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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Scoopit!
Yay! I’m gonna get me one big taxcut! In fact by Steve’s calculations it’ll be worth a very comfortable long holiday in Hawaii every year! Or perhaps I’ll upgrade to a European car or increase my shareholdings, or buy some investment property, or start a coke habit…
Robinsod:
Very good idea to spend your tax cut on the sharemarket, like most ordinarily New Zealanders, you seem to want to get ahead and if you have cash to spare, instead of buying booze or cigarettes or gambling it on pokie machines, why not invest in a company?
Well, certainly, Brett, the idea of a coke habit for ‘sod in particular is a very bad one. God knows how he’d behave with any more self-confidence.
robinsond: with your tax cuts play some Russian roulette.
The readers here may get lucky.
[uncalled for. Go to Kiwiblog if you want to behave like that. SP]
[lprent: Well it wasn't the canned line I was talking about earlier. Maybe it is reading the notes. As SP says - still unacceptable]
Brett – Nowadays I’m pretty well ahead as it is. To be honest I’m not sure why National thinks I need a tax cut at all. Especially when they’ll probably be offing sweet fu*k all to some of my mates who work their rings out for half of what I earn.
‘People get the governments they deserve’ – I saw a survey result over the weekend that said most people favoured tax cuts even if they lead to inflation and sustained high interest rates.
Some people might get the governments they deserve, but it really bugs me that I might end up with the government that someone who’s bad at maths deserves.
Deserves is probably unfair too. I don’t think people deserve a crap future just because they fall for a fantasy that’s carefully engineered to seduce them. Nationals message is “Life’s tough, fix it by borrowing, and worry about tomorrow tomorrow”. Well, today is yesterdays tomorrow, and unsustainable borrowing is the reason life is tough now. I can’t think of a stupider solution than borrowing even more. Except maybe selling off all our assets again.
Sod, agreed. The people who really need help are my family members who flip burgers and scrape shit off old people for $12 an hour. They’re the ones struggling with rising food and petrol prices. Why John Key thinks the likes of you and I need the money is a mystery.
See what I mean.
But Billy – I thought you liked my swagger!
erikter – bite me wee man. I’ll think about you when I’m getting off the plane in Honolulu…
If this is true, then isnt this electoral suicide for the Nats? Or are you suggesting that they think the NZ public are such big morons that they wont notice that those benefting under the tax cut proposals (as alleged) are a small minority and will vote for the Nats anyway?
Robinsod:
Your post seemed to be anti people who invest in the share market? Surly you will agree if you invest wisely, its a good idea to build a little nest egg for yourself.
If ya dont want a big tax break, why not give the money away to a charity that needs it?
Brett – I don’t mind if people invest ethically but bro, you put money in you can afford to lose. Not many people in NZ have much of that kinda money.
Good point about the charity though – I’m thinking shining path – do you think I could get an NZ branch up and running?
No idea whether it’s true rjs – I doubt National would be this stupid. My suspicion is Key just saw the Fairfax poll that said people wanted tax cuts of at least $50 a week and thought he’d promise it to them before actually checking how much it’d cost.
I honestly think Key’s not at all concerned about how he’s going to make good on his promises. The goal is purely to win at all costs, then worry about the day after the election when it comes.
… and he’ll be thinking of you when the gun is stuffed in his mouth
rjs131. I’m trying to be part of the process of informing the public what National’s tax cuts would look like. I don’t think the people are stupid, I think they are smart, hence why I think there is a point in providing this information.
John Key: “I think if you look out over the next 18 months to two years almost anyone would agree that with the downturn in the economy, inflationary impacts of tax cuts are unlikely to be a big problem.”
A quote from the dom post article.
Don’t worry everyone, good old John ‘Big Picture’ Key is on the case and looking out for our best interests – extrapolating the consequences of his actions as much as TWO YEARS into the future!!!
Especially when they’ll probably be offing sweet fu*k all to some of my mates who work their rings out for half of what I earn.
Well if you gave them your tax cut instead of going on this selfish cocaine-fuelled trip to Hawaii, everyone would be happy.
“I’m trying to be part of the process of informing the public what National’s tax cuts would look like”
While we’re at it, lets also inform the public that first $10,000 tax free gets you pretty close to “North of $50 on average” – that’s $37.50 a week, just from that component, for EVEYONE.
From there, it’s not a stretch at all to get an average of $50 if you fiddle with the brackets and tick down the top rate by even one point.
I dont think people are stupid … but your spin makes me think you think they might be.
Phil, you missed this bit, from the post:
(without a tax-free bracket or cut to GST both of which National oppose)
Maybe key does want to introduce a tax free bracket at the bottom end to spread the love. I haven’t heard so, though I could well have missed it. A link would be nice if you have the time.
Robinsod:
Im not sure what shining path is???
Secondly, you should invest money in the sharemarket to make money, Im guessing by the word ethically, you mean a Greenie base company.
I would think medical research companies on the Australian market is pretty ethical.
For people who cant afford to lose a lot of money, well you can always invest small amounts, maybe stop buying cigarettes/booze/lottotickets and invest that money into shares, there are plenty penny dreadfuls out there.
Key has never proposed a tax-free bracket and says the bulk of benefits should go to those on more than $60,000. All their focus is on the 39 cent threshold and, to a lesser extent, on the 33 cent threshold.
Brett – http://en.wikipedia.org/wiki/Shining_Path
Want to join?
And Phil. That still doens’t address the ‘where the hell woudl the money come from?’ and ‘what’s that going to do for inflation and hence interest rates’ problems.
it’s not just the way National is likely to spread tax cuts that is a problem, it is also the macroeconommic effects of cuts on that magnitude.
I think I will give it a miss. But it seems to be right up Keith Lockes and Marion Hobbes alley.
This post is almost pure speculation. “North of $50″ is a direct quote, but the linked article makes no mention of to whom this would apply, and the introduction of “focus on the 14% of people with incomes over $60,000 a year” appears to be entirely of Steve’s invention.
This would indeed be an amazingly stupid tax cut to implement, but so far I see no concrete evidence it’s planned, much less promised.
L
[In the eariler article, the one on the front of today's Dompost, Key says it will average north of $50 which the Dom fairly takes to mean " tax cuts worth at least $50 a week to the average worker". And "Mr English made it clear that them priority would be workers earning $60,000-plus - in particular those pushed into the top 39 per cent tax bracket by wage rises.‘‘We need to keep faith with those people, that's our top priority,''. SP]
the introduction of “focus on the 14% of people with incomes over $60,000 a year’ appears to be entirely of Steve’s invention.
Meanwhile on Stuff:
http://stuff.co.nz/4552716a6160.html
Steve’s simply working with what National has put forward. Like he says it’s an exercise in Kremlinology and if National aren’t going to release their policies then we’ll have to work them out for ourselves. As far as things go he’s done a bloody good job.
btw- “clear that them priority” ????
Appears they need some more subs at Fairfax Digital.
Lew
As a political scientist you must know that National will wait for the budget and then firm up what they will or won’t offer based on the public reaction to the budgeted Tax Cuts and other policy releases.
Lew:
the introduction of “focus on the 14% of people with incomes over $60,000 a year’ appears to be entirely of Steve’s invention.
I’ve added a link to the source into the post.
14% of New Zealanders earn above $60,000. Unfortunately, this group has convinced itself it is “struggling middle New Zealand”, and as it also controls most of the levers of power this is the group that frames the debate.
SP/Tane: Ok, not speculative, then. Thanks for the link to the article.
HS: Yeah, I know that. But I also believe people ought to be held to things they say, and if they’re saying things too early, they deserve to pay some political price for that.
L
It never ceases to amaze me the way you brilliantly dog whistle up a response with a ridiculous assertion.
For balance why not actual detail the amount of tax people are paying on the different income levels you used.
How much tax does a rich prick on 60, 70, 80 or 90 k actually pay Steve.
How much personal tax is enough or even too much?
People earning the top amounts structure themselves out of it anyway.
As usual it is the middle that is getting spit roasted by labour and National. And the enormous levels of efforts that many thousands of us go to avoidance is despite the doubling of the staff roll in IRD.
I am heartily sick of hearing the greedy and selfish tag being applied to anybody who disagrees with Cullen. The opposite is true, get your hands of our money. Go and earn your own.
Lew
Politicians held to things they say …….. sadly wishful thinking, maybe if we increased the electoral cycle to five years and introduced some sort of stocks and public humiliation for them if they played up?
Brett Dale, I wish I hadn’t invested in RAU
although MNM has been good to me.
barnsley. We’re talking the real world here, we already live in a world with a progressive tax
ssytemsystem and while I’m happy to defend that system, that’s not what this debate is about, it’s about a change form what weahvehave now to something else.A tax cut is a change from the status quo and I’m looking at what that change would mean for people at different income levels.
the kinds of tax cuts National is looking at mean bugger all for most people and piles for those who already have the most
(and don’t give me the ‘you can be rich if you want to be bull’, this is the real world not some Rynd fantasy)
[lprent: Huh - I provide all of editing toolkit, and a poster doesn't use it
You now get 5 minutes to fix the editing and punctuation errors]