The Prime Minister is standing by his party's decision not to implement a major tax switch and isn't expecting a revolt from his voter base.
Prime Minister Chris Hipkins announced on Wednesday Labour would not campaign on a wealth or capital gains tax at the election. It echoes a call from former Prime Minister Jacinda Ardern during the first term of her Government when she ruled out ever introducing a capital gains tax.
Hipkins, who is in Lithuania for the NATO summit, told media overnight he stands by his position.
"I've made our tax position very clear. We've already made a commitment around tax in the budget, which was to close the loophole around people who use taxes to avoid paying their share of income tax," he said.
The announcement was timed to come out as the Government released documents developed as it put together Budget 2023.
They showed the Government considered a tax switch, which would have included a $10,000 tax-free threshold and other smaller changes paid for by a 1.5 percent tax on net wealth over $5 million. The tax wouldn't have applied to some personal assets, like the family home, and would have only captured about 46,000 New Zealanders.
Back in April, a two-year investigation by Inland Revenue revealed New Zealand's ultra-rich pay tax at less than half the rate of the average person.
But despite this, Hipkins said it was his decision not to proceed with the tax switch and didn't expect a revolt from his voter base.
He added now is not the time for a "massive radical new tax", particularly when he believes the country needs a period of consolidation given the current economic situation.
"No, I'm not [expecting a revolt] because I think New Zealanders want to see us focussed on the issues they're very concerned about at the moment," Hipkins said.
"They're concerned about the cost of living, they're concerned about the overall state of the economy, they're concerned about issues around law and order, the quality of our public services. Those are the things they want to see us focussed on."
The election is only three months away and looks like being a very tight race between the left bloc - Labour, Te Pāti Māori and the Greens - and the right bloc of National and ACT.
The announcement made by Hipkins on Wednesday contradicts what the Greens are campaigning on.
Shaw said the Greens would be willing to sit on the crossbenchers when asked if his party would still go into Government with Labour after its tax announcement.
Despite this, Hipkins wasn't worried about derailing support from Labour's potential coalition partners.
"It's the nature of proportional representation, the nature of MMP democracy is in order to advance their policies, parties have to get the support of a majority of the Parliament. The Labour Party won't be supporting a wealth tax."
One person who made his feelings clear following the announcement was Finance Minister Grant Robertson.
Roberston said the Government's tax-switch proposal had "merit", but he's a "team player" and continues to believe in the Labour Party despite Hipkins' decision to torch the idea.
He doesn't believe Hipkins is a chicken by walking away from the idea and then ruling out a wealth or capital gains tax under his leadership, a move Robertson says is just a continuation of former Prime Minister Ardern's position.
But despite this, Hipkins said there are no cracks in his Cabinet.
'Going to be dropped on us out of the blue' - expert
Dentons Kensington Swan tax partner Bruce Bernacchi told AM on Thursday a wealth tax was a terrible idea.
Bernacchi told fill-in AM co-host Michael O'Keeffe it was surprising how close the tax got to getting over the line.
"I was surprised we got as close as we did to having a wealth tax. The introduction of a wealth tax would have been the biggest change to the New Zealand tax system since the introduction of GST in 1985," he said.
"It's certainly not a tax that's widely imposed around the world, in fact, there were 12 countries that imposed a wealth tax back in 1990, now we've only got three. It's quite frankly a terrible idea."
Normally the sector is consulted before big new ideas are launched, Bernacchi said, but on this occasion, this didn't happen.
"We've got a good process in New Zealand on consulting the public, consulting professionals, consulting business, consulting unions and that's what happened in 2019 with the Tax Working Group, which recommended the introduction of a capital gains tax," he said.
"Consultation went on about that for months and months and months and here this thing was just going to be dropped on us out of the blue. As I say, the most fundamental tax change to the New Zealand tax system in living memory.
"So it was extraordinary that it got it as close as it did and quite frankly, from my point of view, would have been a terrible thing for the New Zealand economy. The only winners would have been people like me. I would've had a queue of people down the street lining up to find out ways to try and sidestep it."
Bernacchi told AM he had doubts about how much revenue the tax switch would've raised and would likely have seen a huge compliance cost.
