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Government Propaganda: Corrected

Written By: - Date published: 12:30 pm, May 21st, 2010 - 20 comments
Categories: budget 2010, class war, spin, tax - Tags:

There’s some useful scenarios to look at on the beehive’s tax site. They show how we all pay less tax, even after GST, and somehow the government also gets more tax. I love maths like that.

But some of them seem to have something missing, so I thought I’d correct a couple of them…

1. Average income household

Mark and Emma are in their late 30s and jointly earn the average household wage of $76,000 – Mark works full-time earning $50,000 a year and Emma works part-time, earning $26,000. They have two children and also receive Working for Families. They pay $300 a week in rent, and save what they can, in the desperate hope they might make it onto the poperty ladder some day. Under Budget 2010 changes, Mark and Emma get a household tax cut of $45.85 a week and pay an extra $21.14 in GST. But their landlord had to put the rent up $20 to cover his closed tax loophole, and their pre-schooler’s 3 days at childcare just went up $15 per day, as the government cut $400m in ECE funding.

Mark and Emma weekly income Before After
Regular income $1461.54 $1461.54
Total taxable income

$1461.54 $1461.54
Income tax $265.77 $222.88
Working for Families $55.60 $58.56
Disposable income

$1251.37 $1297.22
Change in disposable income due to tax changes $45.85
Extra GST $21.14
Extra rent $20.00
Extra childcare $45.00
Change in net income

-$40.29
Annual change in net income

-$2095.08

13. Unemployment beneficiary

Scott is 25. He lost his job last year and receives the Unemployment Benefit. He pays $80 a week rent as he lives in a shabbier flat than the government suggests because he can’t get by on $130 for all his food and bills. Under Budget 2010 changes, he gets a $3.92 a week increase in his benefit, but pays GST on all his non-rent income, plus the $10 he borrows from his money so pays an extra $4.10 in GST. Overall, he would only be slightly worse off. Except he also spends on the never-never, contributing to the country’s large private-sector debt, getting him in trouble with credit companies, and yes, paying more in GST. Oh, and his landlady can’t get her tax rort anymore, and has to get her money from somewhere, so his rent’s gone up $10.

Scott weekly income Before After
Net Benefit $194.12 $198.04
Accommodation Supplement $36.00 $36.00
Disposable income $230.12 $234.04
Change in disposable income due to indexation $3.92
Extra GST $4.10+
Extra Rent $10.00
Change in net income -$10.18+
Annual change in net income -$529.36+

Oh, and there seemed to be one that was missing:

16. CEO

John lives with his wife and two children and runs a company that pays him $400,000 per year. His wife Bronwyn doesn’t work and they have paid off their mortgage. He doesn’t pay any more GST than the $120,000 example because he finds it difficult to buy much more that isn’t an investment. In fact he buys shares and companies, and as we don’t have any capital gains tax, joins Sam Morgan in not paying much tax on a big slice of income – only paying on the dividends.

Peter and Jane weekly income Before After
Income $7692.30 $7692.30
Income tax $2722.11 $2363.84
Disposable income $4970.19 $5328.46
Change in disposable income due to tax changes +$358.27
Extra GST $31.64
Net change +$326.63
Total per year +$16984.76

.

As an aside, most of the examples in the press seemed to presume you spent a fix portion of your income, and thus we are all hit equally by GST. This is not true. Those on the lowest incomes were paying 14.5% of income in GST as they spend more than their incomes – that’ll now rise to 17.4%. Those on high incomes only spend about 6-7% on GST (that’ll now be 7-8%). GST is a very regressive tax – the poor pay a higher percent than the rich. This can be reduced by exemptions on basic needs like food, or counter-balanced by a very progressive income tax system – something we sadly no longer have.

Bunji

20 comments on “Government Propaganda: Corrected ”

  1. Adolf Fiinkensein 1

    “Those on the lowest incomes were paying 14.5% of income in GST as they spend more than their incomes that’ll now rise to 17.4%. ”

    And where, pray tell, do these low income people get the ‘more than their incomes’ to spend?

    If it from gummint top ups then that is income. To suggest someone pays 14.5% of their income on GST when the GST rate is 12.5% has a pythoneque ring abo0ut it.

    [lprent: You should really avoid words that put you straight into auto-moderation. Then I have to extract you from it, and my fingers naturally lean towards the ‘spam’ button when I see people with an apparent inability to spell who are wasting my time. ]

    • Bright Red 1.1

      Adolf.

      It’s called ‘dis-savings’ in economic speak. You and I call it living in debt.

      The poor end up spending more than they earn and hence paying GST at higher % of their income.

      The wealthy, in contrast, do not spend most of their income and so face GST at lower % of their income

  2. ianmac 2

    Mr Guest. Those figures cannot be true. I have it on good authority from Mr Key and Mr English that no one would be worse off. Why would they lie? The experts on radio and TV applaud these changes, so Mr Guest you must have it all wrong! 🙂

  3. MikeG 3

    You just don’t get it do you Ianmac. The changes make an even greater incentive for Scott to get a job, so he can aspire to be Peter and spend his tax cut on another trip to Hawaii.

    Now that nice Mr Bollard is talking about interest rates going up sooner so that inflation doesn’t get out of control. Next year there will be clamouring to raise the tax thresholds because of tax creep.

  4. george 4

    Gooner, because a lot of low-income people spend more than their income. And what they spend this debt on attracts gst.

  5. Billy 5

    Im on 30,000 a year, and will be 16.00 a week better off, after gst is taken into account (approx. $10.00) I am $6.00 a week better off, thats still an increase, if small, so I will take it. I do like the idea of having more of my own money to spend even if items of need or luxury will cost more, maybe I wont buy as many energy drinks and drink water from home instead??

    • rod 5.1

      $6.00 a week better off, wow, that’s not even half a block of cheese, enjoy.

  6. So how about the 2 parents with 2 kids on a total of $36k a year (one salary) with rent of $290py… /sigh.

    • Bright Red 6.1

      You don’t exist in the National mindset. Sorry.

      speaking of which, did anyone hear Fran O’Sullivan on the radio this morning saying the bottomw rate was now 17.5%? the 0-$14,000 band, which is over 1 million taxpayers doesn’t even exist to her.

  7. Nemesis 7

    Show me one major economist who argues that rents will go up by 15% as a result of the budget. Just one. That’s right you can’t.

    • Bright Red 7.1

      Everyone’s saying they don’t know what will happen to rents. Except the landlords, who say they will be putting them up to maintain their returns.

      What a wonderful basis to make public policy on.

    • RedLogix 7.2

      At the end of the the long thread, and well after folks had moved onto other topics Mark made this excellent comment.

      He makes the rather obvious point…that I wish I had thought of sooner…”Another thing I’d be curious to know is whether you think the same “supply and demand’ principles apply to the labour market and wages?”.

      In other words if this Budget had for instance, imposed a new Compulsory Employer Superannuation contribution (like Australia’s 12%)…then we would have been reading arguments about how inflationary this was because employers would recovering the increased costs by raising prices.

      Yet they don’t think landlords will do the same.

    • RedLogix 7.3

      Let me do some very nominal numbers.

      The unit is worth $400k. The building value is say $220k. The rent on it is say $320pw.

      $4% depreciation on this building value is $8.8k. (And this is an absolutely conservative way of doing this.)

      If this was deductable from other PAYE income at a 33% marginal tax rate then the decreased tax liability over the whole year is $2.9k. This would be something like $55pw or a 17% of the current rent.

      Now at this point in time it’s not obvious to me what position most landlords are going to be in. It seems that if building depreciation is no longer permitted then most will be looking to restore the reduced cashflow by increasing rents in the range 10-20%

      15% is a very feasible number.

      • frustrated 7.3.1

        Thanks for that example Red – I still believe the renoval of this ability to claim depreciation makes sense on an appreciating asset as it has always seemed like somewhat of a rort for the taxpayer to be subsidsing property development in this manner (disclosure I own several properties and have taken advantage of depreciation to considerable pecuniary advantage)

  8. Carol 8

    What is this “my own money”? This oversimplifies things when there isn’t that much fairness in how people get paid? For instance, most jobs that have traditionally been done by women get lower pay than sill & training level equivalent jobs traditionally done by men.

    And none of the jobs would exist without the infrastructure that the government & society provides to enable businesses and other workplaces to thrive. And then there’s all the not-for-profit, NGOs, unpaid work that many people do that keeps the wheels ticking over.

    And we need a lot of that infrastructure and services to participate in many of our non-work activities. Society is a cooperative enterprise, not just a number of individuals earning a living.

    “my own money” is a superficial, red-herring kind of concept in retation to taxes & the workings of society.

  9. Billy 9

    money in my bank account is my own,

    • ianmac 9.1

      Glad Billy that you owe loyalty to no one. When my family was growing up it was our moneyand I had just a very few dollars per week for discretionary spending. And the Bank stole some of it too! Lucky Billy :).

  10. ieuan 10

    Your CEO probably has a couple of kids in private school, at $15K each the GST increase on that alone is going to be $700 per year. Plus they are probably on their second or third marriage and paying a big chunk of cash to their ex-wife (or wives). Add the cost of a personal trainer, tennis lessons, golf club membership and at least two big fat overseas holidays a year and they are lucky to scrape by on $400K.

  11. zonk 11

    “Anyone saying that this is unfair to lower income earners is either really stupid or just greedy.”-Cynic

    This is the quote that has been on the front page of the Herald all day courtesy of the Your Views section…

  12. Marco 12

    Ok he is still going to be worse off but ifs Scott’s rent goes up so does his Accommodation Supplement.

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