web analytics

Polity: English lies on impact of tax switch

Written By: - Date published: 9:22 am, January 15th, 2014 - 15 comments
Categories: bill english, gst, national, national/act government, poverty, same old national, tax - Tags: ,

polity_square_for_lynnRob Salmond at Polity has this post out on the effect of the 2010 tax cuts and the lies about fiscal neutrality that Bill English said then and has been repeating ever since.

Bill English recently heralded his tax switch as making net tax more progressive. He lied. It actually made net tax at least $500 million more regressive.

In October last year, here is what Bill English said about the results of his 2010 tax switch of cutting income taxes and raising GST:

Lower income households are paying a smaller proportion of net income tax than they did in 2008, indicating that the tax system has become more progressive since the Government’s tax changes in 2010, Finance Minister Bill English says.

“This should contribute to improvements in income equality in New Zealand, contrary to the Opposition’s completely false claims that lower income households were disadvantaged by the tax changes,” he says.

It was great to see Bill English saying a more progressive tax system is a good thing. I agree with him.

But I wasn’t convinced his numbers stacked up. In particular I was worried about what shenanigans could be lurking behind the term “net income tax”. Why specify income tax? Why not net tax overall, to account for the Budget 2010 changes in GST, too?

Getting hold of the numbers

Bill Engish has a history of massaging net tax numbers beyond credibility, and I have form in finding him out, both on blogs and in print. So naturally I requested the Treasury advice under the OIA. After some English-orchestrated delays, the documents finally came back to me the Thursday before Christmas.1

Here are the three most eye opening parts of the Treasury’s advice:

This note responds to a request for analysis of the redistributive impact of the Budget 2010 tax changes. Specifically, we have been asked to compare profiles of income tax paid, transfers received, and net tax paid (income tax minus transfers) by household income, pre and post 2010.

This shows that the decision to look at income tax only, and not GST, came from the those tasking Treasury (ie. Bill English), and not from Treasury officials.

However, it is difficult to determine the extent to which these changes in the distribution of net [income] tax paid were caused by the Budget 2010 tax policy changes, as opposed to other factors.

Indeed. For example, tens of thousands of low income people have lost their jobs and now have to take an unemployment benefit because of National’s jobless recovery. (Don’t need to be a rocket scientist to come up with that alternative explanation.) That means those people pay less net tax than they did when they had a job, because now they receive more in transfers. Bill English takes this as a cause for net tax celebrations.

It is also important to note that this distributional analysis does not incorporate GST, which was an important part of the Budget 2010 tax policy changes.

Which shows that the Treasury went out of its way to warn Minister English that the analysis in the paper he ordered up was half-baked and could be inaccurate. But Minister English did not listen.

Accounting for GST

GST is a huge part of the Budget 2010 changes, and a huge part of the tax people pay. New Zealand individuals paid around $46 billion in all taxes in 2011/12, and around $15 billion of that was GST. Doing net tax calculations while excluding GST is like doing calorie counts while excluding nibbles, dessert, and drinks.

Treasury did not account for the impact of GST because Bill English told them not to. But I can, and I have. Here are the results. Some highlights:2

  • English overstates the impact on top earners by a factor of eleven. Yes, eleven. He thinks these households pay 6.7% more of the net tax than before; in fact they pay only 0.6% more.
  • Across the whole income range, English overestimates the distributional impact since 2010 by a factor of between three and four. He says households earning under $70,000 pay 26% less of the net tax than before; while those earning over $70,000 pay 26% more of it. In fact, the difference is only 7%.
  • English says the 117,000 households earning $30,000 to $40,000 take $238 million more in transfers than they pay in tax; in fact those households pay $360 million in overall net taxes than they receive in transfers.

This is embarrassing for a Finance Minister. Armed with an entire Treasury to help get his sums right, he still makes $600 million errors over here, and factor-of-eleven overstatements over there.

Correlation and causation

So, is the tax system more progressive because of the tax switch, or not? This is an issue Treasury raised in their advice to English. And the truth is that the Budget 2010 changes did not have a positive redistributional impact in New Zealand. In fact, New Zealand’s tax-and-transfer system has become more progressive despite Budget 2010’s tax changes, not because of them. Here’s why:

  • The 7% drop in overall net taxes paid by households earning under $70,000 represents around $1.8 billion in total.
  • The Treasury’s advice to English shows that expenditure on benefits for this under $70,000 group grew by $2.3 billion over the period in question.3
  • This means all of the $1.8 billion in net tax savings for low income households, and another $500 million besides, is caused by more of them being stuck on benefits.

Once more for emphasis: New Zealand’s tax-and-transfer system is more progressive now than in 2008because more people are receiving transfers. Not because of the tax switch. For obvious reasons, that is no victory at all. And this answer about causation was literally staring English in the face in the Treasury’s advice, and still he chose to ignore it.

In fact, the changes to the tax system have the effect of making the system less progressive to the tune of $500 million. To the best of our ability to see counterfactuals, if the tax system had stayed unchanged in 2010 then the tax-and-transfer system would today be $500 million more progressive than it actually is.

This shows that National’s tax switch was a failure, even according to Bill English’s own data and Bill English’s own yardstick. He should be ashamed mainly of the regressive impact of his tax policy, and also of the shoddy work he forced his Treasury to perform.

Bill English serially misleads the public on tax, because he does not want New Zealanders to know the truth – that his government enriches its friends at the expense of everyone else.

  • 1. Why the delay in answering my OIA? Well, I requested the information in October from two organisations, Minister English’s office and the Treasury itself. English then took 20 days to transfer my request of his office to go to the Treasury instead, while Treasury gave itself an extension on its OIA to consult-more-than-usual with English’s office. That way, the information conveniently came to my just as everyone was turning out the lights for Christmas. All of which goes to show that Bill English knew he had made some embarrassing errors in these calculations, and wanted to hide it all from the public.
  • 2. I used the decile-based estimates of “GST exposure” from the government’s own Tax Working Group to do this analysis, assigning income bands to exposure levels based on which decile they fall in. I was forced to make some simplifying assumptions, including on the median income in the open-ended top income bracket, because unlike English I did not have the full resources of a government department helping me. I do not think these assumptions drive the results.
  • 3. Most of this is due to unemployment going persistently up under National.

15 comments on “Polity: English lies on impact of tax switch”

  1. Lanthanide 1

    “This means all of the $1.8 billion in net tax savings for low income households, and another $500 million besides, is caused by more of them being stuck on benefits.”

    I don’t follow this conclusion.

    • One Anonymous Knucklehead 1.1

      $2.3B – $1.8B = $0.5B = $500M

    • karol 1.2

      The “net tax savings” are about low income people paying less tax. Many have lost their jobs, lowering the amount of tax they pay. Therefore they’re counted as a saving from paying less tax as a result of the tax switch – actually, they are paying less tax because of a drop in income resulting from losing jobs and becoming dependent on benefits.

      • You_Fool 1.2.1

        better yet for Mr English, because they are receiving benefits they count as reducing the net tax twice, first by not having to pay as much, and second by receiving money from the govt. Win-Win for Mr English! And you thought the high unemployment was a bad thing, it makes the tax system more progressive!

    • It’s a beautiful example of weaselry as a high art. Goes like this:

      if you lose your job, you end up on a benefit and don’t pay so much income tax;

      if a great many people lose their jobs and don’t pay so much income tax (because they’re now eking out a living from the unemployment benefit), the overall share of the income tax take that’s being paid by lower-income earners goes down;

      which means the Minister of Finance can put out a press release saying that his taxation system is more progressive because lower-income earners are now paying a lower share of the income tax the govt receives;

      which makes the Minister of Finance a lying weasel.

    • Will@Welly 1.4

      You also need to take into account the number of people who have had their hours reduced during the financial crisis, thereby reducing their income and the amount of tax they pay.
      What you also find is that when “old jobs that disappeared” are reactivated, they tend to come back on stream at the same or a lesser rate than they were previously. No adjustment is ever made for inflation.

  2. Tracey 2

    All those numbers… people like chris infused and bm will blank it. Say no one cares and then excuse it as a lie cos they dont understand it.

    • infused 2.1

      Which is pretty much what you’ve done. Congrats.

      I only comment on issues I actually have an interest in. Mostly tech related posts.

      This isn’t one of them.

  3. PG 3

    “Most of [the $2.3b increase in benefits to households earning less than $70,000] is due to unemployment going persistently up under National.”

    Rubbish. On comparing Notes 5 from the Crown Financial Statements at 30 June 2013 & 30 June 2010:

    – total transfers increased by $1.8b

    – transfers clearly not related to individuals being out of work (NZ super, family tax credits & student allowances) increased by $1.77b

    – transfers definitely / potentially related to individuals being out of work (unemployment benefit, sickness benefit, invalids benefit, disability benefit & ‘other social assistance benefits’) increased by just $41m.

    • TRACEY 3.1

      I confess that numbers aren’t my thing. Are you saying English’s assertions were correct?

  4. red blooded 4

    An engrossing discussion (bad pun – sorry). Thorough and well argued. Now, how’s this thinking going to be publicised in the wider world? Has this info been provided to opposition parties? I can see a great series of Ministerial questions arising from this.

  5. Stuart Munro 5

    I’d be interested to see a broader view of government finacial performance, because I have a feeling that the tax figures alone produce a misleading impression, and that Bill English has clearly exerted himself to maximise this effect.

    But there are other government mediated costs than tax, and also other sources of government income. Speeding fines, user charges, and so on have proliferated over the last three decades and represent a small but increasing proportion of cost of living.

    And the government exercise of sovereign currency privileges, as in the case of paying off SCF creditors or of creating student loans – are these exercised impartially?

    I might be less critical if his economic management anywhere approached competence, but I’m compelled to notice that on top on these punitive and regressive tax changes, the Gnat hydra under English has consistently failed to achieve even moderate growth. This represents a shameful level of incompetence, and replacing him with someone who knows what they are doing is frankly an urgent national priority.

  6. TRACEY 6

    Funny how all those squealing about brown must go are absent from this thread where, if true, the MOF is proven to be a liar about the impact his policies have had on the economy….

    and funny how all those who said brown mustnt go cos it was sex and didnt affect his job also dont comment on this behaviour which clearly does affect the second most powerful person in NZ’s, job.

    does this suggest some economic illiteracy which makes both supporters and detractors unable to comment due to lack of understanding, which doesn’t usually stop some?

  7. dave 7

    bullshit bill strikes again

Recent Comments

Recent Posts

  • Positive plan secures victory
    The victory of Labour’s newest MP, Michael Wood, in Mt Roskill is the result of a well-organised campaign run with honesty and integrity, says Labour Leader Andrew Little. “I congratulate Michael Wood on his great victory. He will be a ...
    1 day ago
  • Wave of support for Kiwibuild continues to grow
    Apartment builder Ockham Residential has become the latest voice to call for the government to build affordable homes for Kiwi families to buy, says Labour’s housing spokesperson Phil Twyford. “Helen O'Sullivan of Ockham has now joined prominent businesspeople like EMA ...
    2 days ago
  • Cuba Si Yankee No – Fidel Castro and the Revolution
    The death of Fidel Castro is a huge historical moment for the older generation who grew up with the toppling of Batista, the Bay of Pigs debacle, the death of Che Guevara and the US blockade against Cuba. For younger ...
    GreensBy Catherine Delahunty
    2 days ago
  • Government slashes observer coverage, fails snapper fishery
    The Ministry for Primary Industries (MPI) has more than halved the number of fisheries observers in the East Coast North Island snapper trawl fishery (SNA1). This reduction in observer days, combined with major failures in an unproven and controversial video ...
    GreensBy Eugenie Sage
    3 days ago
  • ‘Exemplar’ Māori Land Court under siege
    TheMāori Land Court, hailed as an “exemplar” by the Ministry of Justice chief executive and Secretary, Andrew Bridgman is under siege by the Government through Māori land reforms and a Ministry restructure, says Labour’s Ikaroa-Rāwhiti MP Meka Whaitiri. ...
    3 days ago
  • He Poroporoaki ki a Te Awanuiārangi Black
    Kua hinga he whatukura o Tauranga Moana. Kua hinga rangatira o te iwi Māori. Ka tangi tonu ana te ngākau nā tāna wehe kei tua o te ārai. E rere haere ana ngā mihi aroha o mātou o Te Rōpū ...
    GreensBy Marama Davidson
    3 days ago
  • CYF reforms ignoring whānau based solution
    When approximately 60 per cent of children in state care are Māori processes need to change in favour of whānau, hapū and iwi solutions, said Labour’s Whānau Ora spokesperson Nanaia Mahuta.  “Widespread concern about Government reforms of Child Youth and ...
    3 days ago
  • Hip and knees surgery takes a tumble
    The statistics for hip and knee electives under this Government make depressing reading, says Labour’s Health spokesperson Annette King.  “Under the last Labour Government we achieved a 91 per cent growth in hip and knee elective surgery. Sadly under this ...
    3 days ago
  • Parata’s spin can’t hide cuts to early childhood education
    No amount of spin from Hekia Parata can hide the fact that per-child funding for early childhood education has been steadily decreasing under the National government, Labour’s Education spokesperson Chris Hipkins says. “In the 2009/10 year early childhood services received ...
    3 days ago
  • Nats will jump at chance to vote for KiwiBuild Bill
    National will welcome the chance to vote for a real solution to the housing crisis after their many, many failed attempts, says Labour MP for Te Tai Tokerau Kelvin Davis. Kelvin Davis’s Housing Corporation (Affordable Housing Development) Amendment Bill was ...
    3 days ago
  • Million dollar houses put homeownership out of reach of middle New Zealand
    35% of New Zealanders now live in places where the average house costs over a million dollars, and it’s killing the Kiwi dream of owning your own place, says Labour’s housing spokesperson Phil Twyford. Latest QV stats show that Queenstown ...
    3 days ago
  • Opportunity for political parties to back Kiwi-made and Kiwi jobs
    The First Reading in Parliament today of his Our Work, Our Future Bill is a chance for political parties to ensure the government buys Kiwi-made more often and backs Kiwi jobs, says Leader of the Opposition Andrew Little. The reading ...
    4 days ago
  • Solid Energy must open the drift
    Solid Energy is showing no moral spine and should not have any legal right to block re-entry into the Pike River drift, says Damien O’Connor MP for West Coast-Tasman.  “Todays failed meeting with  representatives from the state owned company is ...
    4 days ago
  • 20,000 at risk students “missing”
    A briefing to the Minister of Education reveals 20,000 at-risk students can’t be found, undermining claims by Hekia Parata that a new funding model would ensure additional funding reached students identified as at-risk, says Labour’s Education spokesperson Chris Hipkins. ...
    4 days ago
  • Crime continues to rise
    Overall crime is up five per cent and the Government just doesn’t seem to care, says Labour’s Police Spokesperson Stuart Nash. ...
    4 days ago
  • Treasury fritters $10 million on failed state house sell off
    The Treasury has wasted $10 million in two years on the National Government's flawed state house sell off programme, including nearly $5.5 million on consultants, says Labour Finance spokesperson Grant Robertson. "New Zealand needs more state housing than ever, with ...
    4 days ago
  • National slow to learn new trade lessons post TPPA
    Yesterday, the Minister for Trade misused economic data in order to try to make the case for more so-called ‘trade agreements’ like the TPPA which are actually deregulatory straitjackets in disguise. In welcoming a Ministry of Foreign Affairs and Trade ...
    GreensBy Barry Coates
    5 days ago
  • Skilled migrant wages plummeting under National
    Wages have plummeted for people with skilled migrant visas working in low-skilled occupations, driving down wages for workers in a number of industries, says Labour’s Immigration Spokesperson Iain Lees-Galloway. “Documents acquired by Labour under the Official Information Act reveal that ...
    5 days ago
  • Child abuse apology needed
    The Government's failure to act on recommendations from Judge Henwood, based on years of work by the Confidential Listening and Assistance Service (CLAS) will further undermine any faith victims may have put into the process, says Labour’s Children’s Spokesperson Jacinda ...
    5 days ago
  • Reserve Bank again highlights National’s housing failure
    National’s failure to deal with the housing crisis in New Zealand is once again being exposed by the Reserve Bank today, in a scathing assessment of the Government’s response, says Labour Finance spokesperson Grant Robertson “Governor Wheeler is clearly worried ...
    5 days ago
  • Palm Oil Labelling: Possible Progress?
    On Friday, the Minister for Food Safety, along with her Australian colleagues finally looked at the issue of mandatory labelling of palm oil. We’ve been calling for mandatory labelling for years and we were hoping that the Ministers would agree ...
    GreensBy Mojo Mathers
    5 days ago
  • National: Fails to achieve
    The ineffectiveness of the National Government’s approach to schooling has been highlighted by the latest Trends in International Maths and Science Study (TIMSS) report released overnight, Labour’s Education spokesperson Chris Hipkins says. ...
    5 days ago
  • Faster into Homes – a new pathway for first home buyers
    This week Parliament will select another members’ bill from the cookie tin (I kid you not, it really is a cookie tin) and I’ve just launched a new bill I’m hoping will get pulled – to help people get into ...
    GreensBy Gareth Hughes
    5 days ago
  • Selling off our state housing stock isn’t working for NZers
    I want to end homelessness and ensure that everyone has a warm, safe, dry home. This National Government has let down New Zealanders, especially the thousands of New Zealanders who are struggling with something so basic and important as housing. ...
    GreensBy Marama Davidson
    5 days ago
  • Government needs to ensure fair deal on EQC assessments
    Kiwis affected by earthquakes might not get a fair deal if the Government pushes ahead with secret plans to let private insurers take over the assessment of claims, says Labour’s Canterbury spokesperson Megan Woods. “Under questioning from Labour the Government ...
    5 days ago
  • Key’s priorities the real ‘load of nonsense’
    The Prime Minister’s fixation with tax cuts, despite a failure to pay down any debt and growing pressure on public services is the real ‘load of nonsense’, says Labour Finance spokesperson Grant Robertson.  “We’re getting mixed messages from National. John ...
    5 days ago
  • Free Speech and Hate Speech
    Last week we were very concerned to hear that an Auckland imam, Dr Anwar Sahib, had been preaching divisive and derogatory messages about Jewish people and women during his sermons. It was a disturbing incident coming at the end of ...
    GreensBy James Shaw
    6 days ago
  • Young Kiwis struggling under record mortgage debt
    The Government needs to step in and start building affordable homes for first homebuyers now more than ever, says Leader of the Opposition Andrew Little. ...
    6 days ago
  • Tairāwhiti says No Stat Oil!
    Tairāwhiti says yes to a clean environment for our mokopuna today and for generations to come. Tairāwhiti are have a responsibility to uphold their mana motuhake over their land and their peoples and are calling on the Government to honour ...
    GreensBy Marama Davidson
    6 days ago
  • Swimmable Rivers tour – Ōkahukura/Lucas Creek
    When Environment Minister Nick Smith said in Parliament that some waterways – like Auckland’s Lucas Creek – are not worth saving because no-one wants to swim in them, he forgot to ask the locals we met last week who have put ...
    GreensBy Catherine Delahunty
    6 days ago
  • Wellington business relief package needs flexibility
    The Government’s Wellington business support package is welcome news but needs to be implemented so that all affected businesses get the help they need, says Labour MP for Wellington Central Grant Robertson. “Wellington businesses will be pleased that the Government ...
    6 days ago
  • EQC’s staff cuts show disregard for quake victims
    The Earthquake Commission’s stubborn insistence on slashing its workforce and its operational funding by nearly half shows callous disregard for victims of the Kaikoura earthquake and the thousands of Cantabrians still waiting to resolve claims, says Labour’s Canterbury spokesperson Megan ...
    7 days ago
  • Maori Land Court job losses must be delayed
    Māori Development Minister Te Ururoa Flavell must request that pending job losses at the Māori Land Court are put on hold until the Māori land reform process is resolved and the risk of losing centuries of collective institutional knowledge is ...
    7 days ago
  • Financial support needed for urgent earthquake strengthening
    The Government must provide urgent support to residents for important earthquake strengthening work so that it happens quickly, says Grant Robertson, Wellington Central MP.  "I support the call from Wellington Mayor Justin Lester to bring forward work to strengthen the ...
    1 week ago
  • Labour welcomes equal pay
    Labour has long appreciated the value of women’s work and welcomes the Government’s decision to address pay equity for women, say’s Labour’s associate Workplace Relations and Safety spokesperson Sue Moroney. ...
    2 weeks ago
  • Surgeons’ letter a damning indictment
    A letter from Waikato Hospital’s orthopaedic surgeons claiming that hospital managers are stopping them from making follow-up checks on patients is a damning indictment of the health system, says Labour’s Health spokesperson Annette King.  “It’s terrifying that one woman’s elective ...
    2 weeks ago
  • Out of touch Nats continue state house sell-off
    The Government should be focused on building houses for families to buy and more state houses for families in need, not flogging them off, says Leader of the Opposition Andrew Little. “National’s state house sell-off does nothing to help people ...
    2 weeks ago
  • Joyce drags feet while Capital businesses suffer
     Wellington businesses affected by the earthquake are continuing to struggle while the Government drags its feet on getting a business assistance package up and running, says Grant Robertson, Wellington Central MP.  “Steven Joyce needs to front up with an assistance ...
    2 weeks ago
  • Health and Safety Act fails to reduce work fatalities
    After the Pike River tragedy, New Zealanders realised that workplace health and safety culture needed to change. Last Saturday marked the 6th anniversary of the tragedy that killed 29 miners at the Pike River mine on the West Coast of ...
    GreensBy Denise Roche
    2 weeks ago
  • What is the point of education?
    The proposed Education (Update) Bill is the Government’s statement about what the point of education is, and what it means to people. This week we had a day of Select Committee hearings in Auckland on the Bill. It’s a huge ...
    GreensBy Catherine Delahunty
    2 weeks ago
  • Earthquake exposes training shortfall
    Kaikoura’s earthquakes have exposed the Government’s under investment in critical building and construction skills training, says Labour’s Building and Construction spokesperson Phil Twyford. “The Government needs to urgently ramp up the training of Kiwis in construction and engineering in the ...
    2 weeks ago
  • More cops needed to get P off our streets
    National’s cuts to Police funding and drug enforcement officers has seen a surge in cheap P on our streets, says Labour’s Police spokesperson Stuart Nash. ...
    2 weeks ago
  • Who’s calling the shots? Bye bye surplus
    I would love to know who is calling the shots in the National government’s cabinet when it comes to deciding how best to spend taxpayers’ money.  On the evidence of the last few weeks, it definitely isn’t Finance Minister Bill ...
    GreensBy David Clendon
    2 weeks ago
  • Urgent rethink needed on workplace safety
      An urgent rethink is needed on the Government’s new workplace safety laws with the number of deaths this year already at the same level as at the same time in the 2015 calendar year, says Labour’s Associate Workplace Safety ...
    2 weeks ago
  • Rubble and rubbish: spending time in post-quake Kaikōura
    I visited Kaikoura over the weekend – basically to see how the community was coping with all the rubbish and rubble created by last week’s 7.8 magnitude earthquake, and to see my brother Rob. I may have mentioned before that ...
    GreensBy Denise Roche
    2 weeks ago
  • Time to pull the plug on state house sell-off
    The collapse of the planned sell-off of state houses in Horowhenua is an opportunity for the Government to call time on its troubled state house sell off policy, says Labour’s housing spokesperson Phil Twyford. ...
    2 weeks ago
  • Treasury sounds warning bell – but National’s not listening
    Today's long term fiscal outlook issued by The Treasury is a welcome wake-up call on the need to dramatically improve and diversify our economy and properly plan for the future, Grant Robertson, Labour’s Finance Spokesperson says. “Through our Future of Work ...
    2 weeks ago
  • Don’t believe the hype – debt has skyrocketed under National
    The reckless dangling of tax cuts by the National Government is all the more irresponsible when it is put alongside the failure to pay down debt or put money aside for future superannuation costs, says Labour’s Finance Spokesperson Grant Robertson. ...
    2 weeks ago
  • Our kids deserve better
    We don’t know how many children are affected by having learning support needs. I do know that far too many children are not getting the support they deserve for conditions like autism, dyslexia, and dyspraxia. When these conditions are not ...
    GreensBy Catherine Delahunty
    2 weeks ago
  • Talk of tax cuts is plain crazy
      John Key’s talk of tax cuts when the Government has $63 billion of debt, superannuation costs are rising by $1 billion a year and the cost of meeting another natural disaster, is just plain crazy, says Labour Leader Andrew ...
    2 weeks ago