment of most tax thresholds for inflation that has occurred between the end of 2017 and the end of 2021.

Current finance spokeswoman Nicola Willis said that if the party can adjust the brackets even further it will, but Luxon would not say whether the party will bring back automatic indexation, suggesting the cuts are a one-off at this stage.

Luxon said National would “give some thought” to the idea of automatic indexation, but said National’s current plan was the one-off tax cut promised earlier this year.

“We’ll give that some thought as we get closer to it, but from now we’ve been really clear over the course of the parliamentary term we’ll have indexation,” Luxon said.

“What we’ve been really clear about is we are going to have indexation of tax thresholds. It is common in many other jurisdictions,” Luxon said, referring to the current policy.

Bridges’ bill would have meant brackets would be adjusted by CPI inflation every three years.

The changes would have been given effect by an Order of the Executive Council, so the Government would still have an opportunity to veto the recommended tax change should it wish to.

However, the legislation would have put immense political pressure on the Government to allow the bracket to be adjusted with inflation.

The idea was popular because it put an effective lid on the size of the state’s revenue gathering, putting an end to “bracket creep”.

National came under fire last week from Craig Renney, a CTU economist and former staffer of Finance Minister Grant Robertson.

Renney ran numbers on National’s existing tax policy arguing its cost was far larger than advertised.

National costed its indexation policy at $1.7 billion earlier this year based on the latest data available. However, that data used figures gathered in 2020 and published in 2021.

Renney argued that using more recent inflation data the brackets National would legislate would cost closer to $1.9b if they were legislated in National’s 2024 budget, the first after the 2024 election. Adjusting the policy to take account inflation in 2022 or 2023 would cost even more.

Luxon defended the policy saying “what we’ve previously said is that we think that as a principle indexation is really good.

“We don’t think it’s fair at the moment we don’t think it’s fair that Kiwis are getting caught with high levels of inflation, moving into higher tax brackets, and paying higher levels of tax,” Luxon said.

“We don’t have an income problem in New Zealand, we have a spending problem,” he said.

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