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What a joke

Written By: - Date published: 3:30 pm, April 28th, 2009 - 48 comments
Categories: economy, tax - Tags:

This shows how meaningless tax cuts are. From last night’s TV3 poll:

When you receive tax cuts this month [they began on April 1], do you think you will be most likely to spend it, save it, pay off debt or other?
*Spend it 25.3 per cent
*Save it 30.1 per cent
*Pay off debt 22.4 per cent
*Other 12.6 per cent
*Not applicable 9.6 per cent

I’m one of the savers. I haven’t changed my behaviour because of the tax cuts, I just have more money in my savings account each week.

The fact that only 25% of people are spending their tax cut makes a mockery of the idea they are an economic stimulus. We clearly would have got more stimulus from the government spending that money on sustainable infrastructure or by giving it to people who actually need the money.

The really amazing bit though is that at least 77% of respondents think they got a tax cut. In reality, less than half of taxpayers did. If people don’t even know if they got a tax cut or not how can tax cuts possibly encourage people to work more and harder like the Government claims?

48 comments on “What a joke”

  1. BeShakey 1

    “The really amazing bit though is that at least 77% of respondents think they got a tax cut. In reality, less than half of taxpayers did. If people don’t even know if they got a tax cut or not how can tax cuts possibly encourage people to work more and harder like the Government claims?”

    Alternatively, and perhaps more likely given the appaling methodology of many of the phone polls, the result is accurate, but shows that the poll doesn’t come anywhere close to being representative of the NZ population.

    • Lew 1.1

      Yes, this is what it shows. Nothing much about the tax cuts themselves.

      (I haven’t noticed mine – our family income got cut in half five months ago, so it makes precious little difference.)

      L

  2. vto 2

    So following your logic Tane why don’t we simply hand all our earnings over to the state and let it work the magic for economic nirvana. Oh, and let it give us an allowance for living – at a level deemed appropriate by those on the left of course (all of which was Cullen’s unspoken dream..).

    Sheesh.

    • Tane 2.1

      That’s not my logic. My logic is if you’re going to try and stimulate the economy don’t give tax cuts to people who don’t need the money and aren’t going to spend it.

      Spend it on infrastructure, or give it to low income people who need it to get by and will actually spend it.

      The fact is National’s tax cuts were never about countering the recession. They were, as always, about transferring wealth upwards.

      • vto 2.1.1

        Well it partly a logic tangent Tane. Anyway, paying off debt or saving or doing many other things with it is just as beneficial just perhaps not as direct or easily assessed or seen.

        And that wasn’t the point of the tax cuts anyway as I recall.

  3. cocamc 3

    Also, the tax cuts only came in on April 1- so I think a little too early to be polling people till at least 2-3 months when people make decisions about how to use them. For the record – I’m spending mine

  4. Greg 4

    How is saving or paying off debt bad for the economy? It certainly stimulates it.

    • The Baron 4.1

      It’s not Greg, but it doesn’t fit with Tane’s ideology.

      See, if the “rich” (apparently anyone earning over $100k!) spent their money to the same degree, then Tane would be deriding them for too many luxuries at the expense of the “poor” (less than $100k, Tane?).

      In Tane’s word, the noble “poor” may do whatever they want – buy some new clothes, flat screen TVs, new cars, or maybe just spend it down at the pub. That’s nice and demand stimulating, see. And they “need” it.

      But if you’re “rich”, and wanna pay off your mortgage, or save money for your retirement, or invest it in growing your own business, then that is just pure evil. These are the things you should get the state to do for you instead, because they know better than you.

      How lovely it must be to live in such a blinkered, black and white world.

      • Dentarthurdent 4.1.1

        Median wage is 28k. 100k is 3 1/2 times that.

        Just a bit of perspective for the truly blinkered.

      • BLiP 4.1.2

        Again, Barren, you miss the point of the post. Drop your blinkered ideology for just a tic. Its not about disgust for the rich, its about the incompetence of the National Government.

        Your mate John Key said the tax cuts would stimulate the economy. He was told, over and over again, this would not happen given the details. Key went ahead with the tax cuts and, guess what? The economy wasn’t stimulated. Instead, the rich got richer and the poor got poorer.

        Thanks National.

        • greatape 4.1.2.1

          Blip how did the poor get poorer?

          • BLiP 4.1.2.1.1

            Well, the income gap widened, further marginalising the poor.

          • Pascal's bookie 4.1.2.1.2

            Compare after tax income for National’s tax cuts with the package Labour had already passed.

        • Monty 4.1.2.2

          What makes me wonder is why you lefties think that you know or understand more about economics than John Key. Bill English, and some highly qualified Treasury officials who have studied and participated in international finance and economics for decades?

          John Key has a better grasp than international finance, macro-economics, and the domestic economy than the entire Labour caucas and all the Labour party policy advisers put together. Paying off debt is a good thing – it frees up more capital for growth, saving tax-cuts provides funds for growth and expansion, and maybe other includes money for tory charity and that can’t be a bad thing.

          Those who pay the majority of the tax in the country deserve a break and I am so pleased National delivered on it’s election promise. I deserve every penny of my megre tax cut – but unfortunately I still have to over $100,000 in tax this year. – At least it is going to a National Government.

          [you don’t pay $100,000 a year in tax. You’re, what, 18-19?]

  5. Indiana 5

    Cheese or Chewing Gum?

  6. roger nome 6

    Very Tight Orifice?

    • vto 6.1

      Get your kicks dreaming over someone else sicko.

      Made me laugh tho. Know what it actually stands for? My own political party established a few years ago. Stands for Vote Them Out. Give a voice to those who don’t vote or refuse to vote by enabling them to vote the system out.

      • Lew 6.1.1

        vto, I know a lot of people on here who’d join that party today, if the name means what it says it means ;)

        L

        • vto 6.1.1.1

          Lew, I was tempted to give it a go 2005 and less so 2008. Haven’t done much about it. How it works, in one short sentence, is those who are voted in do not attend Parliament, do not vote, do not do anything whatsoever, thereby effectively cancelling out their seats….. Leads to many scenarios and is largely a protest vote only. But it does give voice to a group who currently are not heard. Democracy in action – vote itself out!

          • Lew 6.1.1.1.1

            vto, sounds like the 99 MP Party, who stood one candidate (the minimum) with the purpose of gaining enough of the party vote to earn 22 candidates, 21 of whom would be an underhang, thereby returning the NZ parliament to the halcyon days of 99 MPs. As I recall in 2005 they got about one tenth as many votes as the Aotearoa Legalise Cannabis Party.

            What I meant by `if the name means what it says it means’ was a party with the purpose of `voting them out’, whoever `they’ happen to be. Would make for a volatile membership.

            L

          • Rex Widerstrom 6.1.1.1.2

            …is those who are voted in do not attend Parliament, do not vote, do not do anything whatsoever…

            Ahhh you mean list MPs!!

            :-P

  7. BeShakey 7

    Greg – Saving or paying off debt isn’t directly stimulatory, and even if you argue that it has some stimulatory effect, that effect is less than if the money was spent. This is one of the reasons why people thought Nationals tax cuts were badly structure (the other was reasons of social equity – but that has less support from the right). Poor people tend to spend additional money they get, largely because they have little choice. Richer people on the other hand, tend to have a pretty decent standard of living, with their main obligation being to service debt (often housing). Thats a perfectly rational response by both groups, but if you want your tax cuts to have the biggest stimulatory impact you give them to poor people.

    National were told at the time they announced the cuts they wouldn’t have good stimulatory bang for buck. They were told when they delivered them. And they’ve been told again now that the first signs of how people actually spend them are showing up. I suspect that message will be the same as further details emerge. What this shows is that they weren’t telling the truth when they said that the tax cuts were about responding to the economic situation, instead the tax cuts were about blind ideology.

    • Bevanj 7.1

      Labour was told to spend less on governing and provide better value to the majority. I think that was back in November.

      I certainly value having a little more of my earnings to spend.

      • Zaphod Beeblebrox 7.1.1

        Good point, its all about where the money is best spent. National believe in spending on tax cuts for the middle class (electorally popular), I would argue its better spent on the innovation, education, infrastructure and the future. It definitely should not be spent on subsidizing property investment.

        • Bevanj 7.1.1.1

          yes, although I believe the challenge there is getting said money (wherever it comes from) through the bureaucracy to actually do some good.

  8. Rich 8

    Quite a lot of people think that when your tax rate goes from 33% to 39%, that applies to *all* your income, not just that over the threshold.

  9. rod 9

    I think TV3 News and Duncan Garner are part of John Key’s Spin and Bullshit Brigade

  10. “Save it 30.1 per cent”

    Can you explain what is wrong with saving?

    • Zaphod Beeblebrox 10.1

      If the government has to borrow to pay for us to save through tax cuts then passes on the cost later through repairing the infrastructure that falls apart when it all needs fixing because they gave us the tax cut (toll roads, power prices, council rates, hospitals, to entice the doctors and nurses back from Oz) whats the point of giving a tax cut at all.
      If the borrowed money is used to improve productivity (R and D, education, transport infrastructure, libraries, town centres etc) then thats another matter.
      The whole idea of the jobs summit was to do something about unemployment in the short term. The government investment in these things was supposed to be used to stop the vicious cycle of people losing their jobs then their purchasing power which causes more people to lose their jobs. Its no good waiting for unemployment to hit 10%, before getting off your bum and doing something about it.

  11. Ag 11

    I’m one of the savers. I haven’t changed my behaviour because of the tax cuts, I just have more money in my savings account each week.

    OK. Won’t the bank just lend your money to someone else who will spend it?

    • RedLogix 11.1

      No. Not when they are deleveraging themselves. It will just go to repay the banks own debt and/or prop up their inactive capital reserves.

      Deflation is by far the worst of all conditions an economy can find itself in, because during this phase of the capitalist boom/bust cycle, most repayment of debt becomes directly de-stimulatory.

      • Paul Walker 11.1.1

        “Deflation is by far the worst of all conditions an economy can find itself in”

        Yes and no. It depends on why you have deflation, see.

        • RedLogix 11.1.1.1

          Have read of Steven Keen’s article linked to below, and let me know if you think the kind of deflation we are facing is ‘good’ or ‘bad’.

          Keen argues from an Australian perspective that the total Debt to GDP ratio of the USA and Australia is fairly close to 300%, at least 200% of that being unsustainable speculative, or downright fraudulent ponzi lending that has to be unwound one way or another.

          The case made for possibility of ‘good’ deflation is a reasonable one, but I cannot see how it applies to the situation the global economy faces at this point in time.

  12. Greg 12

    BeShakey,

    “Greg – Saving or paying off debt isn’t directly stimulatory, and even if you argue that it has some stimulatory effect, that effect is less than if the money was spent. This is one of the reasons why people thought Nationals tax cuts were badly structure (the other was reasons of social equity – but that has less support from the right). Poor people tend to spend additional money they get, largely because they have little choice. Richer people on the other hand, tend to have a pretty decent standard of living, with their main obligation being to service debt (often housing). Thats a perfectly rational response by both groups, but if you want your tax cuts to have the biggest stimulatory impact you give them to poor people.”

    No, its not directly stimulatory. Its indirectly stimulatory. And it has the saving it has the same effect as spending it.

    As Ag pointed out:

    “Won’t the bank just lend your money to someone else who will spend it?”

    Not only that, but the bank will lend it to the person who can make the most money with that money – so it probably has a greater stimulatory effect.

  13. Tom M 13

    Tane, what are the banks going to do with the money people save? Put it in their vault and swim in it!?

    Don’t tell me I’m the only one that watched that show as a kid…

    Seriously, banks won’t do that. They will lend it back out. Prima facie, that seems pretty stimulatory.

  14. RedLogix 14

    I’ve recommended this article from Steven Keen before, but it does directly address TomS and Ag’s obvious question in a highly readable account.

    It’s fairly long, but it does directly address the real role of money, banks, credit and multipliers… and the disasterous consequences of banking industry de-regulation over the last 30 or so years.

    • Tom M 14.1

      Thanks Red, that will take me a while to get through but it looks interesting. To be sure though, you have to concede that I am prima facie sceptical about the claim that the normal model of credit creation is incorrect because the Marxist model is correct (which appears to be the claim in the paper). Rightly or wrongly, Marxian economics isn’t held in high regard by most modern economists (of any political persuasion, other than Marxist, obviously. E.g. Brad DeLong, who called Marx a ‘minor Post-Ricardian’) who presumably know a lot more about it than I do.

      • Tom M 14.1.1

        Hm, perhaps I should have read ahead of the first paragraph, from which point he takes a decidedly different tack. Or I could have looked at the title, and realised it was on Fisher on debt-deflation.

        Similar critiques apply, but less vehemently.

        Also it’s not very long, it’s just that there are heeeeaps of comments at the bottom.

      • Paul Walker 14.1.2

        Tom M

        I didn’t know Keen was still around. I hadn’t seen anything of him seen he publish a book called “Debunking Economics” some years ago. M. Christopher Auld of the University of Calgary then went and debunked the Debunking.

        One reviewer of Keen wrote “To summarize, Keen is correct that many issues that should be taught to students are not being taught. There is need for a book that introduces students to controversies in theory and methodology, on a level that is accessible to advanced undergraduates. Debunking Economics is, however, too biased to fulfill this need. If one wishes to advocate a reform of economics (and Keen may very well be correct that it is a necessity), one must provide a more nuanced, more accurate, and more up to date picture of its current state.”

        • RedLogix 14.1.2.1

          Face it, the global credit crisis is a direct condemnation of the Friedmanite Chicago School of economics that has steered much political policy since the time of Reagan and Thatcher. It’s basic assumptions and models are wrong and have resulted in failure.

          Keen on the other hand is still around and getting a lot more attention lately because the man demonstrably predicted the current credit crisis with a clear line of argument and evidence, back at a time when most mainstream neo-classical economists where all clapping each other on the back about how clever they all were and how the world would never again experience a Great Depression.

          Predictive power trumps ‘debunking’ everytime.

  15. Chris G 15

    Wait, how many people responded to the poll saying they’d give the money to charity…. like Americans ?

    I thought Key wanted that instead?

  16. “Face it, the global credit crisis is a direct condemnation of the Friedmanite Chicago School of economics”

    Errr …what?? How exactly? I sure if Friedman was alive today he would be very critical of the actions of the Fed and the US Treasury. Anna Schwartz, for example, thinks the shortcomings of the U.S. bailout plan will only lead to further problems in the credit market, see Tearing Into the Fed and Treasury Plans.

    Schwartz: If I regret one thing, it’s that Milton Friedman isn’t alive to see what’s happening today. It’s like the only lesson the Federal Reserve took from the Great Depression was to flood the market with liquidity. Well, it isn’t working. Professor Friedman would have enough stature to get them to listen and stop pooh-poohing any notion of possible inflation.

  17. RedLogix 17

    Keen repeatedly and emphatically states that the amount of unsustainable speculative credit in existence is far greater than any ‘qualitative easing’ taking place. With a Debt/GDP ratio of 300% and at least $20 trillion of that to be unwound, not to mention as yet unaccounted for trillions of losses being sustained in the $700 trillion plus derivatives market, the paltry few trillions so far printed amount is pretty ineffectual. Keen argues deflation will dominate over any possibility of inflation.

    Agreed Friedman would be critical of the Fed actions in recent months, but Keen, and his colleauges, are vocal in their condemnation of the neo-classical economists role in creating the crisis over a period of 30 years.

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