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Labour's Tax Increase: A Comment

Today the Labour Party announced a rise in the top tax rate, from 33% to 39% for those earning over $180,000, should it win the upcoming election. Of course, few people in that income category are likely to be Labour supporters anyhow.


What to make of it? Looks like a shrewd political calculation. The amount of revenue raised will not make a significant dent to NZ's ballooning levels of public debt. However the policy sends a powerful signal. Labour is mapping out its territory for being fiscally responsible. It's biggest weakness - up until yesterday - had been that it was happy to continue on a spending and borrowing spree, arguing debt was no big deal since interest rates are so low. Now Labour is signalling that is prepared to address, even in a limited way, how that debt is going to be repaid.


Crucially, Labour has put the ball firmly in National's court. Since the Nats must respond by arguing that they are the more fiscally conservative party. After all, fiscal responsibility is their territory. But how? Having promised not to increase taxes, National will be forced to say they will make spending cuts. But cuts to what? The heat is on.