Key’s magic money-pot

Written By: - Date published: 10:30 am, February 10th, 2010 - 25 comments
Categories: slippery, tax - Tags:

John Key has indicated that the Government will lift the GST rate to 15% and remove depreciation from investment houses. According to the Tax Working Group, that’ll raise $3.6 billion.

That revenue will then be spent on compensation and tax cuts.

First, he has promised compensation for the GST increase to beneficiaries, people on working for families, and superannuitants (but not for their rent rises). That will cost $500 million – 2.2% of the $21 billion social services bill.

Second, on Campbell Live Key promised that everyone will get an increase in after-tax income to off-set the GST increase – remember, most people on low incomes are not on benefits or super, the off-setting will have to come from a tax cut. To deliver that, he’s going to have to cut the bottom 12.5% rate to 10%. According to Treasury, that would cost $800 million.

Third, Key would need to drop the 21% rate to make up for GST.  He confirmed that this rate would come down on Morning Report. The Tax Working Group said the cut here should be from 21% to 15%. The price tag for that is $2.3 billion.

On Campbell Live, Key indicated he is looking at dropping the top tax rates to 30%, at a cost of $1.1 billion, most of which doesn’t go to people on $70,000-$100,000 but to the ultra-wealthy.

Then there’s corporate tax. Key, oddly, made no mention of this in his speech but each cent off it costs the government $180 million. On NewstalkZB, Key confirmed the corporate rate would fall, all expectations are to 27%, so that’s nearly $600 million.

Whoops. Key is promising something on the order of $5.3 billion worth of tax cuts and compensation. The tax increases just don’t raise that much money. Key has done is old trick of over-promising. He will have to under-deliver.

As Brent Edwards noted this morning, Key is promising that everyone will be better off even after taking into account the GST increase, which just isn’t possible if these tax changes are revenue neutral (and it would be the height of folly to cut tax income while borrowing $240 million a week). This can’t be a free lunch for everyone, someone has to miss out.

So which tax cuts won’t happen to bridge the gap? Not too hard to guess, eh? While Key pockets $500 a week, Kiwis on low incomes will get nothing, and have to pay higher GST and higher rents.

25 comments on “Key’s magic money-pot ”

  • Comments are now closed

  1. Lanthanide 1
    10 February 2010 at 10:51 am

    Key made it quite clear, and repeatedly clearly on Cambell Live, that tax cuts will be across the board.

    He would definitely not dare rescind that promise.

    • Zaphod Beeblebrox 1.1
      10 February 2010 at 10:56 am

      He hasn’t given a time frame for phasing them in yet. If he pahses them in over 3-4 years he won’t have to worry about paying for them until after he is re-elected. By then his WWF promises will be null and void.

    • Lanthanide 1.2
      10 February 2010 at 12:40 pm

      Here’s a nice quote from Key himself:
      “there aren’t little pixies at the bottom of the garden printing cash”

      http://www.stuff.co.nz/national/politics/2609112/There-are-no-pixies-printing-cash-Key-tells-Labour

      The last comment (#42) is also an interesting example of being on the unemployment benefit that many righties simply have no clue about how hard it really is (and why people don’t need “more incentives” to get off, they simply need jobs).

    • toad 1.3
      10 February 2010 at 4:08 pm

      Oops, we’ve just increased the deficit, Bugger, suppose we’ll have to sell off some assets then.

    • aj 1.4
      10 February 2010 at 8:40 pm

      Yes but tax increases will be across the board as well. So Keys honesty and integrity has nothing to do with this statement…

      captcha ‘junk’

  2. blinded by the right 2
    10 February 2010 at 10:55 am

    Did he really say that corporate rates would fall? That seems strange given that his intention so far seems to have been an alignment of the top rates. Perhaps he meant trust rates (from 33% to 30%)?

    I didn’t realise that anyone anywhere had an expectation that corporate rates would fall to 27%, I haven’t seen this figure bandied about before on this or any other blog. Of course, I may simply have missed something.

    • Bright Red 2.1
      10 February 2010 at 11:03 am

      27% is the figure the Tax Working Group raised. Fran O’Sullivan refers to Key promising to cut the corporate rate:

      http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10625213&pnum=0

      “But he did not actually mention cutting the company tax which the Tax Working Group had suggested was the single most important avenue to attract and retain investment in New Zealand.

      The Prime Minister subsequently cut through the confusion on Larry Williams’ Newstalk ZB show by indicating the Government indeed plans to raise GST and wipe depreciation. It is also planning to reduce company tax.”

  3. rainman 3
    10 February 2010 at 11:02 am

    Well, my view of the Campbell Live thing was that he very carefully avoided saying “yes” to JC’s questions…. his media training was just holding. I have no difficulty believing Key can lie, though. Past behaviour the best predictor of future behaviour and all that.

    However, I will wait for the details come budget time to see exactly what is being delivered, before I pick on this one. But I won’t be surprised if there are some “adjustments” to the expectations that wind up being a little upwardly distributive – fundamentally, I think this is what Key thinks when he says “fair”.

    • felix 3.1
      10 February 2010 at 11:14 am

      I thought the same of Campbell Live. I’m intrigued though by the idea that Key thinks answering “that’s right” to the question “is that a guarantee?” is somehow different to saying “yes” and that he somehow escaped commitment.

      However his body language and speech patterns certainly indicate so.

  4. Pat 4
    10 February 2010 at 11:05 am

    Also factor in the trimming off the top of the WFF tables, in exchange for dropping the top tax rate to 33%.

    And some “selective” capital gains tax – probably lengthening the 10 year CGT period for LAQC’s. Key only said there will be “no comprehensive” CGT.

    Might not be just depreciation that get’s removed from LAQC’s. Maybe interest will get a different treatment rather than being 100% tax deductible.

    Company tax rate will;stay at 30%, and trust rate will fall in line. .

  5. Adrian 5
    10 February 2010 at 11:26 am

    Beware of the smoke-and-mirrors, rabbit-in-the-hat bullshit, none of the figures add up so where is the missing 1.8 to 2 billion coming from? Why do the least well off Kiwis have to pay to give foreign corporations, who are already ripping us off for billions, a bloody tax cut?

  6. prism 6
    10 February 2010 at 11:42 am

    “Then there’s corporate tax. Key, oddly, made no mention of this in his speech but each cent off it costs the government $180 million.”
    Interesting fact to remember Marty.
    Another cause for concern for the low income people. Their wage rises each year don’t even match the nominal rate of inflation, but the GST at 15% will be indexed as a percentage, and the amount paid will rise along with price rises. Inflation is calculated historically so every rise in wages or benefits paid to match inflation is being paid in arrears. I can’t see beneficiaries and the working poor being anything but further financially stretched.
    Is secondary tax still being charged? This surely is an anachronism in today’s casual work employment, and it was charged at a higher rate as if having a second job was a luxury item.
    And what about the DPB’s, and the invalid beneficiary only able to work limited hours. Their accommodation allowance went down by a $1 for every $1 earned before tax, so you actually lost money there. Then there was a ceiling of allowance above which you couldn’t earn without huge claw back. How can you manage work and home responsibilities on the same time limits with less money than if you were home only? Has anything been done about them.
    I have been too busy also dispirited to read the report and King John’s speech partly because I fear they will have done nothing innovative and effective to match the rah rah rhetoric. Rather right wing politicians seem to choose all beneficiaries as their top hate and scapegoats for everything they are dissatisfied with and low income earners are magically well off just because they are working and getting paid. Never mind they have nothing in reserve for emergencies, and frequent users of food banks.

  7. Red Rosa 7
    10 February 2010 at 11:50 am

    This has to be the woolliest set of government financial propositions ever presented to the NZ public.

    Somehow, ‘everyone is going to be better off’, while the government ‘cuts taxes’ and ”reins in government spending’!

    It actually looks like a massive tax shift onto middle NZ’ers via GST, and especially those with investment property via the depreciation lost.

    While the Cabinet gets their taxes cut big time.

    Is the man serious? 9000 words of waffle, and apart from environmental pillage (he’s sure about that!) what exactly have we got?

  8. infused 8
    10 February 2010 at 11:53 am

    Someone always has to miss out, get over it.

    • Bright Red 8.1
      10 February 2010 at 1:13 pm

      why does it always have to be the poor who miss out where National is concerned?

      Even in Key’s examples of what the tax changes will mean to people, he never talks of anyone on an income unde $40K. He’s blind to 60-odd% of the population.

  10. randal 10
    10 February 2010 at 12:37 pm

    this a government born out of greed desire and privilege.
    when all the verbiage is dispensed with then new zealand is a tightly controlled micro-economy where nobody wants to invest unless they absolutely have to.
    the only way to pay off the tory backers is to take it off the poor and promise the “others’ more latitude in beating up on people who cant fight back.
    its not rocket science and its not fair.

  11. gobsmacked 11
    10 February 2010 at 1:02 pm

    More lies from National.

    Bill English in 2008 (after the election), on raising GST: “We won’t be doing that … it’s not our policy”

    http://www.stuff.co.nz/dominion-post/politics/747758

  12. SPC 12
    10 February 2010 at 4:11 pm

    A 10% cut in tax for those Oz banks and other foreign owned companies, so more money can go offshore.

    Why, coz high income earners can double dip – a large income tax gain and increased share dividends at the same time.

    No matter how blind the trust, anyone with one must know what they are voting for here.

    Nice, the committment to raising our wage levels to Oz levels is supposed to distract us from the reality of wage freezes for those on low to middle incomes, a pitiful increase in the minimum wage and another huge increase in income and associated wealth disparity.

    Strange how the means to grow our wages comes as a sometime in the future reward for allowing a few to gain now. Reminds me of the national economic reward we would have for allowing others to own and run Telecom and NZ Rail.

  13. felix 13
    10 February 2010 at 4:18 pm

    Judging by his lame floundering excuses in the house today for breaking his word on GST I wouldn’t be at all surprised if come budget time we hear him say, in that snotty flegmy inbred drawl with the rising inflection “Yeah, but I achully had my fungers crossed when I said that? So it dudn’t achully count?”

  14. Jagilby 14
    11 February 2010 at 10:55 am

    “dropping the top tax rates to 30%, at a cost of $1.1 billion, most of which doesn’t go to people on $70,000-$100,000 but to the ultra-wealthy.”

    No, it doesn’t “go to them”, it just doesn’t get taken off them in the first place.

    • Bright Red 14.1
      11 February 2010 at 11:10 am

      It’s a change in the status quo. Their net income increases. That’s all that’s relevant. Not some fictive world where you have your gross income then the state comes and takes tax out of your pocket.

Links to post

The server will be getting hardware changes this evening starting at 10pm NZDT.
The site will be off line for some hours.