Labour's tax plan would see debt balloon - Joyce

National has attacked Labour’s tax plan, saying it would leave a huge hole in taxpayers’ finances over the next 15 years and add $18.5 billion dollars to net Crown debt.

Labour recently announced its plan to introduce a capital gains tax and hike the top tax rate to 39% while taking GST off fresh fruit and vegetables and making the first $5000 of income tax-free. 

“A financial analysis of Phil Goff’s tax and borrow ideas shows they are hugely hopeful and would in fact require taxpayers to borrow billions of dollars more," Associate Finance Minister Steven Joyce said.

Mr Joyce said putting the numbers through the Treasury’s models, which are used to produce the economic and fiscal projections of every budget, showed Labour’s tax increases would raise about $21 billion of extra revenue out to 2024/25.

“Over the same period, they would forgo about $28.5 billion in revenue.

“That leaves a $7.5 billion revenue hole, on top of another $7.5 billion in extra interest costs Labour would have to pay on their higher debt. In addition, Labour would need to borrow billions more if it doesn’t proceed with the mixed ownership model for SOEs, pushing total net Crown debt $18.5 billion higher by 2024/25.

“And that is all on the assumption they could start a capital gains tax in 2013 and raise billions of dollars despite all their complicated exemptions and loopholes.”

Mr Joyce said Labour had underestimated the costs and overestimated the revenue from almost all of its promises and had no basis for adding in $300 million a year from tax avoidance measures.

He said Labour failed to include extra interest costs on its higher borrowing and hadn't factored in the need to borrow billions of dollars more to maintain the government’s level of capital investment, in the absence of proceeds from the partial sell-down of State Owned Enterprises.

"To make matters worse, they have hidden in their numbers an Emissions Trading Scheme based on a $50 per tonne price for carbon across the entire scheme. That would mean Kiwi households would have to fork out four times as much for the ETS as they do currently under the National-led government’s more balanced scheme," Mr Joyce said.

“And, of course, Labour has already admitted it will spend more. It is yet to announce its spending promises but has railed against every decision this government has made to contain spending. Any new spending would add even more to Labour’s debt each year,” Mr Joyce said.