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GST hike = tax cut for rich only

Written By: - Date published: 11:49 pm, March 14th, 2010 - 50 comments
Categories: gst, tax - Tags: , , ,

John Key on the coming tax money go round:

“it will make the bulk of New Zealanders either better off or a lot better off, and on a straight GST income tax no one will be worse off”

The tax changes leaked to the Sunday-Star Times:

  • GST up to 15%
  • $0-$14,000 bracket from12.5% to 10%
  • $14,000-$48,000 bracket from 21% to 19%
  • $70,000+ bracket from 38% to 33%
  • Some kind of tax tightening for landlords (expected to be partially passed on in rents)

Using these numbers, the IRD’s table of income distribution, and tables in the Tax Working Group’s report that shows how much of their income people pay on GST at different incomes, I’ve worked out the net reduction (or increase) in tax at different income levels:

While it’s good that the poor haven’t been ignored entirely (and I think the campaign by the Left can claim that victory) they’re getting the barest of compensation, a few cents a week assuming typical GST bills. Even up to $47,000, more than what 2.6 million taxpayers earn, the net tax cut is just $3 a week.

Higher income workers, from about $57,000 to $83,000 fare even worse – their increased GST bill outweighs their income tax cut because there’s no reduction to the 33% rate and they end up worse off.

So, are “bulk of New Zealanders either better off or a lot better off, and on a straight GST income tax [none] worse off”? No. 10% get a net tax increase and 80% of taxpayers get a net reduction of piddling size that will be overwhelmed for many by rent hikes.

Remember these numbers don’t (can’t) account for rent increases due to the changes in property tax. I support discouraging over-investment in housing but there needs to be compensation for renters, and less than $3 a week at best simply won’t cut it.

The real money, as was always National’s intention, goes to the rich. The total net tax cut for the 22,000 wealthiest taxpayers is over $200 million – more than the total for the poorest 2.5 million. Put it another way, for every dollar net tax cut the typical Kiwi gets the elite will get over $100. And they’re not likely to have to use that money (and more) to cover higher rent.

This is all nothing but a complicated way of taking money out of the pockets of working Kiwis and putting it in the pockets of the wealthy. No-one thinks that these tax changes will increase growth but they will increase inequality.

The whole idea of increasing GST should be scrapped and the housing tax reforms used to compensate low income New Zealanders first. But I don’t see that happening. The whole point of the exercise for National is to further enrich the wealthy at the cost of everyone else.

50 comments on “GST hike = tax cut for rich only ”

  1. Jim Nald 1

    With the GST trojan horse, National sets up NZ to enter the new decade with a huge wealth transfer to the rich 🙁

    • Lanthanide 1.1

      I said at the time of the last budget when they “postponed” the proposed taxcuts that actually what they were planning was tax reform, not tax changes.

      And what-do-ya-know, National’s tax cut response to Labour’s (that already favoured the wealthy wtih 39%->37% top rate reduction) clearly wasn’t what their constituency wanted, so they used this sham of the then-current plans being ‘postponed’, so they could be conveniently forgotten about and replaced with something that, if they’d originally proposed, they wouldn’t have been elected for (not when compared to Labour’s much more realistic plans).

      Hopefully NZ will wake up and kick them out at the first possible chance for this duplicitous PR scheme.

  2. Bored 2

    This is what your common Joe aspired to at the last election, and according to the polls still favours. Consequently my sense of outrage is somewhat muted, its the price to be paid by the common man for voting in this bunch of scumbags.

    Marty, on another note, “elite”…..being rich is one thing, they are not however the “elite”, it gives them a status thoroughly undeserved, please desist..

    • prism 2.1

      Oh to have that undeserving status, I must buy a Lotto ticket it’s my only chance of joining the elite, can’t do it any other way.

    • Clarke 2.2

      This is what your common Joe aspired to at the last election, and according to the polls still favours.

      There does seem to be solid and incontrovertible evidence that turkeys do actually vote for Christmas.

  3. tc 3

    Muldoon would be proud and envious of the msm doting and fawning over them into the bargain.

  4. Jenny 4

    “This is all nothing but a complicated way of taking money out of the pockets of working Kiwis and putting it in the pockets of the wealthy.”

    Marty, couldn’t agree more. Indeed GST since it’s introduction by Sir Roger Douglas was designed that way, and just as this subsequent increase in GST will, as you say “increase inequality” so did it’s inception.

    I see that you think that “The whole idea of increasing GST should be scrapped”. I and probably a lot of others would go further in thinking that GST should be scrapped altogether, and replaces with something like a FTT. Of course I realise that the Labour Party is deeply wedded to continuing GST.

    But how about this idea:

    http://unityaotearoa.blogspot.com/2010/03/hey-labour-mps-why-not-support-gst-off.html

  5. Good graph Marty. Crumbs for the poor and cake for the rich, again.

  6. Nice analysis Marty, but something doesn’t quite add up in the original SST article.

    I suspect, looking at the NZIER graph, that the SST neglected to spell out that the $48,000-$70,000 bracket would also fall under this option, to 30%. (I guess we’ll find out for sure when the NZIER report comes out this week whether that is what they did their modelling on.)

    • Marty G 6.1

      bugger, that’s just in the physical version is it?

      That would get rid of that negative patch but increase the cost a lot, and the bulk of the money would still be going to the wealthy.

      • Bright Red 6.1.1

        Nah, you’re right mate. There’s nothing in the physical version about cutting the 33% rate.

        The graphic is a real hash, claiming that you’ll get the same net tax cut at any point over income ranges – $100K and $145K for example. Clearly wrong to anyone who thinks about it even for a moment.

  7. The graphic is from NZIER, which doesn’t mean it’s automatically right but suggests there’s probably some sort of logic to it. My read of it is that the figures are supposed to be the average across each of the income bands they’ve given. Not sure that’s the clearest way to communicate this information but it does make at least some sort of sense.

    If you take (crudely) the mid-points of each income band and throw in the 30% rate, then the tax cut figures do seem to add up. (But Bright Red IS correct – the ‘Source’ doesn’t say anything about 30% – hmm . . . )

  8. Lanthanide 8

    “While it’s good that the poor haven’t been ignored entirely (and I think the campaign by the Left can claim that victory) ”

    No, because on the day of National’s speech, Key was on Campbell Live and said “tax cuts across the board”, so this was the plan all along.

    You’ve made multiple posts where he made comments afterwards that implied tax cuts wouldn’t be given to those on the lowest incomes (and each time I asked you to give a source for this, but you never did – some other poster tangentially answered that for me), but the fact stands that on national television on the day of the speech he said that tax cuts would be “across the board”, when directly asked by Campbell. I know Key flip-flops on a lot of things, but that’s not the sort of statement you turn back on lightly.

  9. Sookie 9

    I don’t get the lack of a cut to the 33% rate. Most middle income people, ergo a good chunk of National voters, get clobbered by the 48K to 70K rate. Surely it would be politically stupid to make these people pay more in tax through the GST hike? There are not enough rich pricks (thanks Cullen) to vote National in by themselves. There must be plans for some kind of cut to that rate, surely?

  10. TightyRighty 10

    the line you have imposed on the graph could equally be the same line if the graph measuered tax burden, and the line represented the impact of said burden if tax was raised. with a marginal tax system this is what you get. proportionality. this is hard to understand i know, but those who pay progressively more tax, get progressivley better off from tax reductions, because they pay more tax anyway. in a nutshell, if you don’t pay much tax, then you don’t stand to gain much. if you pay lots of tax, then you gain significantly more. the only real way to help the very lowest decile, is to increase welfare transfers. which helps nobody really.

    • lprent 10.1

      There is a much simpler way. Just cut the tax rate on the lowest tax bracket.

      It benefits every taxpayer without the ratchet effect you describe in the upper brackets. More importantly it reduces the direct tax burden on those who are least able to afford GST increases.

      • Lanthanide 10.1.1

        Or, alternatively, if you want to throw a little extra cash to those in the upper brackets (to encourage them to stay in NZ, or “invest in NZ” or whatever today’s slogan is), you can move the brackets upwards without changing their rate. This allows you to control exactly how much the people at the top gets and ensures that no one is taking tax cuts worth hundreds of dollars a week when the ‘average’ NZer is getting maybe $5-10 if they’re lucky.

        Everyone understands that cutting the rates will help those with the most money, but to imply that there is no other choice is simply disingenuous (or ignorant), TightyRighty.

        • Bright Red 10.1.1.1

          yeah, you should move brackets if you’re going to do anything, I think. The cost is set (doesn’t increase with inflation) and the cut is not open-ended.

        • TightyRighty 10.1.1.2

          i didn’t imply that, but take from what i said what you will. putting words in other peoples mouths is more disingenuous.

      • TightyRighty 10.1.2

        i’m actually more in favour of a tax free band, but i know what you are saying. it won’t however fix the distortions at the top end of the scale. moving the brackets as mentioned below will help that further, though the marginal tax system is the real problem. a flat tax system is the fairest way of fixing the current distortions. and if government could make do with less, then it is acheivable.

        • Pascal's bookie 10.1.2.1

          and if government could make do with less

          It’s not the government TR. It’s the people. They won’t vote for politicians that promise to make big enough cuts to services. They like those services.

          That’s why ‘tax cutting’ politicians campaign on ‘efficiency’ and ‘cutting the fat’. The fact that there is precious little fat to cut, and that there are no major efficiency gains to be made, mean that tax cutting pollies either don’t make substantial cuts (but rather just shift the burden downwards) or run up big deficits.

          • gitmo 10.1.2.1.1

            I dunno about the assertion that there’s precious little fat to cut.

            If you look at the growth in public spending increased quite dramatically (40-65 billion 2003-09) – even though there are some areas of public spending that have been maintained at a a very low level of growth during the same time period, certainly some of that spending has been prudent rainy day stuff – kiwisaver and cullen fund. But there has also been what I consider some crazy stuff that will come back to bite us and the politicians in the future such as WFF,ACC and lack of copayments by the public in health being too generous in my opinion and then there’s the anecdotal stuff that all of us dealing with the public sector and QANGOs have seen over the last couple of decades.

            • Pascal's bookie 10.1.2.1.1.1

              If the fat was there then it would of easily been found in the line by line reviews, trumpeted to high heaven, and cut to pay for meaningful tax cuts north of fifty dollars a week.

              The other things you mention, WFF etc, are policy choices. They are not ‘fat’ in the sense of spending you can eliminate without affecting services.

              In a sense, you’re exactly who the ‘trim the fat’ rhetoric is aimed at. You just interpret all your personal policy dislikes as ‘fat’ and assume that’s what they are talking about. If a government wanted to save money by eliminating that type of ‘fat’ though, they could just cmapign on eliminating the policy. But then they wouldn’t win because, as I said, too many people like those policies.

              • gitmo

                Too many people like getting things for free that we cannot afford…… yes I agree with you there. Both National and Labour have made a rod for their own backs over a few decades creating a population that has no notion of the cost of what is provided to them and an unwillingness to have a lessening of public support/control over their lives.

                This has lead to rather timid government unwilling to make the slow incremental changes where they probably need to.

              • Pascal's bookie

                But that’s not what I said.

              • Pascal's bookie

                (missed the edit window in reply to your new and improved comment)

                People like the services yes, and they won’t vote for cutting them. Left wing governments that support those services are put in the position of having to explain how they are going to pay for them. You get things like 99, where Labour campaigned on raising income tax to pay for things.

                Right wing governments hate taxes, and promise to cut them, but find that campaigning on cutting services gets them nowhere, so they tell lies, and make up silly stories about Laffer curves and what not.

                At the end of the day, they either cut taxes and services, (and get thrown out of office), cut taxes without cutting services, (and run huge deficits) or don’t cut taxes, (but shift the burden downwards to reward their mates).

              • TightyRighty

                could you please explain how cutting wff will result in service reductions? i know you say it is a policy choice, but i seem to remember labour never campaigned on introducing it. once that choice has been made, then of course it is electorally difficult for national to scrap. even if it was scrapped in favour of only reducing the tax burden for those people in the applicable tax bands, labour and the left would find a way to make it seem like it’s “benny bashing”.

                this is despite the fact that wff is a discriminatory tax and spend policy. it discriminates against the homosexual portion of society, the single portion of society, and the couples who choose not to have children for whatever reason, and couples who can’t due to health reasons. these people are taxed to provide benefits for those who choose, or or don’t choose to breed. the intro to the movie idiocracy shows the long term benefits of this.

              • Pascal's bookie

                It’s a service reduction because it’s cutting a ‘service’ provided by the govt.

                I’m defining service here as bassically anything the govnt does as a policy. It’s to differentiate between cutting taxes by having the government actually do less stuff, and having them cut taxes by doing the same stuff but more effeciantly.

                The latter story is the one right wing parties tell because, apparently too many people like the services more than they hate the taxes.

                Your peronal objections to the policy don’t change this. If the argument could be won on those grounds, then presumably it would be. But as it happens, people would seem to rather pay the tax than cut the sevices when the options are honestly put to them.

              • Lanthanide

                “it discriminates against the homosexual portion of society”

                I don’t know why you chose to separate out homosexual people from ‘singles’ or ‘the couples that choose not to have children for whatever reason’. Many gay people do have children.

              • TightyRighty

                what service though pascal? giving money to people based on their family status? that’s government largesse (vote-buying, pork barrel politics). it’s not a provided service like education, health, roads etc. so how would cutting it reduce services?

                defining policy as services is a long bow to draw. the governments review of mining land could reduce the tax burden on individuals, while maintaining the same level of services. is this a service? no, it’s policy, and on this site an unliked one. i don’t think i have phrased what i mean that well, but mondayitis has just hit.

                lanthanide, there are gay people with children, but i don’t think they are “many”. i’m pointing out that they are a section of society discriminated against by wff.

              • gitmo

                Taking the health system as an example we have a single purchaser of non hospital pharmaceuticals and like them or hate them spending growth has been very well constrained compared to most of our trading partners, but we have numerous DHBs and well over a hundred purchasing personnel within our hospitals where budgets are in tatters and spending is growth (some justifiably) is growing quite fast.

              • Pascal's bookie

                Good example.

                There are lots of costs in health. Correct me if I’m wrong but most (or at least a very large chunk) of the growth has been in wages. It’s also highly political, in that people care about it a lot, and care not only about how much service they get, but how it’s delivered.

                It’s easy for a govt to point at it and say “Ooh lookie lots of costs, and growth in costs, therefore there must be fat which we can cut to give you a tax cut”.

                I’m not denying that, as per your bugbear, there is a lot of duplicated services and what not that could possibly be eliminated to get some savings. But it’s not that simple.

                Firstly, most of the growth in costs comes from wages, new types of treatments, and new technologies. The savings that can be made through eliminating duplicated backroom (or frontroom) services aren’t really big enough to get you the sort of cash needed to pay for meaningful tax cuts.

                Secondly, a lot of the ‘inefficiency’ and what not associated with duplicated services is an unavoidable by product of how people like their healthcare to be delivered. People like their local hospitals, and like there to be as much local control of it as they can get. That means a higher cost to the whole system. It may not make sense, you and I might personally prefer the teeny tax cut we could get from centralising things, but that’s our bad luck. We either have to win the argument about centralisation, or stop promising the teeny tax cut.

                Some right wingers though, just pretend that tax cuts can eventuate without cost to the way people clearly want their government to operate (pun alert!), which is fundamentally dishonest. that’s what all this ‘trim the fat’ nonsense is about.

                Bullshitting the public that there really is a free lunch.

          • Pascal's bookie 10.1.2.1.2

            I think what I mean is fairly clear from the first comment TR.

            You can quibble away if you like, but it doesn’t change the fact that to cut taxes by any great deal, a government will need to cut spending.

            That spending is on things, so they will need to cut back on things they provide (or do, like income transfers). This is apparently not very easy to do if you want to retain political power, even though it allows you to cut taxes.

            ergo…. people prefer to have the government doing those things over tax cuts.

            • TightyRighty 10.1.2.1.2.1

              only people who stand to benefit from said things. if you bribe the voter, it’s very hard to get you’re bribe back. thats all it is. i see no one has still managed to adequately explain how a discriminatory tax package like wff can be seen as a progressive thing. and remember before bleating to long and loud about how this tax package makes people worse off, wff has made anyone who doesn’t qualify for wff worse off, as that is a tax cut they could have had themselves. it cuts both ways.

              • Pascal's bookie

                Obviously not everyone agrees about what things the government should do TR. But we have a system of government to decide who gets to say what gets done, and that system, at the moment, has the dynamic as I’ve described it.

                If you know of a better way of deciding what policies to follow, feel free to share it, but at the mo’ your response is just bleating about democracy.

                Tax cuts are also ‘bribes’, but people seem on aggregate to prefer the other ‘bribe’. Hence rightwing bs about ‘trimming the fat to provide a free lunch’.

        • lprent 10.1.2.2

          Fix the major distortions by pushing their tax rates into conformance – upwards.

          If you want a flat tax – make it a higher flat tax. Then you don’t have to cut services. Frankly people who think that there is a lot of fat (ie sufficient to massively reduce the expenditure a lot) in the provision of government services are dreaming. Pretty much everything is there for a reason. So to be able to radically reduce the size of government expenditure you have to reduce the services.

          I’d suggest that you start by looking at cutting the provision of superannuation and see how far you get. It is the biggest single cost in the system, and one of the ones that is growing the fastest with an aging population. The bill in that would have to be substantially reduced to achieve what you’re talking about.

          Of course you have this interesting retroactive problem of people having planned for decades on receiving superannuation. National based their super system on people providing provision of taxes to fund their parents super. Of course we could simply maintain taxes on the young to fund the current super system, while forcing them to provide for their own super. But somehow I don’t think that will work politically.

          Quite simply what you’re describing are bullshit pipedreams

  11. prism 11

    Looking at the tax steps – why would the 10% one stop at $14,000. People who earn as little as this are on really low wages. So take the 10% to $25,000 (always remembering that there is also GST to come off the PAYE taxed income). The consumer tax should push down the amount that lower income taxpayers are charged for PAYE.
    Next could be $25 – 50,000 at 20% – why not have tax in 5’s or decades, easy to calculate and straightforward.
    Then $50,000 – $100,000 at 25%
    $100,000-$300,000 at 33%
    over $300,000 at 40% – if there is anyone receiving this in salary.
    The re-arrangement of personal finance to trusts etc might result in lesser amounts but should still incur 33%. Getting a good amount of tax from the wealthy is the important thing, not whether they reallocate some to save a few percentage points.
    And finally each year allow for inflation. Let’s have some intelligence and certainty in tax and stop it becoming an election issue when it becomes so out of kilter because of lack of indexing. The tax percentages would remain the same the income steps each year would change allowing for inflation, to the nearest decade figure.

    • Lanthanide 11.1

      “The re-arrangement of personal finance to trusts etc might result in lesser amounts but should still incur 33%.”

      Except the current re-arrangement is to take someone on a salary greater than $70k and put them under $70k so they pay 33%. On the scale you’ve outlined, $70k will pay 25%, not 33%.

      Edit: Brainwave after I posted this: the tax-avoidance rate is based on the trust rate, which is currently 33%, so you are correct.

      • prism 11.1.1

        If I was right it was by accident Lanthanide. I have not been following all the moves exactly, just threw in what seemed like a reasonable homemade working tax vehicle (without going through extensive design stages, wind tunnel effects etc).

        The main thing that I think would help is to have the brackets inflation-adjusted I thing actually bienially (every 2 years) would be better and this would stop bracket creep into higher tax rates. It seems to me like kindergarten maths but then perhaps I am too simple to understand the awful complexities involved in this.

  12. felix 12

    Woohoo!! Told you my mate Mr Key would be able to deliver a “north of $50 a week” tax cut. And you all said he wouldn’t. So who’s looking stupid now eh?

    I mean sure, you need to bring in $180,000 a year to get it but just get off your arse and be a bit more ambitious whydontcha? Either up-skill or learn how to trade currency and you’ll be claiming your “north of $50 a week” in no time.

    And when I say “in no time” of course I mean “in quite some time”. Or “at no time” depending who’s asking. What time is it in Australia? Stop confusing me. North of $50 a week!!! YEAAAH!!!

  13. Herodotus 13

    So, are “bulk of New Zealanders either better off or a lot better off, and on a straight GST income tax [none] worse off’? No. 10% get a net tax increase and 80% of taxpayers get a net reduction of piddling size that will be overwhelmed for many by rent hikes.
    You should refer to red Alert and Trev M
    blog.http://blog.labour.org.nz/index.php/2010/03/11/a-big-group-that-will-be-worse-off-following-the-tax-cuts/
    You like him are play politics with this comment. You are mixing 2 policies and like him (I take it for me ) accept the assumption that Govt subsidise land owners and are willing for this to happen and that tax treatment for rentals will be kept?
    If that is the case for me then there will be no real review of the tax system and especially in this area, as you are scared of land owners. If so then how can anything bold happen. You are willing to let the rich take away money from PAYE earners?

  14. SPC 14

    Bill English on the budget this year.

    http://www.stuff.co.nz/national/politics/3439334/Public-sector-on-noti ce-for-Budget

    Notable for the first suggestion that there may be incentives to encourage/reward saving included
    to balance out the GST increase discouragement to spending. Which is sensible and so it’s about time this was included …. but what does he actually mean?

    The concept of a shift from consumption to saving would normally involve an increase in consumption tax (with compensation to those who cannot afford to save) and cuts to tax on investments for those who could afford to save.

    Thus not a cut in the top rate, but a reduction in tax on investment income (perhaps by reducing interest income by half – the inflation component – before it was taxed) and otherwise small business loan insurance (so banks will lend beyond the household property of the business owner) and R and D tax incentives.

    I suspect however the government is of a certain ideological bent called trickle down where those on higher incomes get reduced taxes on the presumption that they will invest the money in ways
    beneficial to the wider economy – in the real world we will note the school zone and beachfront property bidding war will heat up.

  15. SPC 15

    Reward the strong, punish the weak, and call it setting the right market incentives for the strong to flourish and the weak to perish.

    http://www.stuff.co.nz/dominion-post/opinion/3438769/No-justification-for-cutting-the-pulse-of-the-nation?comment_msg=posted#post_comment

  16. ropata 16

    WFF = allowing working couples to mortgage themselves to the hilt and get the rest of society to pay for their asset accumulation

  17. godard 17

    …And then keep in mind that whatever tax cut you do get will have to be spent on all of the social services that get cut in the next 12 months.

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