The Green Party says it will refuse to back the Government in a vote to create a new top tax rate.
In the 2020 election, Labour promised to introduce a new top tax rate of 39 percent on income over $180,000. The Bill to create this is scheduled to be debated in Parliament on Wednesday afternoon for the first time.
Finance Minister Grant Robertson says the new rate is "a balanced measure that is about sharing the load".
But it won't pass with the support of the Greens, who say since the legislation doesn't create a wealth or capital gains tax it will see high-income earners shuffle money into property, further increasing inequality.
"The last time the top tax rate was increased to 39 cents without also taxing wealth or capital gains, we saw house prices increase 17 percent because people channelled income into trusts instead, and those trusts invested in property," says Green Party co-leader James Shaw in a statement.
"This Bill will just increase the distortion between income that is earned through work, and income that is earned through property investment and wealth accumulation.
"It is because of these reasons that we could not in good conscience support legislation that is likely to lead to worsening wealth inequality".
However Revenue Minister David Parker says the Government is aware some people try to escape the higher tax rate by sheltering their income in trusts.
"This Bill includes powers to collect information from trustees to test compliance and the effective operation of the 39 percent tax rate and to further understand what trustees do with trust assets and income," he says in a statement.
"If trusts are used for the sole purpose of paying a lower tax rate, it is unfair to all those New Zealanders that pay the right amount of tax. If there is evidence of this type of behaviour we will move on it."
How will the tax rate change work?
New Zealand operates a progressive tax system, which means as your income increases the amount above each band becomes taxed at that level. The Bill would see five individual income tax rates in New Zealand:
- 10.5 percent on income earned between 0 and $14,000
- 17.5 percent on income earned between $14,001 and $48,000
- 30 percent on income earned between $48,001 and $70,000
- 33 percent on income over $70,000
- 39 percent on income over $180,000
"This will only affect the top 2 percent of earners," Finance Minister Grant Robertson says. "For 98 percent of earners there won't be any change."
The new tax bracket is forecast to generate $550 million of revenue a year.
