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Happy tax cut day?

Written By: - Date published: 11:07 am, April 1st, 2009 - 58 comments
Categories: Media, national, tax - Tags:

The tax cuts that National are implementing today are more generous to high income earners, and less generous to low income earners, than the tax cuts that they cancelled (Labour’s already legislated for package, see for example here, here, here and here). That’s business as usual for National, stiffing those with genuine need to take care of the already well off. In some ways it’s water under the electoral bridge.

But the story is far from over. Recall that National’s tax cuts were going to be not “North of $15”, the figure that is implemented today, but “North of $50”. This promise was repeated even in the context of the emerging economic crisis. To meet this promise two further rounds of tax cuts are scheduled for 2010 and 2011.

None of these tax cuts are affordable in the face of the ongoing crisis and the ballooning budget deficit. Now that they have won the election National has begun softening us up to cancel the 2010 and 2011 tax cuts. Expect to see more of this softening up in the months ahead.

Apart from a few greedy die hards, National will be praised for its “realism” when it cancels the cuts. But the chorus of praise will come from many of the same “commentators” who leapt aboard the mindless bandwagon that made tax cuts the defining issue of the last two elections. Labour was incessantly berated for its caution in holding off on cuts for so long. It should be obvious by now that this was realism on Labour’s part. While National has to respond to an obvious crisis, Labour was planning ahead for these hard times. That is why NZ is currently so well placed to weather the economic storm (according to Treasury, the IMF, and even National). It may get bad, but it won’t get nearly as bad as it would have if Labour (thanks Dr Cullen) hadn’t planned ahead.

58 comments on “Happy tax cut day? ”

  1. roger nome 1

    Any comment David Farrar? The leader of the mindless “tax cut! tax cut! tax cat! brigade. I don’t suppose that you will now be praising Cullen for running his prudent counter-cyclical fiscal policy? Not a chance hey. Jerk.

    • jtuckey 1.1

      Indeed – twas a pity though that while prudently paying down public debt a great deal of money was also pissed away mindlessly.

      • aj 1.1.1

        Even ex treasury and ACT man Greame Scott thinks there is very little room for cuts in government expenditure.
        The phrase ‘a great deal of money was also pissed away mindlessly’ is a good sound bite but the truth is the money saved on the sort of things the right hates would only deliver tax cuts in the cents.

  2. BLiP 2

    The rich get richer and the poor get poorer. Thanks National.

    • Monty 2.1

      Bugger the poor – they probably would not have any idea how to improve their lot in life regardless of how much of my hard earned money they receive – This country for too long has given the poor a feathered bed to lie in. The poor (read beneficary classes) have sucked at the tit of the middle classes for too long.

      National will give them a wake up call and get them out of bed and into accepting responsibility for themselves.

      The Middle classes have been bled dry for nine long years. A good thing that National are here to look after thos people – no wonder the Nats are leading labour in most polls by about 2:1

      • BLiP 2.1.1

        Most of the poor are superannuants. You would have have these people sent back to work? Also, over the last nine years the number of people on other benefits reduced to record low levels. In the four months under National the number of people on benefits has doubled. National has no intention of reducing the numbers on a benefit because overseas big business has told Key that a labour shortage is not good for the bottom line; far better to have a pool of unemployed on the benefit rather than pay proper wages. Its in the best interest of business that the number of poor be increased and that the middleclass pay them the benefit.

        Your wee rant is borderline psychotic.

      • Snail 2.1.2

        been posted has our snail..
        what follows is truly deserved..
        to monty under separate ‘cover’, as it were

        • ripp0 2.1.2.1

          monty,

          keep it up olde chap.. you’re running smack into the fate a single click on my blog above sets out.. clear as clear..

  3. Gustavo Trellis 3

    Why are you lauding Cullen for reducing government debt during prosperous times when Labour saw no problems in increasing it if they won the next term (and rode National to town after the Nats said they would do it?) You want to talk about the rich getting richer? Should I bust out my tried and true statistic – 12% of the working population pay 51% of the tax take. I’m not in favour of the blanket tax cut approach that most righties take, but I think there’s a compelling argument for examining how tax is collected. Either a more progressive stepped system to take into account lower earners (similar to Australia) or a much simpler, flatter structure with much more severe penalties surrounding evasion. Either way, the current system is broken.

    • BLiP 3.1

      Your tried and true statistic simply reflects that 10 percent of the population have 90 percent of the wealth – until that disparity is evened out, the fruits of production, and the corresponding ability to pay tax, will continue to fall in favour of the wealthy few.

      John Key – the man who so loved the underclass he made it bigger.

    • r0b 3.2

      Should I bust out my tried and true statistic – 12% of the working population pay 51% of the tax take

      Yes and in other news:

      Wealth holdings in New Zealand are highly concentrated, with the wealthiest 10% of the population holding over 50% of total wealth and the bottom half of the population holding less than 3%.

      • Gustavo Trellis 3.2.1

        So what? People who have more money have more wealth? Jesus christ, call the something department. That disparity is something that will take a lot of work, and the country would be better for it if wasn’t there. But there are other things we can do first. For instance, even more regressive than GST is the punitive taxes on secondary incomes, which affects lower income earners, students and anyone else who pulls more than one job to get by. It sickens me that neither party felt this was important enough to address, and no longer makes any sense for a country that wants to be more productive.

        • BLiP 3.2.1.1

          We agree:

          That disparity is something that will take a lot of work, and the country would be better for it if wasn’t there

          But what does National do? It puts in place policies that cement the existing disparity and accelerate its ill effects. That is the point of the post.

        • TightyRighty 3.2.1.2

          hear hear, the most important tax cut of all should be to the secondary income rate, second most important, creating a tax free base income of $10k, not through credits or returns or effective tax rates. just a straight tax kick in point for everyone of $10k

        • r0b 3.2.1.3

          People who have more money have more wealth? Jesus christ, call the something department.

          And similarly, with respect to your original “tried and true statistic”: People who have more wealth pay more tax? Jesus christ, call the something department.

          • Gustavo Trellis 3.2.1.3.1

            Wealth and income are very different things. A higher income is logically tied to an accumulation of wealth, but it is possible to be asset rich and cash poor.

  4. Is this a bob each way? Tax cuts are bad, evil tools of rich pricks and simultaneously won’t it be terrible if National cancel the next lot?

    Make up your mind.

    • r0b 4.1

      The post doesn’t argue that it will be terrible if the cuts are cancelled: “None of these tax cuts are affordable in the face of the ongoing crisis and the ballooning budget deficit.”

  5. Bill 5

    Stuff the tax cuts, or lack thereof! Move on.

    The simple and obvious rebalancing act is simply strident demands for higher wages.

    But for that to happen, unions as well as others have to stop buying into the argument that profits must be protected during a recession and by extension acquiescing to cuts in wages and conditions ( 9 day fortnight) or/ and lay-offs.

    Sealord, F&P etc are making money and making people redundant. Unions should be using those developments to highlight and propagate alternative viewpoints to the religiously accepted ( through being repeated ad-nauseum) ‘protect profit levels at all costs or we’re screwed’ bullshit that gets peddled willy nilly and far and wide.

  6. tsmithfield 6

    Firstly, tax cuts are not a complete loss of revenue. Any spending of the tax cut money will increase the GST take, returning a portion of the cuts back to the government.

    Secondly, tax cuts do not necessarily reduce government revenue in the long term. Tax cuts that are spent increase economic activity which increases the profitability and consequently the taxable revenue of businesses.

    What would be interesting to know would be the optimal tax rate with respect to revenue generation and most efficient taxation method with respect to the cost of collection. Obviously a tax of 1% would never generate enough revenue and a tax of 99% would severely suppress the motivation for individuals to engage in profitable activities thus severely reducing the overall wealth of the country. So

    Surely, from both a left-wing and right-wing perspective, the questions in the previous paragraph are well worth getting answers for.

    • r0b 6.1

      tax cuts do not necessarily reduce government revenue in the long term. Tax cuts that are spent increase economic activity which increases the profitability and consequently the taxable revenue of businesses.

      A beautiful theory – sadly unsupported by the facts.
      http://www.cbpp.org/9-27-06tax.htm

      Myth 1: Tax cuts “pay for themselves.”

      Reality: A study by the President’s own Treasury Department confirmed the common-sense view shared by economists across the political spectrum: cutting taxes decreases revenues.

      But when Treasury Department staff simulated the economic effects of extending the President’s tax cuts, they found that, at best, the tax cuts would have modest positive effects on the economy; these economic gains would pay for at most 10 percent of the tax cuts’ total cost.

      The claim that tax cuts pay for themselves also is contradicted by the historical record. In 1981, Congress substantially lowered marginal income-tax rates on the well off, while in 1990 and 1993, Congress raised marginal rates on the well off. The economy grew at virtually the same rate in the 1990s as in the 1980s (adjusted for inflation and population growth), but revenues grew about twice as fast in the 1990s, when tax rates were increased, as in the 1980s, when tax rates were cut. Similarly, since the 2001 tax cuts, the economy has grown at about the same pace as during the equivalent period of the 1990s business cycle, but revenues have grown far more slowly. (http://www.cbpp.org/3-8-06tax.htm)

      • tsmithfield 6.1.1

        So, why not increase taxation to 100% then? I think you will still find there is an optimal ratio for taxation to maximise the revenue.

        • r0b 6.1.1.1

          Yes there is an optimal ratio, and the evidence suggests that it is higher than the current ratio, not lower.

          • Pascal's bookie 6.1.1.1.1

            Yep, the ol’ laffer curve has two slopes.

          • tsmithfield 6.1.1.1.2

            So, you think it is a good idea to have us taxed at higher than 50% of our income? Because that is what our effective tax rate probably is if you take into account the various direct and indirect taxes, eg:

            Income Tax
            GST
            Tax on petrol
            Rates
            Various other consumption taxes
            Dividends paid to the government from SOE’s.
            etc etc etc

    • Quoth the Raven 6.2

      tsmithfield – So you think the regressive tax that disportionately affects the poor – GST – is good, but a more progressive tax is bad. Personally I’d rather have GST scrapped in favour of a more progressive tax system. Tax those that overwhelmingly benefit from the state already – the wealthy and cut tax on those that are the victims of state enforced plutocracy – the poor.

      • tsmithfield 6.2.1

        GST is to a degree a voluntary tax:- you only pay it when you choose to spend. To this degree it affects the rich much more than it affects the poor since the rich spend much more, and therefore pay much more GST than the poor.

        • Quoth the Raven 6.2.1.1

          GST like any other tax is simply not voluntary. I don’t know how you can even think that. You can’t choose not to pay GST hence it’s not voluntary. Simple. As the poor earn more and spend more of what they earn than the rich and pay the same amount of GST then it disproportionatley affects the poor. A quick google search found me this:
          The way in which regressive taxes, such as sales taxes, disproportionately effect the poor can be seen by using the example of a high-income individual buying a motorcycle versus a low-income individual buying a motorcycle. In this example, the low-income individual will earn $20,000 per year while the high-income individual will earn $500,000 per year. If the low-income individual buys a $10,000 motorcycle at five percent sales tax, they will pay $500 in sales taxes. This $500 is 2.5 percent of the low-income individual’s total income. If the high-income individual purchases a motorcycle that costs $40,000 at the same sales tax of five percent, they will pay $2,000 in sales tax. While the actual amount of sales tax paid by the high-income individual ($2,000) is more than the sales tax paid by the low-income individual ($500), the percentage of the overall income that these sales taxes represents in terms of the person’s total income is drastically disproportionate. The sales tax paid by the high-income individual is .4 percent of their total income compared to the sales tax paid by the low-income individual which is 2.5 percent of their total income. The high-income individual is hardly fazed by sales tax while it affects the financial status of the low-income person to a greater degree. This is why the issue of regressive taxation is such a political divider as certain politicians favor the rich while others represent the poor.

          • tsmithfield 6.2.1.1.1

            And in percentage terms the poor get a lot more of any tax they may pay back in terms of government benefits etc. Those benefits are paid for in part by the larger dollar amount of GST paid by the wealthy.

            Socialists should love GST. It means more money is taken from the rich so it is available for distribution to the poor. The fact that the rich don’t notice the effect as much is simply a factor of someone being well-off. Exactly the same argument you have raised could also be raised for any form of taxation.

        • Rachelr 6.2.1.2

          Yay finally someone makes some sense – tax is tax – and the more money you have the more tax you pay, the more the government gets to spend helping those that don’t pay as much tax. Maybe we should just disenfranchise all those rich folk, make sure there is absolutely no upside to being productive or inventive or entrepreneurial, and then complain our a&#es off when our bosses sack us due to lack of motivation to trade, govt spending is cut and we dont get our govt hand outs! Get real everyone!

        • Draco T Bastard 6.2.1.3

          you only pay it when you choose to spend.

          Interesting point: The poor don’t have any choice – they have to spend their entire income just to survive.

  7. Stephen 7

    Personally I’d rather have GST scrapped in favour of a more progressive tax system. Tax those that overwhelmingly benefit from the state already

    What if the people who earn most of their money at the high end of tax find a better deal in a different country?

    • Quoth the Raven 7.1

      Oh no capital flight! (Runs around like a headless chicken.) Get real.

    • Ari 7.2

      What if the people who earn most of their money at the high end of tax find a better deal in a different country?

      Then we can find someone else to be paid their salary. This is the real world, not Atlas Shrugged.

      • Quoth the Raven 7.2.1

        Exactly, Ari – They can all fuck off to colorado, or wherever, like in Atlas Shrugged, and play with their train sets.

  8. A couple of very good points are made in this post.

    Agree entirely that NZ’s economy and banking is in much better shape that the US and UK. Yet that hasn’t stopped the usual suspects here demanding that we do what the US and UK have done in terms of fiscal stimulus. (Funny, that argument never got much support when it applied to tax cuts that were in the offing overseas :))

    The other points are more of a political nature. The problem for Labour is that no one trusted them to deliver tax cuts given their stated opposition to them in principle and also their track record of going back on promised tax cuts.

    Labour’s reluctance to offer tax cuts wasn’t realism but politics.

    National likewise is playing politics. However, as difficult as it will be for many here to acknowledge, there was a growing sense of resentment towards Labour’s strategies, particularly the refusal to offer tax cuts.

    As always, I note that even after these tax cuts, the “rich” are still worse off than they were prior to Labour’s 39% tax rate.

    • Pascal's bookie 8.1

      (Funny, that argument never got much support when it applied to tax cuts that were in the offing overseas :))

      The reason tax cuts were a bad idea back then, is the same reason stimulus is a good idea now.

      • Daveski 8.1.1

        PB You miss my point. The size and scale of the stimulus packages reflects the size and scale of the problems of other economies.

        • Pascal's bookie 8.1.1.1

          Really?

          Yet that hasn’t stopped the usual suspects here demanding that we do what the US and UK have done in terms of fiscal stimulus. (Funny, that argument never got much support when it applied to tax cuts that were in the offing overseas :))

          Seems to me you were suggesting that for people on the left to be consistent, they should have been arguing for tax cuts a few years ago. (But admittedly, that’s just based on what you wrote, rather than what you might have meant :))

  9. Stephen 9

    Oh no capital flight! (Runs around like a headless chicken.) Get real.

    Eh? I’m not intimately familiar with the whole thing, i was just saying. Seems reasonable to be concerned about that when so few people have so much wouldn’t it? Or is the answer simply to get those wages of the not-so-rich up so capital flight doesn’t matter?

    • Draco T Bastard 9.1

      Capital flight doesn’t actually matter. All that would happen is deflation. The people who could afford something at ridiculous prices have gone and so the market will correct. People do tend to forget that money itself is worthless.

      Well, that would be the case if we didn’t allow massive foreign ownership.

  10. Ianmac 10

    Daveski: Do remember that Cullen was going to adjust the margins (block of cheese thing) but was hammered for years in that he broke his promise of “tax-cuts”. Remember the on-going fuss?
    Now we have the probability that National will have to cancel tax-cuts for 2010, 2011, on which they electioneered on as real bait. But what’s this? Shame! Shame! They guaranteed their promise! Trust John Key? (Mind you it would be a good move to cancel but if politically consistent ? Outraged people! What say you?)

  11. Quoth the Raven 11

    tsmithfield – The wealthy get far, far more from government than they pay in tax.
    In what way do you not understand how a regressive tax like GST does disproportionately affect the poor? It is the very reason why it is called a regressive tax. Here to help you wikipedia – Regressive tax

    A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.[1][2][3][4][5] In simple terms, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer’s ability to pay as measured by assets, consumption, or income.

    Do you concede that GST is most certainly not in any way manner or form a voluntary tax? or not? You can’t even have a voluntary tax can you?
    Why should a socialist love GST? in fact why should a socialist love tax at all? or do you simply not understand what socialism is? I think the latter because that statement speaks to an ignorance of what socialism is or can be. This may help you understand what is a very difficult word to define: Socialist Definitional free for all (try the commentary at the bottom).

    • higherstandard 11.1

      [deleted]
      [lprent: Your ban runs out in April 19 – adding to auto-moderation]

      • Quoth the Raven 11.1.1

        Has your ban run out already? Just when we were getting some good debate here.
        The issues are too numerous to mention in one comment but I’ll give you start and I urge you to look into these issues before you comment again.
        Not every poor person receives a benefit. Do you understand that?
        What we have is state-corporate plutocracy. The state and the corporation fit hand and glove – they may appear to be at odds sometimes and they are sometimes but this is just analogous to the church and the state in the times past. Limited liability is scam perpertrated on people by the state to privatise gains and socilaise losses. The government forces this contractual arrangement on third parties who never consented to it; protecting the wealthy from taking full personal reponsibility. The government enforces their property rights which may be seen as illegitimate over any other conception of property rights. The government works to create a cartelised and monopolised business environment to drive down wages and increase costs to the consumer. The government interferes in the labour market to skew bargaining power in favour of the employer. The government enforces regulations that constrain the ability of poor people to get themselves ahead and work for themselves instead of for a boss. The government makes what should be legitmate forms of income illegal. The governemnt spends tax payers money on corporate welfare. The government routinely provides better services in rich areas then it does in poor areas. And so on and so fourth.
        I urge you to read more before jumping into a debate and strawmanning everything as is your way and bsing arguments on your own ignorance.
        I recently linked to this video that should get you started: Corporatism and survival. It’s from a post-objectivist so its not some leftist thing if that’s what your thinking.

        • higherstandard 11.1.1.1

          [deleted]
          [lprent: Your ban runs out in April 19 – adding to auto-moderation]

          • higherstandard 11.1.1.1.1

            Lynn

            Honestly take your ban and shove it – just because IB should stop getting so sensitive to people mentioning the EPMU and Labour in the same sentence.

            It’s really fairly churlish to delete a comment which is pointing out an obvious flaw in the logic of a second year university student.

            [lprent: It is irrelevant. A ban is a ban. Once you’ve got one you will usually keep it for the term.
            I’d have to say that I’m almost as offended as IB with the original offense, that wasn’t the Labour/EPMU (which is offensive as well) and why you got the ban. It was your attitude about poverty. That affects all of us one way or another.
            Like IB I had a large number of my friends caught in the ill-considered artificial recession that the Nats created in the early 90’s with the benefit cuts. The loss of discretionary spending flowed out into the rest of the economy, including the company I was working at. The Nats then closed the poverty trap with the vile policies devoted to humiliating beneficences like my sister who was on the DPB with 2 kids under 5 after a marriage breakup.
            That policy in the 90’s was to create taxcuts. Then too they suggested that people put it into charities. The whole thing caused real damage, and you can still see the effects in the community now for anyone who actually deals at the frontline bottom of the cliff, like my mother who still deals with the generational effects at womens refuge.
            It isn’t churlishness or faux outrage – it is anger. That was why you got a month rather than a week]

          • higherstandard 11.1.1.1.2

            [deleted]
            [lprent: you can argue about it in a couple of weeks]

        • gingercrush 11.1.1.2

          QtR – Why are you sounding like a theorist? Its fine to believe in what you believe. You’re clearly a very intelligent person. And I would love the ability to write as coherently as you do. But that is all you seem to spouting off. There is actually no substance to your comments here. Just a bunch of stuff any first year or second year university doing any type of Humantinies or social science subjects are taught. Indeed, you’re basically regurgitating them.

          And yes I am aware how hypocritical this sounds since half my posts waffle on about nothing of actual substance. I just can’t seem to be concise on what I write. And unlike you I’m not very intelligent.

          • Quoth the Raven 11.1.1.2.1

            Ginger – Science student not humanities I. What I’ve learnt of politics I’ve learnt myself. I’ve seen many of the same points made above from those on right and the left, hard and moderate from both. You should read as widely as possible in politics and keep on learning as ever in life. I’ve read Rand, Marx, Proudhon, Hegel, Locke, Mill, Engels, Kropotkin, Thoreau, Rothbard, and many others as well as innumerable contemporary commentators. It may seem silly to you like the self-taught man in Nausea, but if one wants to take a stance on anything one needs to know what they’re talking about (it does seem that we anarhcists are obsessed with by-gone political theorists getting into continuous arguments about them – just have a look on the net somewhere). People on the left of politics will talk about consciousness and it is true. The more I’ve learnt the more my consciousness or awareness of these matters has been raised and my political views have shifted accordingly. One should never stop learning or changing or you’ll become a conservative like HS. I do urge you ginger to critically evaluate your views and seek out different views.
            It requires less mental effort to condemn than to think (said Goldman) and this is very true of HS.

      • ripp0 11.1.2

        HS,
        Eh ? got a link for that ?

        from here it looks to me like you are the one holding the chain with a missing link..

  12. aj 12

    You forget Labours $b+ tax cuts for business.
    And National’s slow backtracking on it’s future tax cut plans shows that Labour reluctance to deliver personal taxs cuts was the correct decision.

  13. r0b 13

    Apart from a few greedy die hards, National will be praised for its “realism’ when it cancels the cuts.

    Oh look – it’s started already!

    Finance Minister Bill English has been practically sending up flares, so obvious have his hints become that the second and third tranches of tax cuts are likely to be delayed.

    The public isn’t stupid. Just because National promised not to touch super and that the tax cuts would proceed during the election campaign doesn’t mean it must continue come hell or high water.

    The Treasury’s books are already bleeding red ink and there’s certainly more to come. Factoring in the second and third year of tax cuts right now would probably blow the deficit right through the floor, and that would be unliklely to help our efforts to avoid an international credit downgrade.

    So how about it Colin – any kind words for Dr Cullen now?

  14. If National were a corporation they would be getting done for false advertising now. National lied, yes lied to the New Zealand public. Not that that’s anything new.

  15. Richard 15

    Yesterday I was on the IRD website calculating PAYE for an employee. The pay period ended 31/03/09. Gross Pay was $600.00, PAYE $111.51. I did a calculation for a pay week beginning 1/4/09 (Therefore presumably receiving the tax cut).
    For some reason my employee will now be taxed $113.31 on a gross wage of $600.
    Instead of a tax cut, he is worse off by $1.80. Has John Key taken back the packet of chewing gum that Michael Cullen was derided for a few years back. Or as my employee succintly put it….”John Key is shitting in my mouth and calling it a tax cut!”
    Perhaps it was an April Fools Day joke, but I just did the same calculation today – same result.
    Could anyone possibly shed any light??

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  • Awards support Pacific women
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  • Speech to the China Business Summit
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  • Reconnecting with ASEAN and Malaysia
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  • Statement to the 2022 Review Conference for the Treaty on the Non-Proliferation of Nuclear Weapons
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