A leading economist considers Labour's tax policy a soft "nudge" compared to what the party could have proposed.
Labour announced on Wednesday that if re-elected, it would create a new top tax bracket of 39 percent for income over $180,000. No new taxes or further income tax increases would be implemented in the party's second term.
Finance spokesperson Grant Robertson said New Zealanders want "certainty and stability", striking a balance between maintaining spending in vital services while keeping taxes the same for 98 percent of Kiwis.
"The necessary borrowing for the COVID-19 response meant we could fund emergency measures like the wage subsidy, which protected 1.7 million jobs and gave businesses and workers confidence during lockdown. But we have to be careful about not running up more debt than necessary for our recovery," Robertson said.
"I have made it my focus over this term of Government to manage our books carefully and bring down debt. That focus will continue. Generating extra revenue now will help keep debt under control."
Cameron Bagrie, managing director of Bagrie Economics, says, in the near-term, to support the economy, money needs to be put into people's pockets. But long-term, someone is going to have to pay for our current sky-high borrowing.
"Certainly, if I think beyond COVID and once we get the economy back on track, we have a big bill to pay for because we have loaded up the balance sheet," he told Newshub.
"There has been an awful lot of money that is being borrowed and we are going to face the stark reality of less spending or people are going to need to chip in a little bit through higher taxes."
Labour's new tax rate is expected to generate about $550 million of revenue each year, but the upper tax rate remains lower than in many countries. For example, Australians making more than $180,000 pay 47 percent, including the 2 percent Medicare levy.
When looking at the billions of dollars being racked up in spending, Labour's policy isn't a big move, Bagrie says.
"What we have seen was what I'll call a bit of a nudge and we are going to collect a little more tax to help pay for that bill or eventually down the track. But emphasis here, it's a nudge. It's a very small tweak."
But that "nudge" has whipped up backlash from a range of political parties.
While Robertson has said Labour won't increase income tax further and is committed to only implementing this policy, National says he has left the door open to increasing other taxes. That's been called "misinformation" by Jacinda Ardern.
ACT says the proposed tax change will raise little revenue and claims Labour has no plan to repay debt.
Meanwhile, the Green Party, typically an ally on the left for Labour, said the policy doesn't adequately address a growing wealth gap and inequality or do enough to pay for the COVID-19 response. That party continues to advocate for a wealth tax on those with a net-worth over $1m.
But Bagrie doesn't believe the public will be put off by the policy.
"I don't think, in all honesty, there is going to be too many grizzles about that. I think you are going to see a few grizzles from the more left-leaning side of the political fence that says it doesn't do enough," he told Newshub.
"It's a real soft, moderate response compared to what could have potentially taken place."
The economist said New Zealand is a "delicate junction" because of not only the COVID-19 borrowing, but our ageing population which is becoming increasingly expensive.
That is going to lead to hard choices down the track, Bagrie said, and future Governments will have to consider potentially cutting back on entitlements, raising the retirement age, or increasing tax further to pay for it.
"In a perfect world, we would get the economy growing hellishly fast. If the economy is growing hellishly fast, we are getting a lot of tax revenue. All of a sudden, your debt burden disappears pretty quickly," he said.
"The problem with that so-called solution is that it is easier said than done. It's actually not that easy to magically conjure up a sustained period of stronger growth.
"That involves some pretty extensive micro-economic reform. You would really have to shake this economy up and turn it on its head. Do I think there is a strong political appetite for that? The answer is no."
He said being frugal with spending is possible, but unrealistic, leaving the tax lever as the only other option.
PricewaterhouseCoopers Tax Partner Geof Nightingale said Labour's income tax move "was probably the only place they could go, having ruled out Capital Gains Tax last year and they wouldn't put up GST as that's regressive".
Nightingale told The AM Show said the real wealth is in capital gains and in companies.
"This will stick to, what I would describe, as personal services income. People that work for it. No one is going to have too much symptathy for those of us who can earn that sort of money, but it is still labour income."
He would have liked New Zealand's 30 percent tax rate threshold to have been lifted. It currently applies to anyone making more than $48,000.
"No where else in countries we would compare ourselves [to] around the world would you pay 30 cents on the dollar at $48,000."
