Written By: - Date published: 12:30 pm, May 19th, 2008 - 72 comments
Categories: kremlinology, national, tax -
Tags: inflation, interest rates
Discovering National’s policy is a bit like the old art of Kremlinology, when Western intelligence agencies would attempt to discover the inner workings of Soviet politics by looking at who stood next to whom in pictures, and what hand politburo members carried their briefcases in. The latest subtle signs from National regarding its tax policy are: they will average ‘north of $50‘ a week and will focus on the 14% of people with incomes over $60,000 a year. The only way to achieve those parameters (without a tax-free bracket or cut to GST both of which National oppose) is to create a flat tax of 16%. The average cut would be $50 a week, but it would be spread very unevenly: on $250,000 a year you would get $920 a week; on the median income of $27,000 you would get $12.50, half of New Zealand taxpayers, 1.6 million people, would get less than that.
$50 a week x 52 weeks x 3.2 million taxpayers means National’s tax cuts would cost over $8.6 billion a year, that would create a huge cash deficit of around $5 billion a year. The money can’t be found by silly little measures like capping the core public service that will deliver only $166 million a year by National’s own estimate. In fact, the only part of government spending to which National has not ruled out major cuts and is sufficiently large for cuts to fund such enormous tax cuts is superannuation. And even if it slashed superannuation, National would still need to borrow to fund the tax cuts. National has previously said it is prepared to increase gross government debt 50% (from 17% of GDP to 25%); it is now clear it would use that debt to fund tax cuts for the wealthy few.
A realistic projection of National’s tax cut plan sees most people worse off: they would get little or nothing from tax cuts, with most of the money going to the wealthy few. They would face a diminished social wage from less Government spending, and have to spend more of their income buying things that are now provided by the Government. And they would face skyrocketing inflation and interest rates resulting from National borrowing billions of dollars to fund irresponsible cuts. But, as we already know, Key and National will promise anything, anything, to win.
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AG. And long may the common market last given family ties over there for most, there is also a danger that we take it for granted or are seen as a back door. The reason I mentioned builders was a news article, about 2 months ago, about the Aussie’s approach to housing affordability, 100,000 houses in one state alone and that they were looking for 16,000 builders. I have been keeping an eye out for more details but nothing since. Tax cuts – agreed wrt relativity, I think the marginal rate is the most important thing.
Higher wages will be the result of education, skills and productivity. Our best and brightest achieve this already overseas, what could they do here and get paid the same?
You know, tax cuts as a policy really annoy me- they tend to frame ridiculously irresponsible policy in a positive light. If you asked people if we wanted to start unsustainable borrowing that decimates the national accounts balance to mitigate a recession, do you think they’d say yes? How about if we asked them if they wanted cuts to the health system, or its necessary support staff? Yet if you tell people you’re going to cut back on paper-pushers and give them tax cuts, you’re viewed as some sort of folk hero. =/
vto: Spin? How so? John Key has publicly acknowledged that he wants to give out significant tax cuts, which are one of two major expenses I can recall him announcing. (the other is his no-obligations subsidy for broadband providers to build their infrastructure) He also publicly acknowledged that he will be looking to increase our national level of debt.
The only area in which it is even possible to contest that statement is that the tax cuts are for the rich. Comparing Key’s tax cuts to the current system, it is highly likely that they will be relatively favourable to the rich- probably a linear reduction of tax rates. Whether you think that is appropriate or not, you can hardly deny then that Key wants to borrow for tax cuts that are much more beneficial to the rich than to the working-class.