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Tax and economic growth – Bill comes clean

Written By: - Date published: 1:37 pm, February 22nd, 2010 - 19 comments
Categories: bill english, economy, tax - Tags: ,

Here’s Guyon Espiner with Bill English on Q & A – a good question for the person who was also Treasurer in the 1990’s:

GUYON Well let’s talk about that change in the tax system. You’ve indicated pretty clearly that the top tax rate will come down to 33 cents, that was largely the signal that you gave this week. I mean do you really expect that to create economic growth, because that’s where the top tax rate was in the 1990s and we were hardly an economic nirvana then were we?

BILL Well the tax system doesn’t guarantee anything about the economy, what it does do is help people, it changes the incentives for people’s choices at the margins, so we want to create the opportunity for them to decide – that it’s easier for them to decide, to save more, to invest more, to create jobs.

So it’s official – the tax system doesn’t guarantee anything about the economy! He’s right of course – it’s just about making things easier for the few of “them” at one margin – the top. There’s no choice at the bottom.

So why is it one of Key’s six ways we get to be equal with Oz?

Guyon tries to find out:

GUYON Were things that much better though with respect in the 1990s when the top tax rate was 33 cents in the dollar?

BILL Well in some respects they were, I mean in the tax system what’s happened since then is we’ve had a loss of integrity where there’s different rates for different entities, people quite naturally try and reduce their tax rate, and the experts are telling us in the long run that’s going to erode a tax base we depend on, which is income tax, so we want to improve the integrity of the system, improve the fairness, so everyone is paying the right rate, but most importantly to adjust the incentives of the economy so that people have stronger signals about getting ahead rather than borrowing more because they’re spending more than they earn.

Why not just stop the rorts then if integrity is the problem?

Pity Guyon didn’t ask that question. He was probably trying to work out what on earth Bill’s answer meant.

19 comments on “Tax and economic growth – Bill comes clean ”

  1. Clarke 1

    If Bill times this right, he may be able to get the Budget legislation through Parliament so that his reduction in tax rate coincides with the double-dip of the recession. Which should kill this “tax cuts = jobs” meme once and for all.

  2. SPC 2

    I think you will find that is was around the time of the Douglas tax reform in the 80’s, when we first adopted the 33 cents top rate, that we began to fall behind Oz in both growth and wage levels.

    So it could be argued that Labour was too timid, in not matching the Oz top rate of 45 cents, and that it is only in matching them on top rates, we can grow our economy as well as them. It’s as valid an argument as their claim we need to cut the top rate to catch up with Oz.

    English is only being honest when he admits cutting the top rate to 33 cents is not a move to grow the economy. It’s just an expression of the exercise of political power to divide the resources of an economy in a way to enrich the few. He concedes that the few who benefit will be the ones who determine whether this is a jobless “recovery” or not (but the jobless will be the ones the government blame and punish for this) . If this few choose to save or spend, and not invest in economic growth, then their record of achievement as a government will be poor. Given the governments policy direction this is sort of inevitable – even if they do try and cover over this by destroying the environment pillaging resources.

    How about this tax nuetral change – a trust rate at 35/36 cents and a top rate of 35/36 cents over (and no eligibility for those with trusts to claim WFF or student allowances).

    Money raised from ending automatic depreciation claims and ring fencing property losses made available for R and D tax incentives to companies and providing some sort of insurance for loans to small companies (to reduce borrowing costs and allow them to get credit beyond the value of their homes).

    PS Looking into my crystal ball I see a government handing out money in tax cuts for people to save or place in investment vehicles – thus they can be cashed up when the government offers them shares in state assets next term. Note the government is giving a few people (with our tax revenue money) the ability to buy up state assets – remind you of Russia in the 1990’s. They may as well just transfer the state assets into the pockets of a few – absolute cronyism. But for ideological reasons these people must have the choice over whether they buy up assets at below real value to make even more money.

    • Lanthanide 2.1

      National bringing the top rate down to 33% gives Labour a good platform for the next election. It can be just like 1999 all over again:

      – We will put the top rate back up to 39%, except this time the threshold will be 180k.
      – We will end the trust tax loopholes that required the top rate to be dropped to 33% to align with trust rate to begin with.
      – With the money raised from the above two actions, we will introduce a $5,000 tax free bottom segment.

      They can frame it as “National: Tax cuts for tax cheats. Labour: Tax cuts for tax payers”.

      • Bright Red 2.1.1

        problem is that tax cuts for someone are then set us as the alternatives. We can’t win that competition. In the end, there has to be a rejection of tax cuts per se because they mean cutting health, education etc.

  3. ak 3

    Staggering, innit:

    “Because the rich have been stealing from the taxpayer, we’re going to give them heaps more from the taxpayer”

    Un-be-freakin-lievable. What’s next – free goods for shoplifters?

  4. Doh – how stupid can you get? Of course you can screw the economy like Labour did by stuffing up the tax rates to incentivise investment in housing above everything else (which also screwed the poor and those who didn’t already own their own property).

    At least try to acknowledge that Labour screwed the economy and the proposed changes address this. The issue remains as to whether those on lower incomes will get recompensed for the increase in GST but at least this is more honest that the discussion on taxes here.

    • Bright Red 4.1

      If Labour screwed the economy so badly, how come it grew 32.6% while Labour was in power, more than the US and UK over the same period, and National has managed -2.2%?

      doh

  5. if its broken - fix it 5

    the only FAIR solution to tax cuts is to remove all tax off the first $9000 earned, by everyone and anyone. The first $9000 in any income bracket, goes directly to living costs and is spent immediately in the daily ecenomy.

    It won’t happen of course, because the greed of high income earners has no awareness of the hardship that hundreds of thousands of New Zealanders struggle with every day

  6. tsmithfield 6

    John A. “Why not just stop the rorts then if integrity is the problem?”

    Good idea. Don’t you think governments have been trying to do this for generations? The more complex the tax system is, the easier it is to find loopholes. Closing off one loophole invariable opens up another one.

    If you really want to stop the rorts then you will support the concept of a very simple tax system. The flatter it is, the less opportunity there is for avoidance.

    • Draco T Bastard 6.1

      Ah, the illogic comes out – again. A flat tax will not stop some people from not paying tax. It’s that some people can find the preferential rules that apply and can afford to structure their finances to do so.

      If alignment was the answer then why not put businesses and trusts on PAYE?

  7. aj 7

    Of course kiwisaver provides an effective tax reduction for those who wish to save, so incentives are in place.

    • Lanthanide 7.1

      Good point. I did get a small tax cut from National, and I put it straight into Kiwisaver.

      In the short term any tax cuts National gives me will go towards paying off debt, then after that I will look at putting it into Kiwisaver also.

      However I’m not earning $200K+

  8. barry 8

    If they want to align personal tax rates with trust rates, they still need to keep a higher tax rate for personal income, as trust tax is 33% right from the first dollar. What they could do then would be to cap the top tax at 33%. This would give a reduction to the very top earners (who don’t pay their full entitlement anyway), but would avoid the windfall to the people in the top bracket whose total tax spend is less than 33%.

    Of course the number of people who would gain from it is too small to keep their voter base up, and they need to reward more people to keep getting elected. If they did that the sighs of disappointment when half their voters find no change in their take home pay would be audible in Australia.

  9. tc 9

    This whole debate makes me laugh……Oz have much higher rates for top earners a CGT and land tax in some states whereas most states have Stamp tax on land transactions….all ignored by Blinglish and Johnny clown in the great ‘let’s catch up with oz’

    Such basic maths and economics doesn’t escape everybody just the lackies in the MSM who have their stories pre-ordained…….Election 08’s nat mantra….choose a brighter future, I get it now the brightness is from the flames around an economy being wilfully torched by the born to rule agenda of NACT.

  10. I dreamed a dream 10

    Talking about tax, NZ Herald reports that TVNZ/Colmar Brunton poll today reveals strong opposition to GST increase.

    As I write, I can’t find the poll at TVNZ yet, but here’s the NZ Herald report http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10627825

    It looks like the public is beginning to disbelieve Bill and John.

    This is heartening 🙂

  11. tsmithfield 11

    Draco: “Ah, the illogic comes out again. A flat tax will not stop some people from not paying tax. It’s that some people can find the preferential rules that apply and can afford to structure their finances to do so.

    If alignment was the answer then why not put businesses and trusts on PAYE?”

    Sorry, Draco. I think you are the one not thinking logically. The only reason that some people are able to use preferrential rules to their advantage is due to a multi-tiered tax system. If the tax system was perfectly flat there would be no advantage to be had in rorting the system whatsoever.

    So far as putting businesses and trusts on PAYE, that is another illogical idea. Company earnings can’t be defined until the end of the financial year, thus distributions to shareholders can’t be determined until that point.

    So far as I am concerned, if a country is stupid enough to have an inefficient, multi-tiered tax system, then it deserves to be rorted.

    • Draco T Bastard 11.1

      Rorting the tax system takes many forms and is not solely due to the multi-tiered tax system. Tax deductions and preferential rules apply as well. Tax rate alignment won’t fix those.

      So far as putting businesses and trusts on PAYE, that is another illogical idea. Company earnings can’t be defined until the end of the financial year, thus distributions to shareholders can’t be determined until that point.

      http://www.ird.govt.nz/provisional-tax/

      Provisional tax is not a separate tax but a way of paying your income tax as the income is received through the year. You pay instalments of income tax during the year, based on what you expect your tax bill to be. The amount of provisional tax you pay is then deducted from your tax bill at the end of the year.

      It seems that most businesses do actually know what their profits will be before they have them else they’d be breaking the law. PAYE is actually the more logical system as it’s paid after you make the profit and profit is income – expenses. It wouldn’t be too hard to include dividends as expenses and then the tax on them would be under the receivers IRD # and tax rate. Technically, a business could have a 0% tax rate.

      So far as I am concerned, if a country is stupid enough to have an inefficient, multi-tiered tax system, then it deserves to be rorted.

      And there we have it, the excuse to steal.

  12. aj 12

    And this does nilch to get wages catching up with oz…

  13. SPC 13

    Strange how Oz has no problem with rorts with a top rate of 45 cents. Maybe their high income earners are more honest than ours, or maybe their tax unit scares them more than ours does

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