The Nats continue to set very high expectations for the tax changes in the Budget.
Last week Bill English told a conference of wealthy businessmen that the top rate would be dropping from 38% to 33%. That’s an open-ended tax cut, higher as the person’s income rises, so that Telecom’s $7 million CEO will be getting nearly $1000 a day in tax cuts. It’ll cost about half a billion dollars to give these massive tax cuts to less than 10% of taxpayers – over $15,000 each.
At the other end, John Key isn’t proposing that kind of massive cut but he’s still allocating a huge amount of money. Speaking to Grey Power, Key promised both to lift superannuation by 2% at the same time at GST is lifted. The floor for super would remain 66% of the average after-tax wage and Key promised that this would mean another increase on top of the 2%, meaning he is promising to increase the after tax average wage by more than 2%. Key told reporters that increasing super would costs hundreds of millions.
Beyond these specific promises we’ve got the amorphous claim that nearly everyone will be better off as a result of the tax changes. Since nearly a million taxpayers have incomes below $14,000 Key will have to cut the 12.5% bottom tax rate to fulfill his promise. That costs hundreds of millions per cent that is cut.
I remain fascinated to see how Key and English will make tax changes that are revenue neutral, give huge payouts to the wealthy elite, and somehow mean the “vast bulk of taxpayers will be substantially better off”. It’s just a money-go-round after all. How can you make everyone better off with the same amount of money you’ve taken off them?
I can’t see how that’s possible short of magic beans or, more likely, tax changes that aren’t really revenue neutral but are actually funded by spending cuts. But Key has promised he can deliver everything to everyone from the same limited pot of money from increasing GST an closing property loopholes.
He will have to deliver.