‘Crisis’ but tax cuts for the rich keep coming

Written By: - Date published: 11:00 am, March 23rd, 2011 - 43 comments
Categories: budget 2011, public services, tax - Tags: , , , ,

The Nats are telling us there is no other option than massive cuts to government spending. Roughly, a third of the cuts covers the earthquake rebuilding, another third covers the Nats’ tax cuts for the rich, and the last third covers the revenue loss from this neverending recession. So, how come the Nats can afford another round of tax cuts for the rich?

I/S at No Right Turn explains:

While National is planning the biggest assault on government services since the era of Ruth Richardson, it is also planning more tax cuts for the rich. The Finance and Expenditure Committee – on which the government has a majority – has reported back [PDF] on the Taxation (Income-sharing Tax Credit) Bill and recommended that it be passed. The bill allows couples with children to split their income for tax purposes – a feature found to be explictly discriminatory in violation of the Bill of Rights Act by the Attorney-General [PDF]. The total cost of the measure would be over $500 million a year – and 78% of it would flow to households earning over $70,000 a year (which is roughly the median for households consisting of a couple with children). While not mentioned in the report, that benefit will skew heavily towards the top end – in other words, the usual story of giving the most to those who need it least.

So, the poor get to pay for the earthquake. Meanwhile rich families with kids get a tax windfall. National is looking after its base again – and everyone else gets to pay for it.

And let’s not forget that there are $280 million a year worth of corporate tax cuts coming in on April 1. In the middle of their cries that public service cuts can’t be avoided, they’re cutting tax on foreign-owned corporates.

The fact that National is planning more rounds of tax cuts for the rich shows that their crisis rhetoric is just about excuses to do what they want: enrich the wealthy elite and rip off everyone else.

As I said yesterday, rather than cutting public services, the government could fill the hole in the accounts by restoring the top tax rate, stopping the corporate tax cut that comes in on April 1, eliminating the ETS subsidies to polluters, and not building the white elephant highways. Instead, they’re cutting yet more taxes for the rich and screwing the rest of us.

43 comments on “‘Crisis’ but tax cuts for the rich keep coming ”

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  1. Lanthanide 1
    23 March 2011 at 11:18 am

    I really don’t think they’re going to go near income splitting for tax purposes. Poor bouffant is foiled again, this time by poor timing.

    Small dribs have come out about what is likely to be affected. I’m having a hard time reconciling the required cuts with what Marty outlined was required (up to 32%) and what so far they’ve been hinting at. If they’re refusing to alter tax, the numbers simply don’t add up – I wonder if they’re going to announce asset sales (TVNZ?) or some other radical policy no one saw coming.

    http://www.nzherald.co.nz/new-zealand/news/article.cfm?l_id=71&objectid=10714240

    ACT leader Rodney Hide seemed prepared to sacrifice the 2025 Taskforce, an agency set up at his initiative to find ways to catch up with Australia’s economic growth.

    “I’m happy to put that on the table for discussion,” he said.”

    “Finance Minister Bill English spoke today about scaling back government programmes, but ruled out dramatic cuts to schemes like KiwiSaver or Working for Families.

    “There won’t be any radical changes to either KiwiSaver, or Working for Families, or student loans,” he said.”

    • Bright Red 1.1
      23 March 2011 at 12:36 pm

      remember, those ‘32%’ cuts were in real terms and assuming a lot of areas won’t get significant cuts. You can slice off 6% just by not adjusting for population/inflation.

      and they were based on no signficant cuts to social welfare spending, which WFF and student loans are under.

      but, the fact remains that National’s hints get us nowhere the $1.8 billion nominal cuts needed to fund $1 billion in rebuilding and $800 million out of a zero budget. One way might be to can a whole of spending on new programmes within departments that was bugdeted in 2010 due to start in the coming year. It looks like nothing is cut but actually those new programmes were replacing expiring ones.

    • Jim Nald 1.2
      23 March 2011 at 2:03 pm

      Hide sacrificing 2025 Taskforce?

      Hmm ok.

      How much will Gaddafi pay for Hide to take his place for his exit plan?

      There won’t be much to discount for cosmetic surgery as Hide won’t be too challenging to be cosmetically maimed by Gaddafi’s surgeon.

    • Deadly_NZ 1.3
      23 March 2011 at 9:16 pm

      “There won’t be any radical changes to either KiwiSaver, or Working for Families, or student loans,” he said.”

      Now you and I know what radical means, but the big question here is what does radical mean to the thieving criminals that are ruining the country.??

  2. Pete 2
    23 March 2011 at 11:32 am

    I posted Naomi Klein’s explanation of the shock doctrine (she was looking at Wisconsin, but the principle remains) late last night in yesterday’s thread – but I think it’s worth reposting, because that is exactly what this government is doing.

    If there is no crisis, manufacture one by creating a budget shortfall through tax cuts to create a sense of urgency to ram through an otherwise unpalatable agenda. If there is a real crisis, so much the better as people are even more ready to surrender their good sense.

  3. Bunji 3
    23 March 2011 at 11:35 am

    Great post Marty.

    The corporate tax cuts on April 1 are particularly notable, coming right bang in the middle of their pleas of ‘poverty’. Was the first thing Bill ruled out paying for the earthquake.

    And even by their own logic, it ruins their supposed aim of having the corporate tax rate and the top tax rate being the same to stop tax avoidance…

    Lanth: the rumour this morning seems to be that KiwiSaver is particularly in danger. By no “radical changes” they probably will still allow themselves to cancel the $1000 govt matching. I’m not sure what their student loans changes will be (but there will be some); WfF will no doubt tail off more steeply at the top end.

    • Lanthanide 3.1
      23 March 2011 at 11:46 am

      Yeah, I expect the $1040/year in matching tax credits to go. The Kiwisaver tax-credit year starts on 1st July and payment isn’t made until after 30th of June the following year (so not until 30th June 2012 for us now), so there’s ample time to do it. If they do this however, they’re going to be widely criticised for removing incentives for saving. The tax cuts were supposedly all about encouraging savings by increasing the GST rate (and yet at the same time saying this would cause growth?), so to drop a rather large plank from kiwisaver seems risky.

      I wouldn’t be opposed to, at the very most, 1-2% interest on student loans, but that’s it. I’d also strongly be in favour of a time-limit for interest-free after you left university, say 5 years, but after that bring in a low rate like 1-2%, which I think is fair. Retain the 10% early repayment bonus also.

      Really any major move they make on any of those 3 policies is going to cost them come November. Probably the least damaging thing they could actually do would be to institute the earthquake levy – it’s ironic that when the public actually widely support a tax, National are too scared to actually implement it and so may end up losing support due to their alternatives.

      My boyfriend and I were talking about what to do with the student loan scheme in general. There are quite a few areas that could be tightened. The main problem is eligibility is simply too broad, and a lot of people go off to university because “it’s the thing to do”, only to drop out in their 2nd or 3rd year without a degree and being saddled with a debt for no benefit.

      Boyfriend pointed out that to receive student allowance in your 2nd year, you need to have at least 50% pass rate for your 1st year courses – why isn’t the same requirement applied to the living allowance? $160/week is peanuts if you live in the main centres anyway, but losing it might be enough soft-compulsion to make people seriously think about their studies during their first year, and cause people to drop out sooner rather than later (when they realise they slacked around too much in their first year and now they really can’t afford a 2nd).

      Right now it seems like, for many people, university is sort of a temporary staging ground while they work out what to do with their life – essentially getting ‘free’ money from the government without any strings attached only encourages this behaviour. An acquaintance once said he was “going to do ‘a course’ next year” so he could “get the government to give him a student loan”, because that seemed easier than working (in a minimum wage job), I have no idea if he ever ended up doing it, but I’m sure there are people out there who do.

      Another problem is all of these private tertiary training places set up that people can attend and get a loan for. I’ve briefly looked into the Network+ certificate that’s was being promoted on TV a lot during Jan and Feb by various ‘institutions’, and it effectively looks like 6th and 7th form level material. It would be useful as part of a longer course, or as an introduction, but in and of itself, it isn’t going to get you a job anywhere if the person hiring you knows anything about networking and what the Network+ course actually covers. I’m sure there are similar training courses in other industries that spit out wide-eyed credulous youth who think they’ve hit the big time and are going to get a job earning $45k with their 6 month certificate under their belt. I don’t see why so many of these private training places are accredited to essentially waste people’s time.

      Seems I’ve almost ended up with a comment long enough to be a post :/

      • Bright Red 3.1.1
        23 March 2011 at 12:39 pm

        you’re going to save bugger all by not giving that start-off payment to new Kiwisavers. Nearly everyone is already signed up, so you’re only getting a few tens of millions by not paying for new accounts for people joining the workforce/being signed up by parents

        • Lanthanide 3.1.1.1
          23 March 2011 at 12:50 pm

          I didn’t mention the $1000 ‘kickstart’ at all. I am talking about the $1040 matching tax credits that the government gives you if you contribute at least $20/week.

          Which is actually another angle on the matter – when National rolled out their 2009 budget, one of the possible changes with Kiwisaver is that they were going to cap the tax credit to 2% of your income and $20, whereas at the moment you simply have to contribute $20/week. This would mean that someone who was on $26,000/year would be eligible for a maximum tax credit of $520, even if they voluntarily contributed an extra $10/week, the most they could get from the government would be $520. National relented under criticism, but maybe they’ll bring this back. It hurts anyone earning less than $52,000, at which point 2% of your income is greater than $1040 so you’re eligible for the full amount.

          Yes, cutting the $1,000 kickstart would achieve very little in the short term. Gareth Morgan suggested they should instead dole it out over 5 years, at $200 year, and basically be a matching amount. So if you’d have to actually contribute $1000 over 5 years to get the full benefit. Specifically his reason for suggesting this is that at the moment the way it is set up, children who are enrolled get a $1,000 free, but there’s no requirement for any additional funds to be saved at all. He said that they have seen this behaviour to be quite wide spread.

          • Bright Red 3.1.1.1.1
            23 March 2011 at 1:02 pm

            oh, sorry, yep. cancelling the matching contributions would save heaps, and piss off 1.5 million members.

      • B 3.1.2
        23 March 2011 at 4:50 pm

        An educated population benefits us all Lanthanide, regardless of whether people drop out or study for years. Its well worth the monetary investment to ensure that critical thinking and intelligence remain in at least some sectors of society and are passed on to the next generation.

  4. JJ 4
    23 March 2011 at 12:23 pm

    Can we define rich please?

    • Lanthanide 4.1
      23 March 2011 at 1:40 pm

      I’ll take a stab at it.

      A family/individual, whom at the end of the year living an average (eg, not extravagent life) has more than $5,000 after-tax income left over for discretionary spending, which I would definitely include an overseas holiday or big-screen TV as being discretionary. Saving for retirement however is not discretionary. If you had to put stuff on your credit card, mortgage or personal loans to afford it, then it wasn’t discretionary.

      If you have less than $5,000 after-tax income left over for discretionary spending, you are either ‘average middle class’ or ‘poor’.

      It’s impossible to set a simple $ figure on it, because a family living in Auckland will need much more money than one living in Invercargil, but at the same time should also be bringing in a higher income. Similarly, you need more money the more children you have, and less money the fewer.

  5. PeteG 5
    23 March 2011 at 12:49 pm

    “stopping the corporate tax cut that comes in on April 1”

    Even if it was fair to ditch corporate tax cuts stopping them with virtually no notice would be manifestly unfair.

    I’m a grateful beneficiary of Kiwisaver, but I think it would be reasonable to cut the matching credit – in half would be a fair enough balance, there would still be a good enough incentive to keep contributing. As per Bright Red I think the start-off credit should stay.

    • Lanthanide 5.1
      23 March 2011 at 12:54 pm

      “Even if it was fair to ditch corporate tax cuts stopping them with virtually no notice would be manifestly unfair.”

      Somewhat unfair, yes, but what is more fair – ditching WFF, kiwisaver or interest-free student loans? Why should it be somehow more unfair for corporate tax rate drop to be cancelled than it is to change any of the other flagship programmes?

      In fact, it’s more fair, because people are making long-term life decisions based on WFF, kiwisaver and interest-free student loans with their current policy settings. If company’s have been making long-term planning decisions based on a tax that hasn’t actually happened yet (and is also quite small) then really they’ve been counting their chickens before they hatched now haven’t they?

      Ditching kiwisaver contributions has a further inherent unfairness, in that you’re going to be heaping additional costs on future taxpayers, or lowering the standard of living for future retirees, because everyone currently saving for their retirement will have less to live on if the government cuts their contribution rate.

    • Colonial Viper 5.2
      23 March 2011 at 3:09 pm

      Even if it was fair to ditch corporate tax cuts stopping them with virtually no notice would be manifestly unfair.

      Oh get off it, how can it be unfair when corporates don’t get cold and hungry, aren’t receiving threatening letters about getting utilities cut off or eviction notices, don’t have children to feed.

      That’s what we really need here, more champions on the behalf of corporates.

      • PeteG 5.2.1
        23 March 2011 at 3:55 pm

        Company budgets for tax liability for the year. Then suddenly they’re told that tax is to go up – to balance the budget they have to reduce costs, which could include reducing staff – staff who may have children to feed.

        • Lanthanide 5.2.1.1
          23 March 2011 at 4:38 pm

          On a profit of $1,000,000, 2% tax equates to $20,000.

          If a company making $1m in profit has to fire staff because they had to pay $20k extra tax than what they expected, then I don’t know how that company got so profitable.

  6. TightyRighty 6
    23 March 2011 at 1:28 pm

    interesting that income splitting is discriminatory, despite leaving money in the earners pockets without having to go through government churn, and WFF isn’t? they are essentially the same thing. just that one relies on having kids and one doesn’t. I suppose you think it’s fair to keep people on government hand outs, but not their own money? labour, always trying to roger something.

    Edit: for the record, I am against income splitting the same way i am against WFF. the distortions are just to blatant and discriminatory any which way you look at it. only made the call to highlight the inconsistincies

    • Lanthanide 6.1
      23 March 2011 at 1:42 pm

      How exactly does income splitting not go through government churn?

      Unless you’re advising your employer of a special tax rate, it seems that squaring up of your tax take is going to need to be handled at the end of the tax year.

      • TightyRighty 6.1.1
        23 March 2011 at 4:44 pm

        Well then that makes it even stupider. how about just straight less tax for everyone? rich, poor, but not bennies, because contrary to stupid belief and process making it otherwise, if you suckle on the tit of the state, you are a net tax receiver, not giver. so no tax relief for you as you already get it. this applies to all bennies.

        • The Economic Illiteracy Support Group 6.1.1.1
          23 March 2011 at 5:14 pm

          Because despite the rhetoric, simply lowering taxes doesn’t seem to have worked. Unemployment was unaffected by the changes in tax rates (still too high) and growth was anemic – surely if tax relief was a magic panacea, the indicators would have been on a distinct upward trend by the time of the first earthquake.

          In fact the only quantifiable change from the lower tax take was a lower tax take, and a deficit for the government.

          • Lanthanide 6.1.1.1.1
            23 March 2011 at 5:21 pm

            “surely if tax relief was a magic panacea, the indicators would have been on a distinct upward trend by the time of the first earthquake.”

            Well we’d only had National’s first round of tax cuts by then (and Labour’s in Oct 2008), where they lowered the top rate from 39% to 38% and introduced the ME ME ME ME ME tax code for “independent earners who are jealous of working for families”.

            National’s “fiscally neutral tax bait-and-switch” where they dropped the top rate to 33%, raised GST to 15% and proclaimed it was the solution to all our problems by both encouraging saving and spending at the same time, didn’t actually kick in until 1st October 2010, after the Sept 4th quake.

            captcha: theorys

            • Deadly_NZ 6.1.1.1.1.1
              23 March 2011 at 9:33 pm

              And dont you just love the Blinglish line, that because no one is spending then everyone is saving. Yeah right I don’t know about anyone else but I am not spending because I have just about enough money to pay all the bills. Discretionary spending??? me??? yeah right…

  7. randal 7
    23 March 2011 at 1:40 pm

    the gnats firmly adhere to the credo of theire cant be winners unless there are losers so hey presto lets make some.
    crummy?
    indeed.

    • PeteG 7.1
      23 March 2011 at 1:55 pm

      If you have the credo that everyone must be winners then it gets bloody expensive over the years – even if occasionally you lose a few rich pricks.

  8. Just Right 8
    23 March 2011 at 2:43 pm

    Cutting the Company tax rate isn’t just about Overseas owned corporates. It is about leaving more money in the pockets of NZ owned & based exporters like my company as well.

    To be frank your rhetoric borders on hysterical and does your argument no favours.

    • KJT 8.1
      23 March 2011 at 2:47 pm

      It may be better to help NZ companies in other ways. Tax cuts to business do put most of the benefit in the hands of overseas corporates which simply benefits their overseas bottom line. That is money leaving NZ and no longer available to buy the products of local businesses.

      • The Economic Illiteracy Support Group 8.1.1
        23 March 2011 at 5:18 pm

        Just to underline this point, the Australian-owned banks exported $2.5 billion in dividends last year, which I presume were tax-paid. Assuming a 2% lowering of the tax rate, that means they will be sending an additional $50 million offshore in the coming year if they pay out the same dividends.

        And this benefits New Zealand how?

    • Bright Red 8.2
      23 March 2011 at 2:50 pm

      you understand that, domestically, the corporate rate is basically just a timing issue, eh?

      You see, if profits aren’t taxed from the corporation, they’re taxed when paid out to the owners.

      Therefore, the government makes up a lot of the corporate rate cuts with higher incomes tax revenue. It only really losses revenue when lower taxed profits flow to foreign owners.

      • Lanthanide 8.2.1
        23 March 2011 at 3:13 pm

        “It only really losses revenue when lower taxed profits flow to foreign owners.”
        Or when they set up companies/trusts to shelter money and pay themselves a below-market rate salary to evade higher personal income tax rates. Which is another justification for why this rate should not be lowered.

    • Colonial Viper 8.3
      23 March 2011 at 2:57 pm

      It is about leaving more money in the pockets of NZ owned & based exporters like my company as well.

      We don’t want NZ based companies to have more money concentrated in shareholder hands (and subsequently less in Govt coffers) we want them to use that money to start employing people.

      • TightyRighty 8.3.1
        23 March 2011 at 4:46 pm

        you don’t want anyone having more than you, but no one cares what you want. if you think enough people care, start a political party and run for office. see how many people actually share your retarded view of the world. my guess is that there would be one to fuck all

        • Drakula 8.3.1.1
          23 March 2011 at 8:51 pm

          ‘But no one cares what you want” What Viper would want would be what the entire movement of employers want!It would be what the Labour Party, Greens, and the unions (especially Unite) want!!!!!!!

          A fair cut of the pie!!!!!! Minimum wage $15.00 not very much to ask is it?

          In the last 20 or so years our council rates have gone up 1000%!!!! How much has dentists fees gone up in the last 20 years? Or lawers fees?
          And how much has the rate of basic labour gone up?

          • Pete 8.3.1.1.1
            23 March 2011 at 9:24 pm

            If you want to ask for $15 per hour what you need to do is make sure you have sufficient qualifications and/or experience and target the right sort of jobs.

            • felix 8.3.1.1.1.1
              23 March 2011 at 10:03 pm

              No job is worth less than that to society as a whole.

              Trouble is a greedy minority are taking to much from society as a whole for their individual use.

              • Bored …
                23 March 2011 at 10:09 pm

                Wrong Felix, some jobs are worth less to society….no way would I pay Key $15 an hour. Not even 15 cents.

  9. tc 9
    23 March 2011 at 4:48 pm

    I bailed from KS once sideshow john and his dealing room were elected as govt assisted anything is against NAT core values.

    • Draco T Bastard 9.1
      24 March 2011 at 1:40 am

      Government assistance to the rich has always been a core value of National. Essentially, redistribution of the countries wealth from the poor to the rich.

  10. Sylvia 10
    24 March 2011 at 1:11 am

    This would be a good time to bring in financial transaction tax.

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