web analytics
The Standard

Polity: English lies on impact of tax switch

Written By: - Date published: 9:22 am, January 15th, 2014 - 15 comments
Categories: bill english, gst, national, national/act government, poverty, same old national, tax - Tags: ,

polity_square_for_lynnRob Salmond at Polity has this post out on the effect of the 2010 tax cuts and the lies about fiscal neutrality that Bill English said then and has been repeating ever since.

Bill English recently heralded his tax switch as making net tax more progressive. He lied. It actually made net tax at least $500 million more regressive.

In October last year, here is what Bill English said about the results of his 2010 tax switch of cutting income taxes and raising GST:

Lower income households are paying a smaller proportion of net income tax than they did in 2008, indicating that the tax system has become more progressive since the Government’s tax changes in 2010, Finance Minister Bill English says.

“This should contribute to improvements in income equality in New Zealand, contrary to the Opposition’s completely false claims that lower income households were disadvantaged by the tax changes,” he says.

It was great to see Bill English saying a more progressive tax system is a good thing. I agree with him.

But I wasn’t convinced his numbers stacked up. In particular I was worried about what shenanigans could be lurking behind the term “net income tax”. Why specify income tax? Why not net tax overall, to account for the Budget 2010 changes in GST, too?

Getting hold of the numbers

Bill Engish has a history of massaging net tax numbers beyond credibility, and I have form in finding him out, both on blogs and in print. So naturally I requested the Treasury advice under the OIA. After some English-orchestrated delays, the documents finally came back to me the Thursday before Christmas.1

Here are the three most eye opening parts of the Treasury’s advice:

This note responds to a request for analysis of the redistributive impact of the Budget 2010 tax changes. Specifically, we have been asked to compare profiles of income tax paid, transfers received, and net tax paid (income tax minus transfers) by household income, pre and post 2010.

This shows that the decision to look at income tax only, and not GST, came from the those tasking Treasury (ie. Bill English), and not from Treasury officials.

However, it is difficult to determine the extent to which these changes in the distribution of net [income] tax paid were caused by the Budget 2010 tax policy changes, as opposed to other factors.

Indeed. For example, tens of thousands of low income people have lost their jobs and now have to take an unemployment benefit because of National’s jobless recovery. (Don’t need to be a rocket scientist to come up with that alternative explanation.) That means those people pay less net tax than they did when they had a job, because now they receive more in transfers. Bill English takes this as a cause for net tax celebrations.

It is also important to note that this distributional analysis does not incorporate GST, which was an important part of the Budget 2010 tax policy changes.

Which shows that the Treasury went out of its way to warn Minister English that the analysis in the paper he ordered up was half-baked and could be inaccurate. But Minister English did not listen.

Accounting for GST

GST is a huge part of the Budget 2010 changes, and a huge part of the tax people pay. New Zealand individuals paid around $46 billion in all taxes in 2011/12, and around $15 billion of that was GST. Doing net tax calculations while excluding GST is like doing calorie counts while excluding nibbles, dessert, and drinks.

Treasury did not account for the impact of GST because Bill English told them not to. But I can, and I have. Here are the results. Some highlights:2

  • English overstates the impact on top earners by a factor of eleven. Yes, eleven. He thinks these households pay 6.7% more of the net tax than before; in fact they pay only 0.6% more.
  • Across the whole income range, English overestimates the distributional impact since 2010 by a factor of between three and four. He says households earning under $70,000 pay 26% less of the net tax than before; while those earning over $70,000 pay 26% more of it. In fact, the difference is only 7%.
  • English says the 117,000 households earning $30,000 to $40,000 take $238 million more in transfers than they pay in tax; in fact those households pay $360 million in overall net taxes than they receive in transfers.

This is embarrassing for a Finance Minister. Armed with an entire Treasury to help get his sums right, he still makes $600 million errors over here, and factor-of-eleven overstatements over there.

Correlation and causation

So, is the tax system more progressive because of the tax switch, or not? This is an issue Treasury raised in their advice to English. And the truth is that the Budget 2010 changes did not have a positive redistributional impact in New Zealand. In fact, New Zealand’s tax-and-transfer system has become more progressive despite Budget 2010’s tax changes, not because of them. Here’s why:

  • The 7% drop in overall net taxes paid by households earning under $70,000 represents around $1.8 billion in total.
  • The Treasury’s advice to English shows that expenditure on benefits for this under $70,000 group grew by $2.3 billion over the period in question.3
  • This means all of the $1.8 billion in net tax savings for low income households, and another $500 million besides, is caused by more of them being stuck on benefits.

Once more for emphasis: New Zealand’s tax-and-transfer system is more progressive now than in 2008because more people are receiving transfers. Not because of the tax switch. For obvious reasons, that is no victory at all. And this answer about causation was literally staring English in the face in the Treasury’s advice, and still he chose to ignore it.

In fact, the changes to the tax system have the effect of making the system less progressive to the tune of $500 million. To the best of our ability to see counterfactuals, if the tax system had stayed unchanged in 2010 then the tax-and-transfer system would today be $500 million more progressive than it actually is.

This shows that National’s tax switch was a failure, even according to Bill English’s own data and Bill English’s own yardstick. He should be ashamed mainly of the regressive impact of his tax policy, and also of the shoddy work he forced his Treasury to perform.

Bill English serially misleads the public on tax, because he does not want New Zealanders to know the truth – that his government enriches its friends at the expense of everyone else.

  • 1. Why the delay in answering my OIA? Well, I requested the information in October from two organisations, Minister English’s office and the Treasury itself. English then took 20 days to transfer my request of his office to go to the Treasury instead, while Treasury gave itself an extension on its OIA to consult-more-than-usual with English’s office. That way, the information conveniently came to my just as everyone was turning out the lights for Christmas. All of which goes to show that Bill English knew he had made some embarrassing errors in these calculations, and wanted to hide it all from the public.
  • 2. I used the decile-based estimates of “GST exposure” from the government’s own Tax Working Group to do this analysis, assigning income bands to exposure levels based on which decile they fall in. I was forced to make some simplifying assumptions, including on the median income in the open-ended top income bracket, because unlike English I did not have the full resources of a government department helping me. I do not think these assumptions drive the results.
  • 3. Most of this is due to unemployment going persistently up under National.

15 comments on “Polity: English lies on impact of tax switch”

  1. Lanthanide 1

    “This means all of the $1.8 billion in net tax savings for low income households, and another $500 million besides, is caused by more of them being stuck on benefits.”

    I don’t follow this conclusion.

    • One Anonymous Knucklehead 1.1

      $2.3B – $1.8B = $0.5B = $500M

    • karol 1.2

      The “net tax savings” are about low income people paying less tax. Many have lost their jobs, lowering the amount of tax they pay. Therefore they’re counted as a saving from paying less tax as a result of the tax switch – actually, they are paying less tax because of a drop in income resulting from losing jobs and becoming dependent on benefits.

      • You_Fool 1.2.1

        better yet for Mr English, because they are receiving benefits they count as reducing the net tax twice, first by not having to pay as much, and second by receiving money from the govt. Win-Win for Mr English! And you thought the high unemployment was a bad thing, it makes the tax system more progressive!

    • It’s a beautiful example of weaselry as a high art. Goes like this:

      if you lose your job, you end up on a benefit and don’t pay so much income tax;

      if a great many people lose their jobs and don’t pay so much income tax (because they’re now eking out a living from the unemployment benefit), the overall share of the income tax take that’s being paid by lower-income earners goes down;

      which means the Minister of Finance can put out a press release saying that his taxation system is more progressive because lower-income earners are now paying a lower share of the income tax the govt receives;

      which makes the Minister of Finance a lying weasel.

    • Will@Welly 1.4

      You also need to take into account the number of people who have had their hours reduced during the financial crisis, thereby reducing their income and the amount of tax they pay.
      What you also find is that when “old jobs that disappeared” are reactivated, they tend to come back on stream at the same or a lesser rate than they were previously. No adjustment is ever made for inflation.

  2. Tracey 2

    All those numbers… people like chris infused and bm will blank it. Say no one cares and then excuse it as a lie cos they dont understand it.

    • infused 2.1

      Which is pretty much what you’ve done. Congrats.

      I only comment on issues I actually have an interest in. Mostly tech related posts.

      This isn’t one of them.

  3. PG 3

    “Most of [the $2.3b increase in benefits to households earning less than $70,000] is due to unemployment going persistently up under National.”

    Rubbish. On comparing Notes 5 from the Crown Financial Statements at 30 June 2013 & 30 June 2010:

    – total transfers increased by $1.8b

    – transfers clearly not related to individuals being out of work (NZ super, family tax credits & student allowances) increased by $1.77b

    – transfers definitely / potentially related to individuals being out of work (unemployment benefit, sickness benefit, invalids benefit, disability benefit & ‘other social assistance benefits’) increased by just $41m.

    • TRACEY 3.1

      I confess that numbers aren’t my thing. Are you saying English’s assertions were correct?

  4. red blooded 4

    An engrossing discussion (bad pun – sorry). Thorough and well argued. Now, how’s this thinking going to be publicised in the wider world? Has this info been provided to opposition parties? I can see a great series of Ministerial questions arising from this.

  5. Stuart Munro 5

    I’d be interested to see a broader view of government finacial performance, because I have a feeling that the tax figures alone produce a misleading impression, and that Bill English has clearly exerted himself to maximise this effect.

    But there are other government mediated costs than tax, and also other sources of government income. Speeding fines, user charges, and so on have proliferated over the last three decades and represent a small but increasing proportion of cost of living.

    And the government exercise of sovereign currency privileges, as in the case of paying off SCF creditors or of creating student loans – are these exercised impartially?

    I might be less critical if his economic management anywhere approached competence, but I’m compelled to notice that on top on these punitive and regressive tax changes, the Gnat hydra under English has consistently failed to achieve even moderate growth. This represents a shameful level of incompetence, and replacing him with someone who knows what they are doing is frankly an urgent national priority.

  6. TRACEY 6

    Funny how all those squealing about brown must go are absent from this thread where, if true, the MOF is proven to be a liar about the impact his policies have had on the economy….

    and funny how all those who said brown mustnt go cos it was sex and didnt affect his job also dont comment on this behaviour which clearly does affect the second most powerful person in NZ’s, job.

    does this suggest some economic illiteracy which makes both supporters and detractors unable to comment due to lack of understanding, which doesn’t usually stop some?

  7. dave 7

    bullshit bill strikes again

Recent Comments

Recent Posts

  • Bad news will hit West Coast communities hard
    The Buller community will be relieved that the Stockton Mine will continue to be operated by Solid Energy following today’s restructuring announcement, Labour’s MP for West Coast-Tasman Damien O’Connor says. “My thoughts go out to the 113 miners who will… ...
    4 hours ago
  • Historic abuse victims deserve real justice
    Victims who have been abused while in state care and have waited years for resolution will not find it in today’s announcement from Anne Tolley, Labour’s Justice spokesperson Jacinda Ardern says.  “The Government’s ‘fast tracked’ process for historic abuse claims… ...
    6 hours ago
  • Ruataniwha dam – the ongoing story
    Last week the Board of Inquiry into the Ruataniwha irrigation proposal reported their decision on the nitrate limits that would be allowed in rivers affected by the scheme. The decision is a confirmation of some strict limits on the amount… ...
    GreensBy Catherine Delahunty MP
    7 hours ago
  • Wrong tax priorities: chasing tradies, not multinationals
    National has got its tax priorities wrong by chasing down Kiwi tradespeople but doing very little to ensure major multinationals pay their fair share, says Labour’s Finance Spokesperson Grant Robertson. "National is desperate to scrape the tax barrel to get… ...
    8 hours ago
  • Big changes needed for prostate cancer patients
    The Government must take urgent steps to improve the survival rates of New Zealand men diagnosed with advanced prostate cancer who are dying at twice the rates of their British counterparts, Labour Leader Andrew Little says. “A new report out… ...
    9 hours ago
  • Erima Henare passes away
    “Takitaki ana nga whetu o te kahui o Matariki”  Aue e te motu kua hinga te rata tumaru, te waha kii o Te Tai Tokerau a Erima Henare. ...
    10 hours ago
  • Minister makes meagre effort to fix big problem
    Today’s announcement by Health Minister Jonathan Coleman that Budget 2015 will include $98 million for elective surgery over three to four years should be seen for what it is – a drop in the bucket in an effort to appease… ...
    1 day ago
  • Treasury forecasts a deficit for next year too
    National has tried to get the bad deficit news out of the way before this year's Budget but Treasury’s warned next year’s books could also be in the red despite Bill English's panicked spending cuts late last year, Labour’s Finance… ...
    1 day ago
  • OIA chaos in the Ministry of Social Development
    So it turns out yesterday’s story about WINZ cuts to dental care loans was wrong, and through no fault of Radio New Zealand who ran it. The Ministry of Social Development (MSD) has today corrected the Official Information Act release… ...
    GreensBy Jan Logie MP
    1 day ago
  • First state house sell-off will achieve little
    The first tranche of the Government’s state house sell-off will do nothing to fix the housing crisis or better the lives of vulnerable families, Labour’s Housing spokesperson Phil Twyford says. The Government has just announced the transfer of 1600 state… ...
    1 day ago
  • Job figures show many missing out
    New Zealand’s “rock star” economy is failing to deliver either a surplus, real wage increases or job growth with unemployment stuck at 5.8 per cent,” Labour’s Leader Andrew Little says. “The Government trumpets the 3 per cent growth rate and… ...
    1 day ago
  • Secret moves could undermine education system
    The Government must explain why it is pushing to open doors to multinational private education providers through a controversial international free trade agreement, Labour’s Education spokesperson Chris Hipkins says. “Documents leaked today show our Government is one of a handful… ...
    1 day ago
  • Spotless must now end all zero-hours contracts
    New Zealand’s largest contractor of food, cleaning and hospital staff, Spotless, must now take action to end all zero-hour contracts, Opposition leader Andrew Little says. “Yesterday Labour asked questions of Parliamentary Service and the Speaker after we revealed nine parliamentary… ...
    2 days ago
  • Are we even talking about welfare anymore?
    I’ve worked with children in the slums in India and that experience confirmed my sense of luck that I live in a small, naturally abundant country, which many years ago made the decision to share those resources so everyone had… ...
    GreensBy Jan Logie MP
    2 days ago
  • MPs warned off celebrations for fear of upsetting Chinese
    A leaked email that reveals the Government is warning MPs not to attend Falun Gong celebrations and that China will be spying on people who do has no place in a free society, Labour’s Foreign Affairs spokesperson David Shearer says.Advice… ...
    2 days ago
  • Labour stands behind Solid Energy miners
    Solid Energy miners will not be surprised at the company’s announcement today of further restructuring but any more job losses will be a shock for West Coast communities, Labour’s MP for West Coast-Tasman Damien O’Connor says. “I have my fingers… ...
    2 days ago
  • TPK unable to deliver on Whanau Ora
    The Auditor General’s report on Whanau Ora highlights what many people knew – Te Puni Kokiri was never designed to be a service delivery agency, said Labour’s Maori Development Spokesperson Nanaia Mahuta and Whānau Ora spokesperson Adrian Rurawhe. “In the… ...
    2 days ago
  • Too many Kiwis waiting on waiting lists
    Waiting lists to get on waiting lists are the new norm for thousands of New Zealanders living with chronic health problems, Labour’s Health spokesperson Annette King says. “The Government’s underfunding of the health sector is forcing district health boards to… ...
    2 days ago
  • Delays in spending damage Whanau Ora
    Criticism from the Auditor General that a greater proportion of Whanau Ora funds could have been directed to families rather than administration is something that needs to be investigated thoroughly, says Social Development Spokesperson Carmel Sepuloni.  “To quote the report… ...
    2 days ago
  • Walking the talk on sexual violence
    Te Tai Tokerau MP Kelvin Davis is putting election campaign promises into action, organising a hīkoi to raise awareness around sexual violence. The 17-day MASSIVE (Men Against Sexual Violence) walk – from the electorate’s southern boundary to the northern tip… ...
    2 days ago
  • Govt dumps infrastructure costs on Akld ratepayers
    The Government’s failure to invest in infrastructure to service its Special Housing Areas is dumping massive costs on Auckland ratepayers, Labour’s Housing spokesperson Phil Twyford says. Auckland Council has declined to approve three new Special Housing Areas on the city… ...
    2 days ago
  • Labour reforms encourage bad employers to be bullies
    The Government’s changes to labour laws have created a climate that allows bad employers to bully their workers, Labour’s spokesperson for Labour Issues Iain Lees-Galloway says. “Tauranga worker Bertie Ratu was threatened by her employer Talley’s for asking her local… ...
    2 days ago
  • Parliament workers on zero-hour contracts
    The Government must take urgent action and insist the contractor who employs workers at Parliament on zero-hour contracts end these unfair work arrangements, Labour Leader Andrew Little says. “Speaker David Carter has confirmed in his reply to questions from Labour… ...
    2 days ago
  • RMA: We need to know
    Environment Minister Nick Smith needs to spell out to New Zealanders what they can expect from his substantial reform of the RMA, says Labour’s Environment spokesperson Megan Woods.  In an open letter to the Minister, Megan Woods has urged him… ...
    2 days ago
  • He Aituā! He Aituā!
    “Papā te whatitiri! Hikohiko te uira! Ka wāwāhia ki runga o Hikurangi maunga, o Waiwhetū kainga. “Kua katohia e te ringa kaha o Aituā i tetahi pou whakarae o te reo Māori. Nō reira kei hea taku manu tui… ...
    3 days ago
  • Stratoil – Iwis do what National will not
    Tomorrow, Far North tribal representatives for the Te Hiku o Te Ika tribes will be travelling to the head office of Statoil to discuss the opposition to its oil exploration program in Te Reinga Basin. Statoil have decided to begin… ...
    GreensBy Gareth Hughes MP
    3 days ago
  • Mana whenua head North to oppose oil drilling
    It was good to hear the news that a mana whenua delegation is heading north, a long way north, to make their views known about the proposed  oil drilling off the Northland coast. The roopu will be representing iwi and hapu… ...
    GreensBy David Clendon MP
    3 days ago
  • Ministers must act on 111 failure
    Lives are being put at risk if the company contracted to manage emergency 111 calls can’t cope with increased numbers, Labour’s ICT spokesperson Clare Curran says. “Saturday’s situation where people calling the emergency services were unable to get through and were… ...
    3 days ago
  • People trying to save lives don’t deserve abuse
    WorkSafe New Zealand staff trying to save lives on farms shouldn’t be subjected to a tirade of verbal abuse from a Member of Parliament, Labour’s spokesperson for Labour Issues Iain Lees-Galloway says. “Chester Borrows has labelled WorkSafe New Zealand officials… ...
    3 days ago
  • Action on laws needed in Privacy Week
    The Government must speed up promised law changes to reassure the public their private information is in safe hands as the country marks Privacy Week, Labour’s associate Justice spokesperson Clare Curran said today. “The previous Justice Minister Judith Collins announced… ...
    3 days ago
  • Māori Caucus call on iwi leaders support
    Labour’s Māori caucus has sent an open letter to iwi leaders around the country seeking their support for meat workers currently in employment negotiations with Talleys.  “We are aware that when Talleys locked out workers for a period of 89… ...
    3 days ago
  • National still splashing cash on charter school experiment
    New figures confirming that charter schools are still being funded at up to four times the rate of their state school counterparts shows just how desperate the National Government is to make its experiment a success, Labour’s Education spokesperson Chris… ...
    5 days ago
  • Regions pay price for inaction on housing
    New figures put the cost of an average Auckland home at $800,000 and show large parts of the country facing stagnant or falling property values, Labour’s Housing spokesperson Phil Twyford says. “The QV data released today shows residential property values… ...
    6 days ago
  • Regions pay price for inaction on housing
    New figures put the cost of an average Auckland home at $800,000 and show large parts of the country facing stagnant or falling property values, Labour’s Housing spokesperson Phil Twyford says. “The QV data released today shows residential property values… ...
    6 days ago
  • PPP schools not at expense of community groups
    The Government must guarantee community groups will not be the losers out of its signing of a $298 million deal for four more public private partnership (PPP) schools, Labour’s Education spokesperson Chris Hipkins says. “Community groups will find it more… ...
    6 days ago
  • Surplus: The biggest broken promise ever
    Bill English has failed to deliver on his double-election campaign promise of a surplus by this year, instead delivering seven deficits out of seven budgets, says Labour’s Finance Spokesperson Grant Robertson. “The Government spent seven years and two election campaigns… ...
    6 days ago
  • McDonald’s serves up some McHappiness
    Unite Union and McDonald’s have given New Zealand a perfect way to celebrate May Day by reaching a settlement that strikes another blow against zero-hour contracts, Labour spokesperson for Labour Issues Iain Lees-Galloway says. “Earlier this week it looked like… ...
    6 days ago
  • Justice delayed and delayed and delayed
    Today we found out that the case of the prominent New Zealander  charged with indecent assault will retain name suppression until the case goes to court in about a year. Putting aside the appropriateness or not of granting name suppression,… ...
    GreensBy Jan Logie MP
    6 days ago
  • No golden age for books
    The ‘indefinite’ postponement of an initiative designed to encourage people to read Kiwi books will be a major blow to local authors, publishers and booksellers, Labour’s Arts, Culture and Heritage spokesperson Jacinda Ardern says.News that the annual NZ Book Month… ...
    1 week ago
  • Cracks showing in economy of milk and houses
    Fonterra’s latest cut to its forecast farmgate payout confirms that an economic black hole of $7 billion is opening up that will seriously affect the regions, says Labour’s Finance spokesperson Grant Robertson. “The cut confirms the long term trend of… ...
    1 week ago
  • Human Rights – An Issue for Everyone
    This week, the issue of human rights has been everywhere in the news. We have seen John Key prioritise a free trade agreement with Saudi Arabia over all else with no guarantee of human rights clauses being included. We have… ...
    GreensBy Catherine Delahunty MP
    1 week ago
  • Govt inaction on housing keeping rates high
    The Government’s failure to rein in the housing crisis means the Reserve Bank Governor cannot lower interest rates despite inflation being at 15-year lows, says Labour’s Finance spokesperson Grant Robertson. “Inflation is below the target band and the economy has… ...
    1 week ago
  • What do our refugee policies say about us?
    It is my pleasure to share with you a blog from Hester Moore who is currently interning with the United Nations High Commission on Refugees in Cairo, after graduating from the Univeristy of Canterbury. Sometimes, as a nation it is… ...
    GreensBy Denise Roche MP
    1 week ago
  • Tamaki state housing transfer risky and desperate
    The Government’s transfer of 2800 state houses to the Tamaki Redevelopment Company -- to be announced at 9am today -- shows it's desperation to off-load state houses and show some kind of action against Auckland's out of control housing crisis,… ...
    1 week ago
  • Tamaki state housing transfer risky and desperate
    The Government’s transfer of 2800 state houses to the Tamaki Redevelopment Company -- to be announced at 9am today -- shows it's desperation to off-load state houses and show some kind of action against Auckland's out of control housing crisis,… ...
    1 week ago
  • Woodhouse should close work visa loophole
    The Immigration Minister must revoke the work visas of temporary Chinese engineers working on KiwiRail trains and close the loophole that allows their employers to avoid New Zealand employment laws, says Labour’s spokesperson for Labour Issues, Iain Lees-Galloway. “New Zealanders… ...
    1 week ago
  • Job losses show folly of Chorus’ copper cuts
    Chorus and the Government are neglecting the copper broadband network, leading to 145 potential job losses at Transfield Services as well as poor services in the regions, says Labour’s Broadcasting Spokesperson Clare Curran. “Steven Joyce and Amy Adams have made… ...
    1 week ago
  • National quietly ditches its surplus promise
    National has quietly dropped its long-promised return to surplus by this year by removing the date it will get the books back in the black from its online campaign material, says Labour’s Finance Spokesperson Grant Robertson. “National’s pledge to reach… ...
    1 week ago
  • Even cheap houses now unaffordable
    New housing affordability data show that now even the cheapest houses in Auckland are unaffordable for first home buyers, says Labour’s housing spokesperson Phil Twyford.  “The AMP360 Home Loan Affordability Report reveals Auckland's lower quartile house price has leapt to… ...
    1 week ago
  • Key’s careless chatter tips off Arabic media
    John Key has shown a frightening lack of judgement in disclosing to an Arabic media outlet that Kiwi troops are in the UAE awaiting deployment to Iraq, Labour’s Foreign Affairs spokesperson David Shearer says. “At the same time the Prime… ...
    1 week ago

Public service advertisements by The Standard

Current CO2 level in the atmosphere