Tax cut bizzaro world

Written By: - Date published: 12:20 pm, March 14th, 2010 - 16 comments
Categories: class war, gst - Tags: , ,

OK, I don’t get it, I really don’t. Can someone please explain. For a long time now Marty G and others here have been pointing out that National’s claims on tax cuts and GST increases don’t add up. They are promising (1) that the “vast bulk of New Zealanders will be better off”, and (2) that the combined changes will be “fiscally neutral”. In other words either they have a way of creating money out of nothing, or they’re lying through their teeth. I pick the latter.

But they keep getting away with these incompatible claims. Now we’re starting to get some actual figures:

Tax cuts – what you’ll get

The Government is putting the finishing touches to its package of tax cuts and is now confident that low and middle income earners will have more money in their pockets even after paying a higher GST. …

If the changes are implemented, someone on the average wage of about $48,000 will be about $5-$10 a week better off, according to New Zealand Institute of Economic Research figures to be published this week. Those earning more than $70,000 would be about $20 a week better off (see table).

The government has signalled that GST will rise from 12.5% to 15%, raising an estimated $2 billion in revenue that would be used to pay for the tax cuts. Lifting the tax to 15% will add $21.25 to the average weekly household bill.

“… we are not only looking at possible reductions in the top personal tax rate, but at the whole personal tax structure across the board. Therefore the vast bulk of New Zealanders will be better off.”

Although it isn’t clear from the online article, the $5 – $10 for the average wage is the claimed net increase after GST costs are taken in to account. Apart from the question of whether $5 per week is “better off” in any meaningful sense, the problem for the claim that “the vast bulk of New Zealanders will be better off” is that 70% of Kiwis have incomes under $40,000. Their tax cuts will barely compensate them for the GST increases, and many (including those on fixed incomes and student loans) will be worse off.

So how does National get away with it? How can they claim that the “vast majority” will be better off when the tax cuts are only going to benefit the few on higher incomes? How is it even logically possible for the vast majority to be better off (unless some tiny minority is going to front up with the cash) from fiscally neutral changes? Can anyone please explain?

[Update: Post updated after helpful comments re information not included in the online version of this article]

16 comments on “Tax cut bizzaro world ”

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  1. jason rika 1
    14 March 2010 at 12:30 pm

    Go figure? get it.

  2. spot 2
    14 March 2010 at 12:32 pm

    Online article is missing the table included in the paper (page A2), figures sourced via NZIER.

    $37-49K has a cut of $18, a GST inc. of $14, “in the pocket” of $5
    $49-62k has a cut of $24, a GST inc. of $15, “in the pocket” of $10

    • Lanthanide 2.1
      14 March 2010 at 12:49 pm

      Yeah, seems pretty straight forward that the first figure is the net difference of the whole package (being a net increase), while the GST part is talking only about the gross reduction portion of the package.

    • Bill 2.2
      14 March 2010 at 12:55 pm

      So the $5 and $10 figures in the post should be $18 and $24 respectively?

      Okay.

      But the GST costs giving a $5 to $10 gain seem to be based on 2007 household costs.

      “Lifting the tax to 15% will add $21.25 to the average weekly household bill.

      In 2007 the average Kiwi household spent around $950 a week, including groceries, fuel, clothing and healthcare, around $106 of which was GST”.

      I haven’t done the sums, but why else have that paragraph referring to 2007 expenditure following directly after the $21.25 increase to household bills if it doesn’t form the basis for the GST calculation?

      Also, can somebody post the figures for the average wage? $25K ish?

      • spot 2.2.1
        14 March 2010 at 2:11 pm

        Bill

        Only other range less was an “under $19.6k” which had Cut of $8, GST inc. of $7 for net $0.

        Cut assumptions – 12.5% to 10%, 21% to 19%, and 38% to 33%.

    • r0b 2.3
      14 March 2010 at 12:57 pm

      Recall also that most New Zealanders have incomes that are well below the average wage.

      http://www.thestandard.org.nz/the-rights-blindness-towards-middle-new-zealand/

      “The vast majority of New Zealanders” are going to get 3/5 of bugger all from these changes.

  3. Ms X 3
    14 March 2010 at 12:50 pm

    Why would they do it if it was ‘fiscally neutral’? Or if the average person was better off? Does anyone actually believe them?

  4. tc 4
    14 March 2010 at 2:29 pm

    More unsubstantiated slogans they get away with…..beatson nailed blinglish on this simple question “have you done any research on how much GST is bourne by middle/lower incomes groups..” Blinglish’s reply ‘No’….then how on earth can you claim you’ve got in covered via tax/welfare/pension tweaks.

    It’s such a basic concept but as you can see, no interest from the Nats if those are worse off, just guess a value/give out a token and laugh all the way to the bank.

  5. Jim Nald 5
    14 March 2010 at 7:52 pm

    So the 15% GST hike will actually make most of us worse off

  6. infused 6
    14 March 2010 at 8:53 pm

    Time to skill up or move to aussie then eh?

  7. freedom 7
    14 March 2010 at 9:17 pm

    or you could stay and help take your country back

  8. tc 8
    15 March 2010 at 6:49 am

    Talkin to me Freedom? Stratos TV, about the last week or so In february on Beatson’s regular section, came across it channel surfing. Both Goff/Key were on separately….Phil’s uninspiring…..Blinglish simply arrogant and Beatson gaving him the old 1-2 and made you realise how pathetic the msm are.

  9. Vivienne 9
    15 March 2010 at 8:41 am

    Many people especially those who are blue have not yet become aware that The Emperor has no clothes on. They are blinded by the fact he has $50million and thus he can be trusted and is very knowledgeable and will never do anything nasty to another human being, the environment or the economy. Go figure!

  10. tc 10
    15 March 2010 at 12:51 pm

    Quite Vivienne…..that’s $50m made as a banker/currency trader and haven’t those professions proven to be honest hardworking philanthropic folk who have the holistic interests of society at their core values…..we’re so screwed if they blag another term.

  11. SPC 11
    16 March 2010 at 12:21 am

    Property investors are providing some of the money for the income tax cuts.

    Estimates of the gains people make based on tax cuts greater than the hiked GST – do not take account of possible higher rent costs.