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States of the nation

Written By: - Date published: 8:40 am, January 26th, 2011 - 29 comments
Categories: john key, labour, national, phil goff, tax - Tags:

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.

29 comments on “States of the nation ”

  1. Raymond A Francis 1

    There long been a rumour that “The Standard” is a Labour Party Blog, despite some of the authors claiming they don’t even vote labour this claim has been endlessly repeated

    So it good to see some level headed critical discussion of PM (in waiting) Mr Goffs policies, as out-lined yesterday
    Well done

    [lprent: More like a dog-whistle – fact free but some idiots seem to think it will come true if repeated enough (you’d have to worry about what else they endlessly act like jerks with). Some of the authors like myself actually are members of the party. But I suspect that most are not based on their posts. ]

    • Krispy 1.1

      Phil Goff as PM? You would have to be mad to vote labour led alone Phil Goff! The country could not cope with another labour-led government, Aunty Helen did enough damage already.

      • Ari 1.1.1

        Damage to what? The hegemony? 😛

      • Irascible 1.1.2

        Please explain this meme. I presume the damage was to the egos of frustrated Nactoids whose claims of a right to asset strip NZ were frustrated by the Labour Govt.

    • Joe Bloggs 1.2

      You sad sycophantic groveller … the only-level headed discussions you’ll ever see on this site is when the apologists for Phil Grecian2000 are dribbling out of both sides of their mouths.

      Grecian2k’s tax free threshhold might have been more affordable back in the earlier 2k’s when the country was running a massive surplus, but we’re borrowing $300m a week. This just gets us deeper in debt to foreign banks.

      As for his proposed ‘rich pricks’ surcharge, the top 10% of taxpayers already fund 76% of the income tax take – like blood from a stone to demand more so that Joe Bloggs can get another $500 a year

      • Bright Red 1.2.1

        ‘blood from a stone’?

        it’s just reversing the past two years of tax cuts for the rich, and only for the most wealthy – they could afford it then, they could afford it when the rate was 66% before 1984. they can afford it now.

        and that $500 a year means a lot on a low income.

        grow up man.

      • Colonial Viper 1.2.2

        but we’re borrowing $300m a week. This just gets us deeper in debt to foreign banks.

        Yes – you are describing Bill and John’s economic plan for NZ.

        2011 is time for a change, time for some real direction.

      • Craig Glen Eden 1.2.3

        “Like blood from a stone to demand more”

        Oh yeah the top 10%, those poor people who just got most of the tax switch, they are doing it so so hard. They can hardly afford to put food on the table or clothe themselves.

        Labour’s vision is certainly clear about who needs support in these difficult times and it is definitely not the top 10%.

        As for borrowing more Labour has said they will not borrow more (time will tell).
        So I guess given that Key said he wouldn’t borrow more to fund the tax switch but now we know that he has and that this has put the country further into debt you must be really down on him,running around the many blog sites giving it to him with both barrels unless that is, you are nothing but a “sad sycophantic groveller”.

  2. Alwyn 2

    Come on Marty, tell the truth.
    Have you already written your post blasting John Key’s speech as the deluded ravings of a imbecile?
    At least you are consistent though. JK is ALWAYS the personification of evil.

    • Colonial Viper 2.1

      No, JK is the personification of a deft, slick operator with the common touch for the cameras, someone who is totally consistent in his support of his core constituency: the asset wealthy and the top 5% of income earners.

      • mark m 2.1.1

        actually if you look at the polls CV , John Keys constituency is not the top 5% of income earners it is more than half the voters of this country.
        A majority at last seem to understand that voting yourself rich dosent work.

    • Bright Red 2.2

      take your pills, Alwyn. Marty’s written a thoughtful analysis of what may be Key’s policy announcement. Why not critique it like an adult with a functioning brain if you disagree?

      • Alwyn 2.2.1

        It’s very difficult to critique something intelligently before you have even seen it.
        You are perhaps gifted with the ability to read minds, and therefore know what he is going to say but I fear that I am not.
        I will be able to evaluate Key’s announcement after I have seen it, but not before.

        • Pascal's bookie 2.2.1.1

          Come on Marty, tell the truth.
          Have you already written your post blasting John Key’s speech as the deluded ravings of a imbecile?
          At least you are consistent though. JK is ALWAYS the personification of evil.

          1/2 an hour later

          It’s very difficult to critique something intelligently before you have even seen it.
          You are perhaps gifted with the ability to read minds, and therefore know what he is going to say but I fear that I am not.

          Smarter trolls please.

  3. Lanthanide 3

    Don’t forget they also pledged GST off fresh fruit and vegetables, and that was supposed to cost something like $290m as well, right?

    I suspect they’re going to have to come up with quite a lot of loophole closing measures, and perhaps something like a capital gains tax or estate tax or maybe even a financial services tax, and these things will be very unpopular with the right. Even if Labour gets in, they could easily be replaced by a National government at the next election pledging to reverse all those changes.

  4. randal 4

    see its easy.
    the rich or make that the wannabees have had their turn now.
    now its time for real politics and that does not include pandering to the idiots who want to waste money on motorbikes, cheap cars, stainless steel imports and trips overseas so they can come back and tell everybody where they went.
    10$ a week extra for the people who actually do the work is a great start.

    • Lanthanide 4.1

      Doesn’t seem like it’ll go very far, though. The problem really is that the people paying in the bottom tax brackets really aren’t paying much tax, so cutting their tax rate doesn’t actually benefit them a whole lot.

      Putting the minimum wage up to $13.50 or $14 would make a bigger impact than 0% tax up to $5000. And it would also be doing it the proper way – it is up to businesses to pay more, not the government to subsidise businesses that don’t. It also means people who earn $40k a year don’t get a tax cut, which seems fair to me – for them an extra $10/week really will be peanuts.

      Actually thinking about it more, I’d be in favour of this:
      – Tax free band up to $5,000
      – Lower the threshold where 30% rate kicks in from $48,000 to $43,800.

      Together, this means anyone earning $48,000 or more will get $0 tax cut. Anyone earning under $43,800 will get $525/week. Anyone earning between $43,800 and $48,000 will get a graduated tax cut.

      This should significantly cut the cost of the tax cut and give it to those that actually need it. Of course right-whingers would be even more upset at this.

      • orange whip? 4.1.1

        $525/week?

        • Lanthanide 4.1.1.1

          $525/year, of course.

          They could drop the threshold to just $44k for round-numbers sake, and everyone on $48k or more would get $25/year tax cut. That’d probably end up with derision about ‘chewing gum tax cuts’ and the like. So a threshold of $45k would deliver tax cuts of $150/year to those on $48k or more, $3/week but still ‘something’ as opposed to ‘nothing’.

          I think I’d probably be in favour of something like this, too:
          – $5k tax-free bracket
          – 30% threshold start at $45k instead of $48k
          – 33% threshold start at $75k or $80k instead of $70k
          – 39% threshold start at $140k
          – 43% threshold start at $250k

          The winners here would be those earning at least $75k-$80k, but only at a rate of $30 per thousand, so $150/year if raised to $75k or $300/year if raised to $80k. Add on the $150/year from the bottom rate and you’re looking at $300 to $450/year for those earning up to $140k/year.

          Those earning in the $45k to $70k range would get the least benefits, however this is also prime WFF rebate territory so you can argue that they don’t really need further tax relief.

  5. prism 5

    . You had Guyon’s ‘nice for the poor but Goff has failed to offer enough for the middle class to win their votes’

    This sort of comment displays the cynical attitude of many journalists to politicians that they are all and always venal. Such journalists would imply that Labour is merely offering bribes to the low income group, and they are being offered something that they need. The costs will be matched by taxing the wealthy more from money that they want. There is the difference. Goff is boldly going where Labour have not lately dared to go.

    A Price Waterhouse spokesman shows what everybody could guess, that he is only interested in the wealthy and businesses, when he criticises the idea of more tax on the wealthy. He feels that there is too much reliance on this group, WTF. They organise themselves to get the most money, approve policies that reduce poorer people’s wellbeing, income and prospects for improving these, and then complain when the cost of government falls heavily on them. The difference being that the wealthy pay out of super-discretionary money and the poor just manage the basics out of disposable and discretionary stuff well that may be on the plastic, going into debt for living needs. The wealthy’s boys and girls in government have just loaded more government charges on the poor through GST. 15% is a high impost to pay to the government for every purchase you make from your already taxed income.

    A way of practically helping middle-income people would be to allow a limited amount of mortgage interest payments to be tax-deductible, up to a set amount rather than a slippery percentage. Also to bring tax on savings down from near 20%, now that is theft. You attempt to put savings away for a rainy day, some project, in the bank and the government punishes you by taxing it! Hypocrisy when the gummint then wails and gnashes its teeth that we aren’t saving more.
    What do other country’s governments do I wonder? Ours can be very selective when they are choosing which overseas policy they want to utilise for their purposes.

    Each person who has legitimately made money has been aided and has utilised well the education, welfare systems of quality available to them. But once they”ve got their booty they saw through the bridge. The slogan is that everybody else can just work hard and they too can become a self-made man/woman like themselves. What hypocrisy and lies.

    • Colonial Viper 5.1

      These are people who just drive right around the poor suburbs and pretend that 50% of NZ simply doesn’t exist.

      BTW thats just a psychological coping mechanism they are using, if they didn’t they’d come face to face with their own hypocrisy and privilege. Can’t have that.

      • prism 5.1.1

        I seem to remember that Melissa Lee had the drive-by thing sorted.

      • M 5.1.2

        Bulls-eye CV.

        Don’t know if you ever saw the four-part documentary series ‘Filthy rich and Homeless’ about five rich geezers set loose upon London streets to do it hard for a while. Out of all of them I think the only one to genuinely change his opinion of the poor and homeless was the young Asian chap Ravi, who was so affected by the experience he had trouble returning to his former life and definitely viewed homeless and those with addictions much more humanely.

        Cognitive dissonance reigns supreme with the well-to-do.

  6. Nice to see Labour adopting another Green Party policy.

    🙂

  7. deemac 7

    it’s “cui bono” not cue. BTW both stuff and the herald are running online polls on Goff’s tax proposals today. Last time I looked, the Herald poll showed a good majority in favour of $5k tax-free.

  8. gingercrush 8

    I just can’t believe the sheer hypocrisy displayed by Marty G who in 2010 was screaming bloody murder about how targeting property investors was going to push up the rents of renters.

    That has now been replaced with, “This is a smart move because Labour is doing it”.

    You really take the cake for being fucking pathetic Marty G.

    • I am sure that Marty would not be screaming and your post drips of hyperbole as well as unhelpful personal insults. How about a link? And if it does not prove what you say what about an apology?

  9. james 9

    I think you have missed the point- inane and on going coverage about irrelevant topics show that Goff is Prime Minister material!

    I’m actually only slightly joking here…the hair dye thing actually proves the media think he may have leadership and public interest potential- if he didn’t they wouldn’t bother running the stories…

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