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.

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?

I’ve seen the movement of people both to and from aussie several times over the decades. They move to where the work is or for family reasons. People in my extended family have been doing it since the 60′s.

This particular round doesn’t look much different. We do need to raise wages here as there is too high an imbalance. But that is going to happen now that we’ve hit effective full employment again. This time it is based on real economics. There aren’t hidden employment schemes that there were under Muldoon.

Taxcuts will make bugger all difference. There is no way that a 30% difference in wage rates is going to even touched unless we went to go to a 0% tax. Anyone who thinks that it makes any difference needs to get some exercise on a calculator.

red: Ok I think you’ve convinced me about the effects of a CGT in the short-term. That still leaves the original problem – the boom + bust in the housing market. Any ideas on how to limit the effects of that.

does national know what hardworking means

[lprent: cleaned up link]

AG & RL – so we agree that more should have been done to manage the housing bubble. Raising interest rates has finally kicked in but it’s a slam dunk and we are out on a limb. What would you do now to avoid seeing all our tradespeople head off to Aus as developers/builders close down? Tax cuts is one, Act’s 20 point plan looks very good (in general, not necessarily specific to the interest rate/exchange rate issue).

No reply to my question on how to work out at what point tax cuts go bad.

Lets do a simplified estimate of the income tax for a person on say $250,000.

About $190,000 of this will be taxed at the 39% rate, ie about $74,100 of PAYE tax pa.

If we assume that JK introduced a flat 16% tax rate (which was the premise of the original post) this amount reduces to $30,400 pa.

The tax reduction on this portion of their income is $43,700 pa or about $840 per week.

If we then include the aproximately $30,000 portion of their income that drops from the 25% tax rate to the proposed 16%, the remaining $60 per week, totalling $900 pw, is similarly accounted for.

Unemployment is at record lows and is half of what it was under National. Is that also a result of Labour’s polices and was the high unemployment under National a result of theirs?

Jon- look at the graph. If you reduce the top tax bracket the gains continue the more you earn – there is no cap on the tax cut for high income earners. Why don’t you do some basic logic before accusing people of lying? Taking your talking points from somewhere other than Kiwiblog might also be a good start.

It’s pretty much the same everywhere. Most rentals are running at between 3-5% returns. With mortgages around 9-10% this is unsustainable. Essentially they are kept afloat because the landlord is able to claim costs such as mortgage interest, rates, insurance and repairs as well as depreciation against their OTHER income. This is perfectly valid because such business are usually very “tightly held” by one person or small family group, meaning that it is neither simple, nor reasonable to seperate out (or “ring fence”) the tax position of their rental business from any other income they may have.

The only way that they can make money compared to alternative investments is to have a rise in prices.

Yes in the long run property can be counted on to rise at about 4-5% pa, bubbles included, aand that is all that is needed for the business to be profitable. That is why such investors rarely sell.

The other aspect is that rents are WAY behind where they should be, and will be rising somewhat over the next 3-5 years to match rising costs. Most landlords (unless they are over leveraged) will simply hold onto their properties as long as they can sustain the nett cash flow (which is why the LAQC cash flow smoothing mechanism is helpful).

But if the rules are changed to attempt to ring fence losses, abolish the LAQC or charge an unrealised CGT, then the already tight cash flow will simply be restored by hiking rents. The effect is simple but brutal…. change the rules and you will hit ALL landlords pretty much the same, and they will ALL react pretty much in unison. A few tenants will be lucky to have a landlord who is cash flow positive, and they will stay put… but the rest will have no choice to pay. Watch the political backlash from that.

You’re not telling porkpies are you??

I seem to recall someone on Kiwiblog recently saying of the Standard

“But I care about behaviour a great deal, because constructive and informed comments are often the most interesting part of a blog. It is an area that the rubbish comments can drive out the interesting very easily.’

Please tell me what’s ‘informed’ about that post?

[lprent: Thats what the comment area is for. You can dispute the opinions of the poster and other comments. People take more notice if there are links to supporting material.]