Luxon's tax question problem and possible answer

Posted April 28, 2022

An important part of any media interview preparation is identifying the tough questions you might get and organising how to respond.  This has been a problem for Christopher Luxon recently when he gets asked why his proposed tax cut changes would drop the 39 cent rate for those earning above $180,000.

He gets questions like, “Why should the Prime Minister get an extra $18,000 a year with these changes when people are living in poverty, etc?” He doesn’t appear to have a good answer, and at face value, it appears there isn’t one.

What should he do?

Here are some points for him to look at to form a counter-argument and presumably why they think the rate should be cut.

• The US cut high tax rates 4 times in the 20^th Century and each time the government collected more revenue. That’s right, the tax rate went down but the tax take went up. This was presumably because the wealthy didn’t hide their money, and put it to productive means that created more growth, jobs and tax payers. This stimulated the economy and that's exactly what NZ needs to do.
• The 39 cent tax rate here hasn’t bought in the revenue expected, according to the IRD (possibly proving the point that higher rates can’t assume higher tax takes.)
• There’s already a major worry about a Brain Drain to Australia after Covid-19. We need to keep high earners here because we need their capital and skills to create new businesses and taxpayers. We can’t kill the goose that laid the golden egg.
• When asked about why someone on $250,000 should get an extra $18,000, reframe it by saying something like, “That person will still pay $85,000 in tax (or whatever the number is), while the worker on $30,000 will pay $5000 (or whatever the number is).

The problems for Luxon

Luxon has two problems with this. Firstly, it’s hard to sum that up in a sound bite, unlike the counter argument. But he needs to try, plus his team could push the argument in guest articles etc.

Secondly, some would say that justifying is losing so he won’t want to dwell on this issue for too long.

Thirdly, it’s never a good look for someone who is loaded to make this argument.

What it all means

Basically, Luxon is going to keep getting this question and he needs to be able to answer it credibly and briefly. He should be able to, and if he can, it would help National strengthen their reputation as good economic managers. But if he can’t, National may need to adjust the policy.