Written By: - Date published: 1:40 pm, October 8th, 2008 - 86 comments
Categories: national, tax -
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As predicted on The Standard, National has announced it would abolish the increases in the bottom threshold to pay for tax cuts for the rich. Here’s a break down of what would happen:
April 1 2009: Lift 33 cent thresold from $40K to $48K, reduce 39 cent rate to 38 cents.
April 1 2010: Lift 33 cent threshold from $48K to $50K, reduce 38 cent rate to 37 cents.
April 1 2011: Reduce 21 cent rate to 20 cents.
What wouldn’t happen – the parts of Labour’s tax cuts that would be replaced:
April 1 2010: Lift 21 cent threshold from $14K to $17.5K, lift 39 cent threshold from $70K to $75K. cancelled.
April 1 2011: Lift 21 cent threshold from $17.5K to $20K, lift 39 cent threshold from $75K to $80K.
So, where does this leave you? Here’s the difference in National and Labour’s tax cuts across income levels (above 100K, National’s cuts keep rising, Labour’s plateau at 80K):
That’s right. Most people would recieve a smaller tax cut under National than they would under Labour. Because the bottom threshold would not be increased by National, Kiwis earning up to $44K, some 2.4 million people, would get the same or larger cut from Labour. But the ultra rich would recieve much more from National. Someone on $250K a year (a Leader of the Opposition, say) will get an additional tax cut of $3750 a year from National by 2011.
Now, National has announced a tax rebate – the Independent Earner Rebate – of $10 a week, rising to $15, for people earning between $24,000 and $50,000 who aren’t getting Working for Families, a benefit or Super. Take a look at the graph and you’ll see that will make up for the abolishment of the bottom threshold increases for those people but it will leave anyone on $14,000-$24,000 and anyone getting WfF, a benefit, or Super worse off.
So, tax cuts for the rich, nothing for most of us. Who could have seen that coming?
[in coming posts, we'll look at the fiscal consequences and how National would fund their cuts - as we predicted, it's by slashing Kiwisaver]
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Scoopit!
Why don’t you wake up and look at the PREFU, and see what Labour’s low-productivity redistributive policies have delivered.
Labour’s policies have delivered strong growth, reduced debt, KiwiBank, KiwiSaver, Working for Families, an deconomy well placed to cope with the current international crisis and much much more.
The situation described in the PREFU is bad, but would have been much worse without Cullen’s careful management. From Armstrong in The Herald today:
So expect plenty more nonsense talking down the economy from the ill informed or manipulative.
rob – deconomy? Was that intentional?
Either way, it perfectly sums up what Cullen has left us with – a Deconomy!
Pat – read my post again. Slowly if you need to. 47% of New Zealanders earn less than $20k.
Patrick – the discussion is about tax cuts. Tax cuts are for workers, who pay tax.
TE: I don’t get WFF so I’m uncertain how you get it. But from memory you apply to receive tax credits during the year from the IRD. Yep.
IRD site
Now the question is – would they do weekly or fortnightly for between $10 and $15 per week. The transaction cost is probably going to be too high to do it weekly or fortnightly. At $60 every 4 weeks it should be possible. Yearly is definitely possible.
But then Bill gets a bright idea to save costs – why don’t we just add it into the tax returns. At $10 per week that is a rebate of $520 per year, and a lot of taxpayers will not fill it in. He has a double benefit, being able to announce generously giving money back – and then not having people collecting.
Now if he’d moved the bottom threshold then he’d have to lose all of that tax income.
Actually I believe John Key was waxing lyrical about his “Economic Package”, so I think it’s fair to look at his tax cuts in a wider context.
What will these tax cuts do for middle New Zealand? What will they do for Key’s “underclass”?
The point stands that the lowest 68% of tax payers are getting 19% of the tax cuts; the highest 32% of tax payers are getting 81% of the tax cuts.
MP: Yes, but in my usual operations research way I was considering the effects of having such a small rebate against the transaction costs.
It feels very much like a negative sum game. There is effectively a whole new channel set up with a new set of clients for a very small amount per annum if they do it the WFF way.
I’m kind of betting that they mean the old type of rebate which would be much more efficient in terms of government revenue and transaction costs. After all this is the party that is going to put a lid on compliance costs and excessive civil servants(?sp)
r0b – okay, I’ll bite.
(1) A family with two kids on $80,000 a year gets $40 per week WFF. That should be added in. It is a “tax credit” after all. That means averagemum’s total tax benefit form tax cuts and tax credits is $92 under Labour, and $83 under National. I think it’s important to look at the total position, and just incremental changes.
(2) Now, let’s look at the “rich prick”. Labour will give them $55 per week, and National $62 per week. So averagemum has got a tax benefit $37 a week more than the “rich prick” under Labour, and $21 a week more under National. Either way, she wins big time, considering how much more tax the “rick prick” is contributing in the first place.
(3) Now lets look at Kiwisaver. This is a percentage reduction. That means it hits people on higher incomes harder. Averagemum loses $31 per week in benefits (although she can’t access that until retirement). A “rick prick” on double her family income will lose $62 per week in benefits.
So under National, the “rick prick” gets $62 and loses $62, coming out even, but able to access her earnings now rather than in retirement. Averagemum still gets $83 and loses $31 dollars, putting her $52 a week ahead of the “rick prick.”
Now admittedly, this is a back of the enveloped calculation. But the silly commentary from people like Tane and Norightturn really don’t help here. If you really want to analyze tax benefits, you have to include WFF and Kiwisaver, and do it properly.
The fact is, National’s proposal benefits averagemum more than it benefits the “rich prick”. Labour’s proposal is more generous, but this is simply a continuation of their loose fiscal policy and incompetent management that has driven the New Zealand economy into the ground.
rob – deconomy? Was that intentional?
Nah, typo.
Either way, it perfectly sums up what Cullen has left us with – a Deconomy!
Cute but stoopid. Cullen – who hasn’t “left” us yet thanks! – has managed the longest period of sustained growth since WW2, and a robust economy that is well placed to weather the current crisis. See for example this Treasury summary:
Or how about Reserve Bank Governor Allan Bollard in January this year:
Though it is very early days even new policies like KiwiSaver are starting to show their potential in this respect:
Labour led governments have been good managers of the economy. Let’s hope Dr Cullen is round for a few more terms yet!
Well done standardistas.
If the National front bench has half the talent theyd be laughing all the way to the bankrupt bank.
r0b – okay, I’ll bite.
You certainly will.
So under National, the “rick prick’ gets $62 and loses $62, coming out even, but able to access her earnings now rather than in retirement. Averagemum still gets $83 and loses $31 dollars, putting her $52 a week ahead of the “rick prick.’
Massage the numbers until your face turns blue milo, knock yourself out. Fact is that averagemum is worse off under National’s proposals than Labour’s. Relative comparisons to other made up numbers don’t help averagemum, she has less under National. And she represents the majority of medium and low income earners – see again the graphs in the original post.
The fact is, National’s proposal benefits averagemum more than it benefits the “rich prick’.
And less than she is benefited by Labour.
Labour’s proposal is more generous
So what were you on about above?
but this is simply a continuation of their loose fiscal policy and incompetent management that has driven the New Zealand economy into the ground.
And kissing goodbye to any last remaining shreds of credibility there. The NZ economy has had the longest period of sustained growth since WW2, and is well placed to weather the current international crisis.
I was working it out for me
Single male. 65K pa.
Labours cuts came through in my packet today – another $54 per fortnight better off
Come 2011, and assuming I still earn same, I will get back around $80 a fortnight
National: Apparently will give me $60 per fortnight… $6 woohoo.
Come 2011 – $91 a fortnight.
However, kiwisaver changes leave me, by 2011, around $85 a fortnight worse off.
Over the rest of the 40 year working life, up to 65, – Im worse off by $125,000
No deal
r0b – if the NZ economy is so sh*t hot, why haven’t we reached the top half of the OECD? Why are we going backwards in relative terms instead?
And it’s not massaging the numbers, it’s an honest calculation using the IRD WFF calculator. Have a go yourself, and see what figures you get.
Rod, hate to say it to ya but pretty much everyone out there (talking about the media) is saying much the same – th eolny ones better off are middle and high income earners not with kiwisaver.
$50 for the average earner – and more hooks than a tackle store in Taupo.
Milo: why haven’t we reached the top half of the OECD? Do they only measure the economy? Also you might want to look at our starting point – national policies in the 09′s that caused a needless recession.
Lynn – not having contacted IRD for some blissful years, and not receiving any form of transfer payment, I have to admit I assumed they’d just magic the rebate to people’s accounts… As I said here (or maybe another thread) it’s very ugly because they’re trying to reverse-engineer the effects of WfF – cancelling out one targeted payment with another is never going to be pretty!
r0b – if the NZ economy is so sh*t hot, why haven’t we reached the top half of the OECD?
OECD rankings are relative not absolute. We have been improving fast, but if others improve faster we go backwards in the rankings. And our economy has a few challenges that others in the OECD don’t have, not least our isolation and distance from markets.
Why are we going backwards in relative terms instead?
Are we? What has been the movement over the last decade?
Milo:
You have a strange idea of what a loose fiscal policy is. You see, cutting taxes is a loose fiscal policy whereas maintaining tax rates is continuing a tight fiscal policy. This being the case what Labour has done over the last 9 years is to run a tight fiscal policy that has delivered improved government services, cut government debt and grown the economy so that we are in a much better financial position to weather the oncoming depression.
Nationals tax cuts, an actual loose fiscal policy, would have left us with greater government debt, emaciated government services and, most likely, ruined the economy (look at what has happened to the US economy lately) so that when this depression turned up we would have been up shite creek without paddle.
I seem to remember Bill Birch (NATOINAL) promising tax cuts that were just compulsory super annuities (i.e. no guarantees) and this one smells just like that.
Draco: Eh? If you don’t like it from me, this is what Bernard Hickey had to say in March:
“Government spending is growing at a rate of 9.8%, which was more than twice as fast as revenue growth at 4.5% and twice as fast as estimated nominal GDP growth at around 5%. The government is eating the economy.”
Update: And here are the Treasury figures for Government expenditure as a percentage of GDP.
1999, 38.0
2000, 36.9
2001, 36.9
2002, 37.8
2003, 39.5
2004, 37.7
2005, 38.7
2006, 41.0
2007, 40.9
So the government sector has expanded from 37% to 41% of the economy. Crown revenue went up 86% from $39 billion to $75 billion (I assume those are nominal figures).
[lprent: Now put in the rates of expansion of superannuation and health against the number of people over 65. You'll find that accounts for most of the increase. You should also have a look at the capital expenditure budget for the long overdue maintenance. Of course if the Nat's get in.... yeah right]
milo you retard – Hickey is a discredited hack. Remember how he was gonna show all that government waste and couldn’t? Or how he thought tax cuts should have come at the top of the economic cycle?
The start point you are using (1999) is the point at which National had devastated the public service to the point where even the police were taking protest action over under-resourcing and the fire brigade and the health service… In fact the only thing that had picked up was food banks and suicides. You’ll also find that government spending as a percentage of GDP is actually lower than it was in 1991…
You might want to go back to that but most Kiwis aren’t that friggin stupid…
Robinsod – resorting to name calling is a sure sign of a weak argument. And it’s pretty weak invective, for that matter. Can’t you be more creative? Political abuse does have a long and proud history. Let me get you started – I see that your mind is like a soup dish; broad and shallow.
Anyway, yes, 1991 was the peak. That’s because there was a huge tick up in 1990 and 1991, due to the aforementioned mismanagement by Labour and $5 billion projected deficit. That’s $5b in 1990 dollars!
The figures that far back are “Financial Net Expenditure” rather than “Total Crown Expenses”, but assuming they are comparable, it is instructive to note that under Kirk and Rowling, they were 25% of GDP. Under “socialist” Muldoon, they went up to 37% of GDP. Labour’s 1984 term cut them back, but in their second term they started at 37% of GDP and let it escalate to 41% in 1990. An exact match with the current situation.
So Labour are now Bigger than Think Big! Bill Birch would be proud of you all.
Milo, two things. I wouldn’t trust B Hickey as far as i could spit him as he seems to have an irritating habit of forcing numbers to fit his conclusion. As for spending – well, I’ll leave that to Brian Easton:
And then there’s the fact that you didn’t address the simple fact that a loose fiscal policy puts more money in peoples pockets which is what cutting taxes does and what Labour didn’t do until recently.
Um, excluding social security transfers is not a step that I feel able to take.
You will always be able to claim “tax cuts for the rich” because, guess what, the “rich” pay all the tax.
This is from the 2008 tax table from the IRD:
Top % of tax payers Total Tax %
2 17
8 38
15 55
32 77
53 91
79 99
In other words, the top 15% of taxpayers ($60k +) pay 55% of all income tax. This may seem self-interested, but at least the “rich” are self interested with their own money. Those who claim poverty, want a handout, want middle class welfare, etc are self-interested but they have the luxury of being self interested with someone elses money.
If you are envious, go out and get the high paying job yourself. Don’t expect the “rich” to continue to fund your lifestyle. Those of us who are upwardly mobile can and will leave if our generosity is taken for granted.
spider_pig. labour managed to cut taxes without giving all the money to the rich – it cut the bottom rate and didn’t cut the top rate. national abandons bottom threshold increases and cuts the top rate – thats tax cuts for the rich
Calling these tax cuts to the rich is a giant con. The standard (heh) definition of a high net worth (or rich) individual, is somebody who has investable assets (outside the family home) of US$1,000,000.
Based on this measure, New Zealand has 7,000 millionaire households, compared to 140,000 in Australia. That’s about 0.5% of households in New Zealand compared to 2.4% in Australia.
In New Zealand, even the rich are comparatively poor. And denying a tax cut to a struggling middle class family on the basis they don’t deserve it, because they are rich, is grotesque.
Rich is rich. Kiwi taxpayer’s ain’t rich. Clean up your rhetoric.
milo: So you don’t think that due to the way markets link the cost of goods and services to the money available to spend on them, that measurements of what is `rich’ and `poor’ should be relative?
Yes, I know about globalisation. I work for the NZ branch of an Australian-based company on both Australian and NZ projects, partly because I’m cheaper than the equivalent in Australia. But the world isn’t completely globalised – local economies still exist and operate, and the local costs of goods and services are still the main factor in determining wealth – not some magic number of US dollars.
Your argument that people should only be considered `rich’ if they’re worth a certain amount usually (in the customary line of argument) goes hand-in-hand with the line that this ought to be achievable. But what would happen if being a millionaire was common? The benchmark would rise. Your argument rests on a principle of scarcity which requires that a massive number of people be `poor’ for a few people to be `rich’. It’s meaningless.
L
Pat wrote:
Yours is not the avaerge family with 2 kids.
averagemum:
Fair enough, at $80k we’re actually well above average income. If you instead look at a perfectly median family (male salary $34k or so,female salary $24k or so, household income $58k, two kids), they’re actually worse off by $14/wk under National compared to Labour, plus around $39 in lost Kiwisave entitlements. So net $53/wk worse off.
Um, excluding social security transfers is not a step that I feel able to take.
Righto – I guess that means you are advocating cutting the pension in order to stop government spend increasing with an aging population? How does your nan feel about that?
Oh and milo? If we’re going to talk international standards for what is rich then we better start adding in the third world. In which case I am even richer than I thought!
If you have an income three times higher than the median (ie, three times more than the amount that 50% of people earn less than) that’s rich in my book. The median in NZ is 27K, 3 times that is 80K. I know I’m rich compared to most Kiwis and my income isn’t 80K
I take your point, but I still think $80k is too low. Bus Drivers are earning $50k – $60k, with overtime. And before anybody says it’s hard yakka doing the overtime, what kind of hard yakka do you think people on $120k do?
But it does point up something interesting. I think we agree that we want New Zealanders, in general, to be better off. The difference is, I think, that in my view we need more incentive and reward at the top of the scale (as well as support at the bottom), to help drag everybody up.
in my view we need more incentive and reward at the top of the scale
milo – We had that in the nineties and it didn’t work. We also have had a situation at a corporate level where the business environment has been very good over the last decade but businesses have tended to take the money and run rather than reinvest in productive capital or r&d and show some ambition to become better off in the long-run.
It hasn’t worked and as a consequence government has had to step in and create incentives for people to do things like save money and for businesses to invest in long-term growth.
Measures in line with your world view have been tried and they have failed miserably. Now you want to repeat the mistake???
And you wonder why I call you a retard…
If. You. Look. Over. Seas. You. Will. See. That. They. Do. Work.
There. All one syllable. Words.
And if you are going to argue from evidence, hasn’t there been a giant socialist experiment sometime in the last 100 years that rotted from within like a necrotising vampire? I mean, speaking of trying things that don’t work ….
Meanwhile, you still need to do better on invective. Here’s an example from Mark Twain, on Cecil Rhodes, to give you inspiration:
I admire him, I frankly confess it; and when his time comes I shall buy a piece of the rope for a keepsake.
Um milo – they work like where? In the meantime your attempts to appear erudite by quoting hacks like Twain just makes you look even more retarded…
That was good Robinsod! And on your own terms too … Anyway, all you have to do is compare marginal tax rates for people on $50,000 per annum in the 20+ OECD countries that have better GDP per capita purchasing power parity. That’s not top marginal tax rates, but marginal tax rates for fairly average income earners.
Anyway, if you want to support Labour, go ahead, but I see them as a bunch of crazy cranky human beings, not only consistently dirty but deplorably dull. They are a wave of human folly, gloomy and blinking like a stupid old owl.. (Also stolen, but from play reviews 120 years ago! But don’t you think it fits?)