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.

History

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


History

  • Student debt cracks the billion mark
    New figures showing that student loan defaulters have now clocked over $1 billion in debt highlights National's failure to combat spiralling student loan debt, Labour's Education spokesperson Chris Hipkins says. "Threatening to arrest returning student loan borrowers at the ...
    21 hours ago
  • Foreign Students just a commodity to National
    National MP Kanwaljit Singh Bakshi has confirmed that his party sees international students as nothing more than a commodity, says Labour's Immigration spokesperson Iain Lees-Galloway. "Mr Bakshi’s appalling comparison of some students to 'faulty fridges' that should be returned to ...
    2 days ago
  • Tolley’s spin on Education spend doesn’t add up
    National’s spin about school funding won’t wash with parents who are paying more and more of the cost of their kids’ education every year, says Labour’s Education spokesperson Chris Hipkins.  “All the spin in the world can’t hide the fact ...
    2 days ago
  • National not facing up to export challenge
    “The latest export data from Statistics New Zealand paints a picture of an economy which is not paying its way in the world, says Labour’s Finance spokesperson Grant Robertson. “Exports fell 9% - led by milk powder exports falling to ...
    2 days ago
  • Correction over Talley’s statement
    Labour’s Workplace Relations spokesperson Iain Lees-Galloway has been advised by AFFCO Ltd that AFFCO is not advertising for staff in the Manawatu through MSD as stated in a press statement released earlier today.  “I have been advised by AFFCO that ...
    5 days ago
  • Minister, cut your losses – withdraw this doomed Bill
    Local Government Minister Sam Lotu-Iiga’s request for a five month extension on the report back date for the Local Government Act 2002 Amendment Bill (No 2) is an admission that the Bill is fundamentally flawed, says Labour’s Local Government Spokesperson ...
    5 days ago
  • Coleman’s cuts create crisis
    Mental health services in New Zealand are in a state of crisis with Youthline saying that calls for extreme depression doubled last year, says Labour’s Associate Health spokesperson Dr David Clark.  “About 150 young Kiwis are missing out on help ...
    5 days ago
  • Government helping Talley’s to break workers
    The Ministry for Social Development appears to be assisting Talley’s-Affco replace experienced workers effectively locked out by the company, say Labour’s Social Development spokesperson Carmel Sepuloni and Workplace Relations spokesperson Iain Lees-Galloway. “MSD is advertising for meat processing workers for ...
    5 days ago
  • Electives lag due to $1.7 billion hole
    The lag in hip and knee replacements is a direct consequence of the Government’s $1.7 billion underfunding of health, says Labour’s Associate Health spokesperson Dr David Clark.  “A comprehensive study by the University of Otago says that the rate of ...
    5 days ago
  • Speech to Master Builders’ Constructive conference
    Today’s all about being Constructive. And that is good because I believe there is a hunger out there for positive solutions. We must be able to believe there can be a better future. ...
    5 days ago
  • Māori Party housing plan complete failure
    The Māori Party’s housing plan to put more Māori into more homes has been a complete failure with fewer than five loans granted per year, says Labour’s Maori Development spokesperson Kelvin Davis. ...
    6 days ago
  • Fund IRD better to go after tax avoiders
    National’s Tax Working Group used the following graph (p30) in 2010 as part of their justification to cut the top tax rate. The big peaks around the top tax threshold were evidence of a suspiciously high number of taxpayers ...
    GreensBy robert.ashe
    6 days ago
  • Pasifika youth ignored by the Government
    The Adolescent Health Research Group’s new report on the wellbeing of young Pacific people shines a spotlight on the Government’s failure  to deliver any “brighter future” for them, says Labour’s Pacific Island Affairs spokesperson Su’a William Sio.  “Their research shows ...
    6 days ago
  • Police in the provinces are dissatisfied
    Police in the cities of Gisborne, Napier and Hastings are a lot more unhappy than their big city cousins says Labour’s Police Spokesman Stuart Nash.     “In fact the top four districts for enjoyable work within NZ Police are ...
    6 days ago
  • Govt action needed after Wheeler holds
    The Reserve Bank Governor’s warning that “excessive house price inflation” is posing a risk to financial stability puts the pressure back on the Government to take action to address the housing crisis, says Labour’s Finance spokesperson Grant Robertson. “Graeme Wheeler’s ...
    6 days ago
  • Minister confirms – new ministry only about abuse
    ...
    7 days ago
  • Silver Ferns Farms decision a tragedy
    The rubber stamping by the Overseas Investment Office of the Shanghai Maling buyout of Silver Fern Farms is a sorry day for the once proud New Zealand meat sector, says Labour’s spokesperson for Primary Industries, Damien O’Connor.  “Generations of Kiwis ...
    7 days ago
  • Benching Nick Smith first step to Kermadec solution
    Side-lining Nick Smith must be the first step in sorting out the Government's Kermadec debacle, says Labour's Fisheries Spokesperson Rino Tirikatene. “Last week Labour called for Nick Smith to be removed from further negotiations with Te Ohu Kaimoana over the ...
    1 week ago
  • Parents, schools, teachers oppose bulk funding
    Overwhelming opposition to the National Government’s school bulk funding proposal is unsurprising and Hekia Parata should now unequivocally rule out proceeding with the idea, Labour’s Education spokesperson Chris Hipkins says. “Bulk funding could only lead to bigger class sizes or ...
    1 week ago
  • MBIE gives up on enforcing the law
      The Government must provide labour inspectors with the resources they need to enforce basic employment law after reports that MBIE is only prosecuting the worst cases, says Labour’s Workplace Relations and Safety spokesperson Iain Lees-Galloway.  “Today’s news that MBIE ...
    1 week ago
  • West Coast population declines amid bleak economic forecast
    Despite the country experiencing record population growth, the number of people living in the West Coast fell, highlighting struggles in the region from low commodity prices and a poor economic forecast, says Labour’s Economic Development spokesperson David Clark. “The latest ...
    1 week ago
  • Recovery roadblocks cause for concern
    Strong pressure on mental health services, a flagging local economy and widespread issues with dodgy earthquake repairs are all causes for concern for people in Canterbury according to a new survey, says Labour’s Canterbury spokesperson Megan Woods. “Today the CDHB’s ...
    1 week ago
  • Motel purchase must not kick people onto the street
    The Government’s purchase of a South Auckland motel to house the homeless must come with a promise that the current long term tenants will not be kicked out onto the streets, says Labour’s Housing spokesperson Phil Twyford. “It is bizarre ...
    1 week ago
  • Not everyone singing along to so-called rock star economy
    The Westpac McDermott Miller Confidence Survey shows there is serious unease about the economy’s ability to deliver benefits to many New Zealanders, despite the Government trumpeting headline figures, says Labour’s Finance spokesperson Grant Robertson. “According to this survey a significantly ...
    1 week ago
  • Youth no better off under National’s “guarantee”
    John Key’s Youth Guarantee is such a spectacular failure that those who undertake the programme are more likely to end up on a benefit and less likely to end up in full-time employment than those who don’t, Leader of the ...
    1 week ago
  • More low-skilled students becoming residents
    New figures showing international students now make up nearly 40 per cent of all principal applicants approved for New Zealand residency and that their skill level has fallen dramatically, are further evidence that National’s immigration system is broken, says Labour’s ...
    2 weeks ago
  • 35% of offshore speculators paying no tax
    Offshore investors are aggressively exploiting tax breaks to pay no tax on their rental properties according to IRD data released by Labour’s Housing spokesperson Phil Twyford. “35% of offshore investors are paying no tax on their properties, and are pocketing ...
    2 weeks ago
  • Friday fish dump stinks
    This government has dumped bad news on a Friday to try to avoid political scrutiny in Parliament, says Labour’s Environment spokesperson David Parker. ...
    2 weeks ago
  • OECD report card: National must try harder
    The OECD report on education shows there’s much more to be done for young Kiwis, Labour’s education spokesperson Chris Hipkins says. ...
    2 weeks ago
  • Kermadec stoush shows Maori Party double-standards
    The Māori Party’s reaction to the trampled Treaty rights and the Government’s lack of consultation on the Kermadec Ocean Sanctuary reeks of the same arrogant mismanagement of the unpopular Maori land reforms, Ikaroa-Rāwhiti MP Meka Whaitiri says. ...
    2 weeks ago
  • Flawed fish dumping calls
    The finding that MPI failed to properly enforce the law even when it had evidence of fish dumping seriously damages the trust and credibility of the Ministry, the industry and this Government, Labour's Fisheries Spokesperson Rino Tirikatene says. ...
    2 weeks ago
  • Sidestepping Smith should be side-lined
    Nick Smith's arrogance and disrespect towards Māori is putting the future of the Kermadec Ocean Sanctuary at risk and he needs to excuse himself from further negotiations with Te Ohu Kaimoana, Labour's Fisheries spokesperson Rino Tirikatene says. ...
    2 weeks ago
  • Government must respond to cash for jobs scam
    Urgent Government action is required to halt  the emerging cash-for-jobs immigration scandal that is taking hold in New Zealand says Labour’s Immigration Spokesperson Iain Lees-Galloway.  “Stories of rogue immigration agents scamming thousands of dollars from migrant workers are just further ...
    2 weeks ago
  • Government dragging its feet on surgical mesh
    Jonathan Coleman is dragging his feet over any action to protect New Zealanders from more disasters with surgical mesh, says Health Spokesperson Annette King.  “The Government’s pathetic response is to claim all will be fixed by a new regime to ...
    2 weeks ago
  • Labour’s baby number app goes gangbusters
    An interactive tool that celebrates Labour’s achievements in health over the decades has become an online hit, says Labour’s Health spokesperson Annette King.  “Since the tool was launched last night, 18 thousand people have used it to find their baby ...
    2 weeks ago
  • Real disposable income falls in last three months
    Kiwis are working harder than ever but real disposable income per person fell in the last quarter thanks to record population increases, Labour’s Finance spokesperson Grant Robertson said. ‘In Budget 2016 the National Government said that what mattered most for ...
    2 weeks ago
  • Baby number app celebrates Labour achievements
    Labour has launched an interactive tool that allows New Zealanders to take a look back at our achievements in health over the decades, says Labour’s Health spokesperson Annette King.  “Today is the 78th anniversary of the Social Security Act 1938, ...
    2 weeks ago
  • Legal experts unpick Māori land reforms
    One of New Zealand’s top law firms has joined the chorus of legal experts heavily critical of the controversial Te Ture Whenua Maori Bill, adding more weight to the evidence that the reforms fall well beneath the robust legal standards ...
    2 weeks ago
  • Industries most reliant on immigration worst offenders
    The industries most reliant on immigration are the worst offenders when it comes to meeting their most basic employment obligations, says Labour’s Immigration spokesperson Iain Lees-Galloway.  “The industries that are most reliant on immigration are Hospitality, Administration, Agriculture, Forestry and ...
    2 weeks ago
  • Time to remove law that discriminates against sole parents
    It’s time to repeal a harmful law that sanctions those who do not name the other parent of their child, Labour’s Social Development Spokesperson Carmel Sepuloni says. “Every week, 17,000 children are missing out because their sole parent is being ...
    2 weeks ago
  • Government handling of Kermadecs threatens Treaty rights
    ...
    2 weeks ago
  • Prime Minister should give Police Minister some backbone
    The Prime Minister should condemn the ridiculously light sentence given to Nikolas Delegat for seriously assaulting a police woman, Labour’s Police spokesman Stuart Nash says. ...
    2 weeks ago
  • Government listens to Labour on family violence
    Labour is pleased the Government has finally acted on strengthening a range of measures against family violence, says Labour’s spokesperson on Family Violence Poto Williams.  “Some of the latest changes including a new family violence offence of non-fatal strangulation is ...
    2 weeks ago
  • Government must rethink paying for police checks
    National’s decision to ignore the concerns of charities will see the voluntary sector face hundreds of thousands of dollars in new costs if the Policing (Cost Recovery) Amendment Bill passes, says Labour's Community and Voluntary Sector spokesperson Poto Williams.  “National’s ...
    2 weeks ago
  • Seven months for families in cars to be housed
    Disturbing new figures show it is now taking the Ministry of Social Development an average of seven months to house families who are living in cars, Leader of the Opposition Andrew Little says.  “John Key made a song and dance ...
    2 weeks ago
  • North Korea test must be condemned
    The nuclear test by North Korea that registered 5.3 on the Richter scale needs to be condemned, says Labour’s Foreign Affairs spokesperson David Shearer. “This test, coming hard on the heels of a missile launch a few days ago, shows ...
    3 weeks ago
  • Tribe footing the bill for Maori Party?
     Waikato-Tainui deserve committed representation, yet the President of the Maori Party is muddying the waters by confusing the core business of the tribe with party politics, says Labour’s Hauraki-Waikato MP Nanaia Mahuta.  “The only way to fix this growing negative ...
    3 weeks ago
  • Schools set to lose millions
    Schools will start 2017 grappling with a $7.8 million funding cut, Labour’s Education spokesperson Chris Hipkins says. “Hekia Parata has been adamant changes to the way our schools are funded would see them better off. ...
    3 weeks ago
  • 70% of families in cold, damp homes powerless to fix them
    Shocking new figures out today show 70 per cent of the families living in cold, damp homes are powerless to make improvements because they are in rental properties, Labour’s Housing spokesperson Phil Twyford says. “The 2016 Household Incomes Report highlights ...
    3 weeks ago
  • Wealth inequality at record levels
    The housing crisis is making inequality worse, with housing costs in New Zealand now way out of proportion for those on the lowest incomes, according to the 2016 Household Incomes Report, says Labour’s Finance spokesperson Grant Robertson. “Most New Zealanders ...
    3 weeks ago


History


History


History