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Polity: Key waves hands, insipidly

Written By: - Date published: 12:12 pm, September 9th, 2014 - 34 comments
Categories: Economy, election 2014, john key, national, tax, you couldn't make this shit up - Tags:

polity_square_for_lynnReposted from Polity.

Nationals hypothetical tax cut package has not gone down well. People do not appear to like the fact that it is small, hypothetical, and irresponsible, all at once. For example, here’s Hamish Rutherford this morning:

Taxpayers asked to blindly wait

National is asking voters to wait almost three years for tax cuts, giving no detail about how much extra they will take home each week, or even a promise they will get anything.

After weeks of hints and signals Prime Minister John Key said the government would set aside $500 million a year for tax cuts in the coming years, before deciding to whether reduce tax from April 2017.

Such a step would come only if the economy could handle them without tipping New Zealand back into deficit.

The timing of the possible cut saw National face accusations on social media that it was using the announcement to launch its 2017 election campaign.

Key, who in opposition mocked Labour’s “block of cheese” tax cuts, has said repeatedly warned any cuts would only be “modest”, targeting “low and middle income earners”.

However, yesterday he conceded that by definition, lowering tax rates or increasing the thresholds at which they rise means high income earners will take home at least as much as those earning less.

I’m happy for others to aggregate the underwhelmed opinion pieces, because I want to pick up of Key’s analytical point. He claims that there is no way to decrease taxes on low income earners without giving upper earners at least as much. That is nonsense. People can design tax systems to give breaks to whichever people they choose. Any decision Key might make to give upper earners the same tax cut that low income earners get is a choice he is making.

For example, if a government were to turn the current 17.5c rate for $14-48k into 16.5c, but it did not want high income earners to get the tax cut as well, then it could at the same time bump the $48-70k rate to 31.5c. That way everyone earning between $14k and $70k would get a tax cut, with the peak cut at $48k income, while people earning over $70k would see their total tax rate remain almost exactly the same. Easy.

Key dressing his choices up as economic gravity is insulting to New Zealanders.

34 comments on “Polity: Key waves hands, insipidly ”

  1. blue leopard 1

    Oh but it dunt matta, Mr Key is such a nice guy

    But what about all that was said in ‘Dirty Politics’; what about the culture of attack he has been breeding and political apathy and contempt that fosters? What about National’s lack of policies?

    Shurrup, and focus on the important things

    Like what?

    Like what a nice guy Mr Key is

  2. CrashCart 2

    Armstrong has put out an article noting what oposition parties have said about it. Then in the end sumerises that it is good stratagy from Key because it says NAT want to lower taxes while others want to raise them. Then somehow manages to do what National can’t and put a $20 per week value on it to average housholds. This guy is amazing.

  3. Wayne 3

    Increasing the middle bad is hardly a National party approach, or I suspect a Labour party approach.

    Easier just to say that everyone gets a tax cut, but that it is primarily to help lower income earners. By reducing only the bottom rate and/or changing the bottom threshold, means lower income earners would get the largest percentage tax reduction.

    • Tracey 3.1

      Has Bill English told you where he expects the next earthquake to occur, which assets he is seling and how he will increase the price on milk solids, given he is relying on more of the same as his economic strategy.

      Is that why they dropped the top tax rate in an economic crisis Wayne, cos it was “easier”?

    • Lanthanide 3.2

      “By reducing only the bottom rate and/or changing the bottom threshold, means lower income earners would get the largest percentage tax reduction.”

      Except the lower income earners could get an *even larger* percentage tax reduction, if the tax package were designed so that those in the ‘top brackets’ didn’t receive any (or only very small) tax cut.

      So lets see, should we give a big tax cut to the people who need it most – those in the lowest brackets, or just a small tax cut to everyone? If apparently the best way to measure a tax cut is by how large a percentage it is, surely we should be giving the biggest percentage tax cut possible, which means giving a big tax cut to the poorest people only?

      • Tracey 3.2.1

        If we drop the tax rate on the first two brackets, isnt that a tax cut for everyone?

        • Lanthanide 3.2.1.1

          Not if you put the tax rate up / threshold down for the upper rates, or create a new threshold with a different rate from the current scheme. A basic version of this is outlined in the article itself.

          • Tracey 3.2.1.1.1

            I got that.

            I mean if the bottom rate kicked in at 10% and no other changes were made, everyone gets acut but the impact will be more significant for those in the under 40k pa bracket?

            • Lanthanide 3.2.1.1.1.1

              Yes, that is true. But if it costs $2.5B to make that change, because it goes to everyone including people who earn $100k and therefore don’t “need” the money, instead you can adjust the top thresholds/rates to ensure those earning on $100k don’t receive anything from the tax cut.

              That might reduce the cost to, say $1.5B. So you can either save money on the taxcut, or you could spend the original $2.5B by reducing the bottom tax rate to 7.5% and adjusting the top rates again so that someone on $100k doesn’t get a tax cut at all.

              So under this scheme, we’ve gone from only cutting the bottom rate from 12.5% to 10% and giving the benefits to everyone, to a situation where we cut it from 12.5% to 7.5%, but only those earning in the lower brackets receive any of the benefit.

              • Tracey

                Understood. I guess I am partly basing my idea on the notion that the majority if not all of the “cut” will go back into the economy in one form or another, including GST.

            • CrashCart 3.2.1.1.1.2

              The effect would be greater for lower income earners Tracey but the cuts that high income earners receive would be wasted. Someon on over $80K would get the same money in their pocket as someone on the minimum wage but would not even notice it. As Lanth has pointed out you could change the upper rates slightly so that someone on that higher figure see’s almost no change and yet have someone on the bottom see an even larger change. Far better targeting of the spending.

              • Tracey

                I guess I was just countering the notion that a cut to lower bands is not a tax cut for all per se. Thanks guys/.gals

                • Colonial Viper

                  BTW, taxes aren’t always needed to fund government spending – the government can always spend the money it requires because as a sovereign currency issuer, it can always set up a situation where money is available for it to spend.

        • Wayne 3.2.1.2

          Tracey,

          Yes, it would be so. But it is the easiest way to give low income earners a tax cut (both couples with children and singles) without messing up the tax system.

          And since there are many more people in the low and middle rates compared to the top rate, the vast bulk of the money goes to low and middle income earners. If the tax cut cost $1.5 billion in tax year 2017/2018, probably about $1.2 billion will go to people earning less than $80,000.

          • One Anonymous Bloke 3.2.1.2.1

            “Messing up”. Yeah, it’s so tidy now eh, Dr. Mapp.

            No wait, I can still see some Cameron Slater all over your face, it seems we’ll need the high pressure hose, and my more excitable friends are suggesting we just treat you all like Ebola anyway.

            Don’t you have anything to say in your defence?

          • Tracey 3.2.1.2.2

            And bills projected earthquake wayne?

          • RedBaronCV 3.2.1.2.3

            Nothing messy or difficult about wopping up the higher tax rates Wayne or can’t your lot count beyond “one for me, one for me”

            I’m assumimg since the RW has reappeared on the blogs that they are taking a break from shredding duties. We know they haven’t read dirty politcs because they aren’t literate. National standards for the NAct’s anyone?

      • glen garforth 3.2.2

        according to a brief u tube surf this morning, a great presentation by a self confessed capatilist, it is not the rich that create jobs it is the consumers.

        the gist was put more money in the poor and working class (excuse the terminology) pockets, they spend and voila! jobs are created.

        as we are aware, if the rich getting tax cuts were to create jobs then we would be up to our eyeballs in emp;loyment.

        sorry i dont have a link to this brilliant concise 6 min ted talk.

    • lprent 3.3

      It may be politically expedient for National to give a small taxcut to higher income earners because that is their voting audience.

      However it is damn hard to argue on *any* economic basis that the effect on the higher income earners will be useful in any way. Based on previous taxcuts which had all the stimulatory effect of pouring water on a sponge, the money for mid income earners will go directly into paying for debt and fuelling continued speculation in the housing market.

      Whereas a larger taxcut for low income earners is significant both in terms of the economy and those those receiving it. It is immediately used for consumption. Unlike the last taxcuts, it isn’t immediately clawed back from lower incomes by National raising GST.

      It is just as easy to do two or more tax bracket changes as it is to do one on the payroll systems. So ‘complexity’ isn’t an issue.

      National just doesn’t like addressing the growing levels of income inequality that they have spent the last few decades fostering. Perhaps you’d care to give your thoughts on why that is?

  4. Ant 4

    I can’t spend his ghost tax cuts

  5. Penny Bright 5

    To help take John Key’s Helensville seat off him – ELECTORATE VOTE
    Penny Bright for Helensville!

    Penny Bright

  6. aerobubble 6

    Key has used the growth from ChCh, logs and milk to delayed the inevitable GFC market failure coming to our shores. By raising debt on government, by selling dividend growing assets, cut services, all to hand a pile of dosh to the wealthiest 10% of tax payers. Its was wrong, its goes against the market signals, its on the wrong side of history. Yet Key still gets huge popular support. Does not make sense unless the media have been complicit. And why would they, well they all get paid in the high income brackets, they have invested their careers in talking neo-liberal nonsense to each other, and they are hardly going to turn round and say that welfare for them is a bad idea. What after all is a CGT but an welfare payment for those competing with Australia, and what did the business do with their easier money, brought into housing mostly, where would that money have gone, well productivity growth, reinvestment, better pay. So I ask you have we ever been more lied too?

    • Tracey 6.1

      No headlines today mocking or berating Key for his plucking and changing tax cut mirages from the air… cf Cunliffe and CGT

  7. NZJester 7

    This possible tax cut in 3 years time policy tells me that National is so out of policies for the current election they are now looking at what policies they have penciled in for the next election to fill their policy hole.

    • RedBaronCV 7.1

      I don’t think they are bothering about policy because they know they won’t be around to implement any. They want us to replenish the piggy bank so they can come along and grab it all for themselves again.

  8. blue leopard 8

    A link to a great picture from the FUN2014 Facebook page .

    Summed it up well, I thought.

  9. Tracey 9

    speaking of flailing…

    Is Mr Key going to impugn Shaun Ohara for speaking for men in issues of violence toward women? Turns out that in the US they know exactly what someone means when they say something like that…

    http://www.nola.com/saints/index.ssf/2014/09/nfl_ravens_deserve_more_scruti.html

    “…

  10. Grant 10

    In the Herald this morning, he’s quoted as saying “But I reckon you go out to a lower-income New Zealand household and say $1500 doesn’t matter, I think they’d laugh at you, I think it does matter.”

    Just how much would National have to lower the tax rates to reduce a lower-income (and who knows what the Prime Minister’s Office perceives to be a lower income) household’s tax bill by $1500? It seems like it would have to be a fairly substantial percentage cut.

    • Tracey 10.1

      1500a year? That’s a little more than he and others got a week (or month?) from the last tax cuts?

  11. North 11

    Tax cuts – a week ago it was $10 per week.
    A couple of days later it was $1,000 per year – 52 x 10 = $520 ?
    Yesterday – $500, $750, $1,500. Nah, it doesn’t matter anyway.
    What matters is TheGodKey has spoken. Spoken ‘asprayshinlly’.
    Where are you Aunty Armstrong ?

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11321692

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