Written By: - Date published: 8:40 am, October 8th, 2008 - 83 comments
Categories: election 2008, labour, national, tax -
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After building a political career that has consisted of little more than calling for tax cuts and attacking those that were delivered, John Key will finally present his party’s tax cut package today. Already, they have had to reduce its size but they will still make it the central part of their mystical economic platform that is meant to stop emigration, lift us out of recession, prevent junior doctors’ strikes, and make our whites whiter. The supposed transformative powers of larger tax cuts underpins and defines National’s ‘time for a change’ message. So, they better deliver something that can make a difference
As a guide to what to expect, let’s take one element of National’s promises- reducing emigration via tax cuts. I find it hard to believe that anyone’s decision to emigrate to Australia or not is tipped by less than $2000. So, say, National could reduce emigration significantly by offering tax cuts, I think it’s fair to say that would need to offer more than $40 a week to most Kiwis above Labour’s tax cuts (which National dismissed as the block of cheese tax cuts). If they don’t pony up, their wailing that Kiwis are emigrating because of Labour’s tax policies will be revealed as completely hollow. As will their promise of transformative tax cuts.
Before the announcement, it is opportune to look again at the distribution of income as well who benefits and how much from the Government’s cuts:
[Update: Just saw this in the Herald: "The $50 reduction [for a worker on the average fulltime wage] won’t be reached until until April 2011, and will include the tax cuts Labour introduced on October 1.” Now, Labour’s cuts have already delivered $16 increasing to $32 by 2011 for the average worker. So, National will be offering just $6 a week than Labour each year to 2011. $6? All this over $6?]
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Much as the good economic times during the last many years were not due to the Labour government
Recalling, as you well know HS, that our economy has grown faster than relevant others during this time, and we have also been retiring acres of Muldoon era debt.
the real test of economic competence for any government is how you deal with global downturns, inheriting an economy that’s in a state of collapse or dealing with a regional crisis.
Well soon we will get to see how whomever is in government deals with that. But as usual it’s largely down to the preparation, and I refer you again to quotes from Treasury and the Governor of the Reserve Bank on how robustly our economy is positioned to weather the current international crisis. When we come out of the other side of this in reasonable shape (whomever is in government at the time) it will be largely due to Cullen’s careful management.
Again – They’ve promised twice, and cancelled once. That’s not a “history’.
On the same criteria National has a history of voting against business tax cuts.
TE:
I’d agree that the left generally doesn’t believe that tax cuts do much for an economy like ours. At muldoon (where my nominal top rate was over 45%) levels it was worth while because it incentivised widespread avoidance. But at the current low rates of taxation, then the brackets should be moved to compensate for fiscal drag.
But I have yet to see anyone prove to me that cutting tax in real terms further does ANYTHING for the economy as a whole. IMO: It is just a religious mantra chanted in unison by the right to justify feathering their pockets. I have yet to see any evidence of it going into investment in businesses in any country (business tax cuts often do, personal income ones usually don’t) – again that just seems to be an article of faith for some.
What I have seen is that tax cuts will usually reduce the effective investment into required public infrastructure. This causes major economic problems further down the line when the economy hits those limits in skills, roads, comms, legal structures etc. But the right are definitely think short-term and prefer to have consumption now rather than ensuring everyone’s future. This probably arises because they have this remarkable ability to ignore the positive effect of those same investments by previous generations on their current circumstances. This usually expresses itself in the myth of the self-made man.
You do a real tax cut (ie not just adjusting for drag) when you have the country at low levels of government debt, no upcoming major problems, and where you have funded your forward liabilities. We we have the first one done last year – for the first time in my working life. The latter two aren’t.
Obviously there are going to be problems coming in from our trading partners for the next few years as well as cost increases in materials and borrowing. That is a major economic problem. We can stimulate the local economy for a time. However personal tax cuts are an incredibly imprecise way of doing that. It is far better to spend in appropiate areas of the economy, for instance getting our transport systems ready for higher energy costs.
We have partially pre-funded the super hole. Partially done the investment in infrastructure that stopped dead in the 1970′s and only resumed recently. Partially brought our training systems to the point where they start training for the citizens we will need in 30 years. There is more to do.
So tell me again – what is the expected benefit of personal tax-cuts now to NZ in 30 years? Some mythical and unproven productivity gains? Or investment in things we know will assist our economy?
There is a clear difference between Tweedle Dee and Tweedle Dum.
Labour has foregone tax cuts to increase govt expenditure, which is supported by all the graphs SP provides.
National supports a smaller footprint for government and hence lower taxes. In this light, it is possible to have tax cuts in the current climate although clearly that will be at the cost of some governement spending.
Cullen’s believed this with his almost petulant refusal to consider tax cuts until forced to and the way in which he withdrew the chewing gum taxes.
It should also be noted that the intention of the envy tax (the 39% tax on the rich pricks) was to caputure just the top 5% of earners. Through stealth, this now captures closer to 20% of earners.
Strangely (for me), I kind of agree with LP – we have a reasonable tax structure even allowing for the rich prick tax.
Having said that, Labour is IMO being rightfully punished when it refused to adjust the thresholds given the favourable economic conditions we experienced.
insider: upset about $6..
Because that is then, and NOW is NOW.. hey taxcutters use scythes and no shilly shallying.. scything away even in the face of fiscal responsibility.. Looks to me like we truly have here a riiight aka labor-lite..
upset..? try again..huh
come on folks the left is correct. we are merely serfs of the state and our daily toil is actually theirs for taking and using. when will you learn?
The Labour tax cuts equate to precisely zero, nada, zilch $0 extra in pocket for people on a benefit.
That is, no increase in net benefit now. No increase next time. And no increase the next time.
How many people on a benefit are feeling really fucked off about now? What’s the deal? Let them eat cake?
Where’s the fucking cheese!?
The point of the Key tax cuts is to ensure that National gets elected so that it can use the taxes of the majority of middle income earners to pay for the massive nationalisation of the losses of the filthy rich entrepreneurs while they get their second wind and begin privatising everything again.
come on folks the right is correct. we are merely serfs of the rich and our daily toil is actually theirs for taking and using. when will you learn? fixed it for you vto.
ha ha qtr well done.
But seriously, the appearance to me from watching especially Cullen these last 9 years is that his attitude is that people’s incomes are his and that he should decide how much is enough for people. He has made more than enough comments along thiese lines.
The government comes first and the people second (which is obviously backwards).
And, the government is rich and the people are poor (also backwards).
So nationals extra $6 pw will amount to ( in their words) half a block of cheese???
National are betting on the media being fixated on the headline figure (“it’s FIFTY! … er … minus a bit … eventually … and only including the cuts already locked in …), and not bothering with the detail on cuts to Kiwisaver etc.
Unfortunately, they’re probably right.
I see you are predicting a total exodus of population over the next 80,000 years! Any logic behind this?
GobSmacked – it’s $47, and yes that’s all the headline is.
Top rate cut to 38%
No employer credit for kiwisaver – but it can be negotiated out of your salary instead
No R & D tax credit
Remember all those idiot tories who said WfF is a welfare system? Turns out the nats liked making all NZ families beneficaries with WfF so much that they have decided to extend it to people without WfF – $10 credit to people who don’t qualify for any state assistance.
I kinda want to find every comment that said WfF was a benefit now, and mock the bastards.
No ideas whatsoever on helping the economy along, apart from tax cuts. Visionless, spinelss lot the lot of them.
“Key presented the tax cuts as part of an economic recovery programme National has worked out to bring New Zealand through the international credit crisis.” (TVNZ)
Sure. And me sitting here clicking a mouse is a calorie-burning fitness programme.
>
>>That is, no increase in net benefit now. No increase next time. And no increase the next time. How many people on a benefit are feeling really fucked off about now? What’s the deal? Let them eat cake?
>
Let me see if I’ve got this right. Someone on a COL-indexed benefit, who therefore doesn’t pay any tax, is complaining that they are not getting additional benefit from a tax reduction! Wow!!!!!
ISn’t the base point here a debate on what the function of Government is?
In my view, government is like a master insurance that everyone has to join. It should provide the basic platform of our society, and no more. This means that a health system, an education system, a law and order system, a defense system and a ‘we won’t let you die of starvation’ system should be in place that we all pay for, irrespective of the extent to which we use it in any ‘premium year’. This means I don’t mind paying towards the education system today, even though my yojngest child is in their mid 20s and not gaining any benefit from it. I haven’t used a doctor or medical service this year, but I’m happy to pay my premium. Etc..
ANything that doesn’t fit this ‘paying on a communal basis for the things we couldn’t afford for ourselves, but that we ALL need’ should be funded by those who wish to benefit from it, in my opinion. Hence, I want lower taxes and more personal choice. What’s wrong with that?
“No ideas whatsoever on helping the economy along, apart from tax cuts. ”
Matt, just believe.
MP, WfF is a benefit. Funny how the top rate was put up to 39% because ‘they could afford it’ according to this govt, yet a mere few years later those same rich pricks could not, according to this govt, afford to adequately look after their families and needed govt assistance.
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha.
p.s. one of those hector dolphins washed up on our beach last week. Don’t know what it died of – no obvious injuries.
WOW! National’s big gun is Labour’s tax cuts plus a block of cheese!
And they’ll gut Kiwisaver to pay for it all.
So labour put through ‘block of cheese’ tax cuts which (somehow) excludes those on a main benefit.
And wff is obviously predicated on people being in work.
With a recession/depression in the offing and treasury predicting unemployment to go to 5% (based on old data and probably optimistic given current global conditions), a hell of a lot of lower income people qualifying for wff are suddenly not going to qualify any more due to being unemployed.
That would be bad enough for poverty rates, those parents and their children. But the oncoming situation has been exacerbated by the now increased disparity between those in work and out of work because the tax cuts do not lead to any increase on benefit levels.
While most people might not care to notice at present due to high employment rates, the fact is that unemployment is about to increase. Odds are it will increase more in the low skill/wage sectors where a lot of borderline wff recipients are employed.
And the drop they are heading for is that much steeper and deeper due to the slight of hand employed in the tax package. What’s Labour’s stand on childhood poverty and poverty in it’s more general sense again?
Did anyone on this blog realise that increasing the lower threshold from 9.5k to 14k and dropping the tax rate from 15% to 12.5% on the threshold was going to further immiserate the poorest in society in comparative terms?
Anybody in the know care to explain what the fuck?
VTO, if WfF (which is getting your OWN tax back) is a benefit (as opposed to a real benefit, not an imaginary ‘I’m a National supporter and I’m struggling to make a point’ benefit, but one whereby you are given money that is not taken from your own taxes) then all National are doing is extending that so every middle-class New Zealander is a beneficary, not just those with families.
Ambitious, huh?
What is your problem with 39% and WfF lot ablation rate? I know you’re not thick, so I’ll assume you forgot to think about it, vto! Raise tax rate to 39%. Offer WfF for Families, so those with children can get assistance rasisng them. In a few cases (i.e. fewer than 100 families over $100,000 qualify, and the cost is bugger-all at that stage anyway) people will pay top tax rate and get WfF – this is so the ablation rate isn’t excessively punitive for those earning more.
Would you rather it cut off at $60,000 but you only got an extra 2 cents for every dollar you earned between $30,000 and $60,000? That’s the only way to stop higher income earners getting it. So I gather you think that people should have no incentive to work harder. It’s like you’ve become what the dim right thinks the left is all about…
That is an interesting feature, Matt. As I read it, the $10 tax credit to non-families effectively abolishes the preferential tax credit treatment of families (which is the definition of welfare), to provide universal cover to non-families as well.
My view is that the big difference between National’s tax policy ($47 a week) and Labour’s tax policy ($?) per week is that National is committed to delivering lower taxes, and has a record of willingly reducing tax, whereas Labour has spent the last nine years rejecting the opportunity to lower taxes, reversed its commitment to cut tax in 2005, and can’t be trusted to deliver the next round of tax cuts after the election.
National has credibility on cutting tax. Labour doesn’t.
Bill, I’d start by checking whether a tax cut would affect those on beneficaries. I think you’ll find that it does, though I can’t think of a source to back that up off the top of my head.
Have you actually checked that?
National has credibility on cutting tax.
So does George Bush.
Weak, PB. That’s like saying George Bush has committed troops to Iraq and so has Helen Clark. Not very relevant to the discussion, is it?
[lprent: You know better than that.
There is a hell of a difference between putting in troops for combat in a invasion and putting engineers (from the army) in to fix infrastructure at the behest of the UN. That has got to be the silliest comment I've seen you make.
On the basis you're using I'd have been invading Fiji in the 1970's when I went there on exercise as a army medic. That Singapore is still under colonial rule because a number of nations keep troops stationed there (including us I think). That the troops we put into the Solomons were there to shoot locals.
Perhaps you'd like to extend it to the police as well - the slow expansion of NZ law over the globe.]
Daveski:
Yeah and the sooner we get some automatic or semi-automatic system in place to move tax thresholds the happier I’ll be. The idea of calling tax threshold movement largely to compensate for inflation a “taxcut” is stupid.
On the other hand, the labour-led government has managed use that tax revenue wisely to:-
1. drop our level of government debt down massively (mainly incurred by a national government and its inability to change with world economic changes).
2. started doing the infrastructural investment that got stalled in the 1970′s (due to that debt, and because Muldoon didn’t like Auckland voting against him)
3. started to fulfill its obligations to future generations with the Cullen fund and Kiwisaver (ie make National’s bloody silly “National Superannuation” more substainable).
The governments (of the last three terms) use of those extra government revenues has been worth the cost. It means that we are no longer lunging from fiscal crisis to fiscal crisis in a grotesque boom and bust cycle. In fact we are probably one of the best placed world wide to weather the current global storm, despite having a wide-open economy. It was incredibly frustrating in the early 90′s watching the world economy booming and ours tanking because some morons on the right lost their economic marbles and played “the sky is falling”.
Now the wide-boys of the right are going to do their usual mantra and screw the economy and the gains again. Well I suppose that the meaning of “conservative” is that they fail to learn from past mistakes.
Tim, National voted against the business tax cut didn’t they? I’d say, if I was going to look it in such simplistic terms as ‘do they want to deliver tax cuts’, that National are no better than Labour. They weren’t all that keen on voting for the latest lot either.
If you want to take a more insightful assessment, you’d look at what the parties want to do – National have said they are committed to delivering ongoing tax cuts, and given that there is only so much waste you can cut than National must be committed to selling state assets, and cutting and privatising what are currently public services such as health, education, defence, law and order, prisons, insurance, roads and other infrastructure and so on.
Otherwise you can’t have ongoing tax cuts, and they are lying.
Why the “?” for Labour’s cuts? There’s a handy tax cut calculator if you can’t figure it out…
Labour is committed to maintaining a level of tax that allows for maningful public provision, while (under the current Finance Minister) has a keyensian outlook that allows for tax cuts in viable circumstances.
I also think you’re going to lose credibility talking about it if you keep omitting the fact that Labour was voted in on a promise of raising taxes, and National received their worst ever result with a platform of tax cuts in 2002, and still couldn’t win in 2005 with the same.
And yes, National are making bebeficaries a universal thing, unless you can realise (unlike vto et al) that WfF is not a benefit, but a credit.
Matthew.
Yup, I checked and then double checked…first through WINZ then a ben advocacy centre. Main benefits are remaining static.
Weak, PB. That’s like saying George Bush has committed troops to Iraq and so has Helen Clark. Not very relevant to the discussion, is it?
No Tim. It’s not like that, that’s weak and changing the subject.
Bush, like National has a record of cutting taxes. Because he ‘believes in them’.
Other things that Bush has done are not relevant, I agree, but so what?
Great line from the Dim-Post, and probably all too true:
“I suspect that the National parties $10/week to middle income earners is there because when they did the numbers one last time at 3 AM this morning someone figured out that there’s a big ol’ demographic of voters that lose more on the Kiwisaver state and employee credit reductions than they make on the tax cuts.”
Seriously, a ten dollar rebate, cash in hand? That’s so retro. Why not just stand on the street handing out the notes?
I’d love to see the principled argument for this (as opposed to including it in a tax cut, which has a logic whether you agree with it or not). Anyone care to provide one?
I disagree Matthew. The projections of fiscal deficits in the out years have some quite basic assumptions built into them, particularly around economic growth. Their accuracy becomes increasingly questionable the further down the line. A two percent rise in economic growth per year would see the deficit disappear very quickly, with large fiscal surpluses again.
Long term economic growth is very difficult to forecast. In 1999 you would have been hard-pressed to find a commentator who would predict the degree of economic growth New Zealand has had in the last nine years. Surpluses rose to massive levels during this Labour government because of record international commodity prices and a stable international trading environment.
We know what Labour has done from the proceeds of economic growth over the last decade: they have prioritised social spending over cutting tax. It is also reasonably safe to say that National’s record and present commitments demonstrate that when given the choice, they will lower tax rather than increase social spending.
You most certainly can have ongoing tax cuts without increasing debt, and by maintaining social services spending, if there is increased growth in the economy.
Yes, and I should have referred to the calculator, but I was in a hurry to make my point and I was too lazy to look it up. It wasn’t intended to be derogatory, but I couldn’t remember off the top of my head what Labour’s proposed reduction was, didn’t want to put in an inaccurate figure, and don’t believe that Labour will deliver on it anyway.
Gobsomacked said:
Yes, it seems that this move is to mute the bias towards families that working for families has. It provides all working people on lower incomes a subsidy, rather than just those who choose to have children.
LP said:
For goodness sakes, LP. Have a sense of irony. I was responding to PB’s invalid and pointless comparison with another invalid and pointless comparison.
[lprent: Remember that I'm reading the comments backwards when I'm in 'moderation' mode - so probably didn't see pascals. I noticed yours because as an ex-soldier I notice most comments about the military.]
well how about this. better to have a big block of cheese now than maybe, just maybe two blocks of cheeze in 2011. John “the big cheeze” Keys is turning out to be a bit of a wag, hohohohoho