Excusing the ‘Don’t Be Jealous’ Budget

Written By: - Date published: 9:00 am, May 19th, 2010 - 12 comments
Categories: budget 2010, class war, spin, tax - Tags:

Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.

– Reinhold Niebuhr. Moral Man and Immoral Society. 1932 [hat-tip Dimpost]

Tomorrow, National will give huge tax cuts to the wealthiest New Zealanders. We’re talking $12,000 a year for a typical CEO or a Prime Minister on $350,000 a year. We’re talking $290,000 a year for Paul Reynolds, the CEO of Telecom. The Right are trying a bunch of excuses for this unneeded gift to the richest people in the country, paid for by working Kiwis. Let’s debunk ’em.

It’s only fair because they pay the most tax
They pay the most tax because they have the most money The richest 1% (34,000) have an average income of $325,000; their total income is the same as the total income of the 1,345,000 lowest income taxpayers, who average $8,400 a piece.

That’s just income. The wealthiest 10% has over $190 billion in net wealth. The next 20% has $140 billion. The remaining 70% has negative net wealth of $15 billion.

Tax is the price that the wealthy pay to live in a society and economy that creates and protects their privilege. The aristocracy had the noblesse oblige as a petty payment for their privilege, the elite in the capitalist system have tax. What’s the alternative? Oh yeah, shift the burden of tax to those who can least afford it and tell them it’s all about ‘aspiration’.

They’ll go overseas if we don’t bribe them

Our emigrants aren’t rich, they are mostly ordinary workers leaving for higher wages, not lower taxes.

Taxes aren’t lower overseas. We have the second lowest tax burden on income in the OECD (and since we began reducing taxes as part of the neoliberal revolution, many countries with higher tax have out-performed us). Of the 22 countries that are richer per capita than us, 17 have lower bottom tax rates and 16 have higher top tax rates (that includes that country Ireland that Key says we should imitate)

Landlords are rich so it’s OK that the tax cuts go to them
Well, most of the really rich, the ones who will get the real money from these tax cuts aren’t rich. In fact, I would hazard a guess that a good portion of landlords don’t have incomes over $70,000 a year. But, more importantly in this renter’s view, the increased tax on investment housing will be passed on to renters, and that will far outweigh their miserable tax cuts.

Now, some have disagreed and think the incidence of the tax will be on the landlords. That supposes they won’t be able to pass on the cost of the higher tax and will have to take a cut to their own returns. For that to be true, renters would need options that wold give them market power but what options do they have? Buying is out of reach of most and renters can’t exactly shop around for the best rent deal. If you rent you know that you take what you can get, and you know how much rents have increased in recent years. There simply aren’t lots of empty rental properties sitting around – the fact there are so many people wanting to rent gives the landlords the opportunity to pass on their added costs and protect their returns.

In fact, we’ve just had a natural experiment in this. When house prices started falling, landlords had their returns squeezed. Did they take the hit? A little bit. A few went to the wall. But mostly they were able to restore their returns by rising rents – they went up 8.1% in the year to June 2009.

It’ll boost growth
Yeah, right. They’ve been telling us that one for the last 25 years. And the strongest period of economic growth during that time? After the top tax rate was increased. There’s no reason in economic theory why tax cuts for the rich should boost economic growth and they don’t in reality.

12 comments on “Excusing the ‘Don’t Be Jealous’ Budget”

  1. They’ll go overseas if we don’t bribe them

    It has been said before but George Monbiot’s comment on the equivalent argument being raised in the UK deserves repeating. He said:

    It’s a bitter blow. When the government proposed a windfall tax on bonuses and a 50p top rate of income tax, thousands of bankers and corporate executives promised to leave the country and move to Switzerland. Now we discover that the policy has failed: the number of financiers applying for a Swiss work permit fell by 7% last year. The government must try harder to rid this country of its antisocial elements.

  2. frustrated 2

    Do you think these ‘rich’ should be taxed more then ?

  3. tc 3

    Aww come on….those hideouts in hawaii don’t pay for themselves you know !

  4. Peter Johns 4

    [lprent: you’re meant to be permanently banned – fixing the spam trap ]

    • You should vent your spleen at the idiots who privatised our rail system in the first place and while you are at it throw a few epithets at those who acted for us in the sale but at the same time shafted us (Fay and Richwhite)

  5. jason rika 5

    I see the privatisation of Kiwi Rail was a great success Peter Johns. Seems to me you’re the only [deleted].

    [lprent: Over the bounds. I presume it is an acronym but without context it makes you look like a DIPSHIT luser. Read the policy about pointless insults. ]

    • ianmac 5.1

      Iprent. I think the language of Johns is objectionable. OTT.

      [lprent: Probably, but I got interrupted in a moderation sweep so I didn’t get to him yet. PJ isn’t meant to be able to comment here at all. ]

  6. Lew 6

    The main acronym for that word of which I’m aware is from call centres/talkback radio: “caller understands nothing today”. But you could equally apply it to blogs and say about Dad4Justice: “commenter understands nothing today”.

    Not that today is any different from usual.


  7. deemac 7

    the trickledown theory, tax cuts for the rich etc, were tested to destruction under G W Bush. The ruinous results are now obvious all over the world. So you have to admire the chutzpah of those who still try to sell it!

    • ianmac 7.1

      deemac you are so right there. I can’t point to research but the trickle down arguement was well and truly busted! The rich just got richer. Come to think of it that would be a good question. What specific examples are there which show that rich getting richer increase the productivity or economic well being of NZ? John Key should be able to show how his wealth has improved our lot, and show why it became even better for you and me by getting a tax cut.

  8. prism 8

    We are all wrong. The rich haven’t been paying their top tax anyway, that’s why we have to adjust the tax and up the GST because it’s harder to wiggle out of. And the new tax system is going to be tighter and fairer on the really wealthy. It’s all so clear when King John explains it.

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