It’s not radical, it’s not revolutionary but Phil Goff has laid out a positive, progressive, and affordable vision that contrasts with Key’s directionless, lazy leadership. It seems to be popular. The PM’s state of the nation is expected to contain an interesting savings policy but always the question is: cui bono?
It was so disappointing to see some in the media reflexively apply their narrative to Goff’s speech without really looking at what it’s about. You had baseless questions on the cost (in fact, a higher top tax rate, closing down housing investment loopholes, and cracking down on tax avoidance will pay for the tax-free bracket). You had petty questions about Phil dying his hair – leave it for the gossip columns, Duncan. You had Guyon’s ‘nice for the poor but Goff has failed to offer enough for the middle class to win their votes’ – as if we’re all psychopaths who only care about ourselves, not our friends, family, and fellow Kiwis on low incomes.
Let’s actually look at what Goff is doing.
A $5,000 tax-free bracket would be a $525 annual increase in net income. For someone on the median Kiwi income of $28,000 would be a 2.2% income in after-tax income – like another week’s pay each year. Even if the 39% rate is restored above $100,000, 97% of people will get a tax cut – only those on over $110,000 will pay more.
That’s good stuff. More for Kiwis on low incomes, who have been abandoned by Key, coming from the pockets of people who have won huge tax cuts for no economic benefit under National.
The gap in the income tax rejig would be paid for by ring-fencing property investment losses ($400 million a year) and catching more of the billions in tax evasion and avoidance that bludgers (principally rich) engage in.
Again, good progressive stuff. At the moment, we’re effectively subsidising investment speculation by letting the losses be written off against tax. It pushes up house prices and locks people on lower incomes out of the property market. Ring-fencing will help to dampen that and, hopefully, increase home ownership rates. Tax evasion is a rich man’s game and puts the burden on the rest of us who honestly pay our part.
The Herald online poll is not scientific but we know it over-represents the Right by about 15%. So, I’ll take it as good news that a majority of respondents support Labour’s tax proposal.
I hope we’ll see some proper analysis of Key’s speech. It seems that his plan might be to make interest below the rate of inflation tax-free and pay for by ditching the government’s contributions to Kiwisaver. In theory, there’s a good case for not taxing interest on savings below the level of inflation – after all, you haven’t had any real income, you’re just offsetting inflation (same argument applies to automatically adjusting tax thresholds, benefits, and the minimum wage for inflation).
But it would cost a hell of a l0t and the main beneficiaries would be the wealthy. Say you have a decent nest-egg of $10,000. At 5% interest, 4% inflation and a 17.5% tax rate, you’re only paying $87.50 a year in tax and would only get a tax reduction of $70 a year – a buck a week. Now, say you have $500,000. At 5%, interest, 4% inflation, and 33% tax, you’re going to get a $6,600 a year tax break.
And I don’t know how it will encourage more savings if the money comes out of Kiwisaver and into tax cuts for people who are,mostly, already saving. It may even discourage saving if it means people can achieve their savings goals by putting less away.
So, while the principle is good, I wouldn’t support making interest below the rate of inflation tax-free because it would just be another wealth transfer to the wealthy and, if Kiwisaver contributions are canned, it would be paid for by taking money off everyone else.
There’s no free rides and the question with all policies is who benefits and who pays.