Tax cuts for some

Written By: - Date published: 12:30 pm, March 29th, 2009 - 46 comments
Categories: Media, national/act government, tax - Tags:

The Weekend Herald’s front page proclaims ‘$2 billion more in the pocket“. The article goes on to say “the average worker will get $15.66 a week”. But who is this ‘average worker’?

The Herald has used the average wage, which is $47,500 a year, but that’s not what the typical employed person earns because the average is pulled up by a few people on high incomes.

If you want to know the typical worker’s income, you want to look at the median, which is $40,000. Remember too, not everyone has a job. Retired people, beneficiaries, students, they have to buy bread too. The median income for all adults including people not working is $28,000.

2.6 million Kiwis have incomes below $40,000. They get nothing from these tax cuts. Except for 400,000 who are working and not getting Working For Families. They get $10 a week.

Most of the 1.4-1.5 million people who will get a tax cut won’t get much, either. The bulk of the money will go to the 50,000 people with incomes over $150,000.

So $2 billion in the pocket, but whose pocket?

46 comments on “Tax cuts for some”

  1. Stephen 1

    You should probably consider the several hundred thousand who’ve been getting WFF since 2005 in your calculations…

  2. Sean 2

    didn’t one of your writers the other day talk about ‘government by the rich, for the rich’? That’s what it looks like to me.

    Stephen, If you get working for families you don’t get this new independent earner benefit

  3. infused 3

    “Stephen, If you get working for families you don’t get this new independent earner benefit”

    And the problem is?

    • Tane 3.1

      The problem is low-middle income families are actually worse off under these tax changes than they were in Labour’s tax cuts that were repealed by National last year.

  4. BLiP 4

    The rich get richer and the poor get poorer. Thanks National.

  5. RedLogix 5

    If you want to know the typical worker’s income, you want to look at the median, which is $40,000. Remember too, not everyone has a job. Retired people, beneficiaries, students, they have to buy bread too. The median income for all adults including people not working is $28,000.

    I think you have mixed up the median household income, and the median wage/salary income. The median wage is actually around $28,000, while the median for all adults is around $24,000.

    Median Income Stats

    The vast majority of New Zealanders will see sod all out of these tax cuts, but the Herald is not about to point that out is it?

  6. George Darroch 6

    This is blatantly obvious to anyone with even the most basic knowledge of statistics. That apparently excludes anyone working at the Granny Herald.

    I know, I know, Danyl McLauchlan will say that it isn’t the job of the media to know basic statistics, that’s for the opposition.

    But being the kind person I am, I’ll illustrate the difference between the mean (what the Herald uses as ‘average’) and the median, and why the difference is important.

    Ten people are riding on a bus in Redmond, Washington. The mean income of those riders is $50,000 a year. The median income of those riders is also $50,000 a year.

    Joe Blow gets off the bus. Bill Gates gets on.
    The median income of those riders remains $50,000 a year. But the mean income is now somewhere in the neighborhood of $50 million or so.so.

    From here.

    Graeme Hart will get a tax cut. The large majority of New Zealanders will not.

    The Granny Herald article would give you the impression that the large majority of New Zealanders will. Either the Granny Herald employs stupid reporters and editors, or it employs reporters and editors who willfully mislead their readers.

  7. George Darroch 7

    Ditto for the chronically stupid or willfully misleading editors and journalists at TVNZ.

    Or, perhaps, when they say ‘most people’, it is because some people count as 3/5 human?

    Who in NZ gets extra or reduced personhood in order for these claims to be true? Does being poor destroy one’s soul?

  8. And wasn’t Key offering “everyone” $50 a week at one point? Oops!

  9. Stephen 9

    Stephen, If you get working for families you don’t get this new independent earner benefit

    My point was that they got their fairly substantial tax cuts/credits years ago.

  10. Stephen 10

    The problem is low-middle income families are actually worse off under these tax changes than they were in Labour’s tax cuts that were repealed by National last year.

    Going on what Goff has been saying this year (plus the odd columnist you would not expect to express such sentiments) there wouldn’t be any tax cuts for anybody this year if Labour got re-elected.

    George, great point about medians.

    • Macro 10.1

      Probably not! Maybe now is not the time to be giving out lollies to those who don’t need them. The wff was needed, and targeted towards those who needed assistance at that time (working people who are raising a family) – and such folk still need that extra assistance.
      These recent tax cuts – which were promulgated before the election (and we should not be surprised at their direction) are clearly targeted towards those on higher incomes who perhaps are not in need of extra lollies. I’m sure there will be heaps who say – I need every extra penny I’m getting. It’s theft that they take taxes from me in the first place etc. etc.
      However – now the govt is in the quandary that it has decided to continue to reduce taxes for those who can possibly afford to pay them most easily, while at the same time it is faced with an ever growing deficit caused by a worsening labour market and reduced incomes. The govt response to this crisis is to re-jiggle the funding of previously committed finance and call it a “stimulus package”. My guess is that most of the tax breaks will go to repaying mortgages more quickly.

  11. gomango 11

    I don’t understand the mean/median explanation. Why would Bill Gates be getting on a bus?

    • George Darroch 11.1

      Why is he on a bus? It’s a thought experiment.

      An arbitrary series of numbers:

      1,2,3,4,100

      The mean is three.
      The median is twenty two.

      If you line all the waged and salaried incomes in NZ up, and pick the middle one (median), you’ll get about $39,000. If you line all incomes up, the median is near $28,000.

      If you add all the incomes in NZ up, and divide them by the number of income earners (mean), you’ll get $47,500.

      The difference is caused by the fact that there is income disparity – the number of people on high and very high incomes is comparatively small, but their incomes are much higher than most of the population.

      If your intention is to give larger tax cuts to these people all well and good. Which ACT voters, for example would have no problem with. If you’re claiming that the medium income voters who voted for you will get tax cuts, when most of them in fact will not, then there’s a problem.

      You’d think that broken promises would make for good media fodder. Again, I ask whether the media simply can’t do simple maths or is deliberately misleading the public.

      • Hilary 11.1.1

        Excellent explanations and analysis thanks George. I wonder if anyone in the MSM will pick it up?

      • r0b 11.1.2

        1,2,3,4,100

        The mean is three.
        The median is twenty two.

        Other way round, mean is 22, median is 3. But the point that these are very different measures (for non normal data) is well made.

  12. Quoth the Raven 12

    The righties have been going on a lot about WfF lately. Under labour it was just more welfare. But now…

  13. Helena 13

    Perhaps the rich dont think that the poorer people dont need any more money because they dont work as hard as those with the power. Perhaps they dont deserve tax cuts at all.
    How then does that equate with corporate welfare where businesses have their hands out for subsidies for wages and export earnings, relief on interest rates and council rates, financial assistance with wages, less holiday pay etc etc etc.
    I actually wonder why they feel they are more deserving of tax cuts/relief/subsidies than the people who really need it.

  14. Pascal's bookie 14

    Why would Bill Gates be getting on a bus?

    cause he’s a fuckin hippie?

    Going on what Goff has been saying this year (plus the odd columnist you would not expect to express such sentiments) there wouldn’t be any tax cuts for anybody this year if Labour got re-elected.

    Coupla points. Firstly, if Labour had ben re-elected, Goff wouldn’t be labour leader. Secondly, he’s called national’s tax cuts to be cancelled, which are aimed at the higher incomes. It’s generally accepted that targeting tax cuts at the lower end provides more stimulus, as most of it gets spent rather than saved. Nobody knows what Cullen would’ve done.

    • Strathen 14.1

      I was lead to believe one of the biggest lessons from the Great Depression was that saving does stimulate the economy, as long as it’s put in the banks. Apparently this allows (forces?) banks to loan money as they can’t just pay money out in interest without earning on it. Thus stimulating the economy.

      Is it a question of priorities? What I mean, is it more essential in a global recession to look after the economy or the low income earners? This is based upon the premise that we can only look after one or the other and not both at the same time, which may be flawed.

      • BLiP 14.1.1

        Human beings comes before the economy – if people are suffering disproportionately as the result of decisions designed to assist the economy then the priotities of government are incorrect.

        That you should even ask this question disgusts me.

        • Strathen 14.1.1.1

          ‘That you should even ask this question disgusts me.’ Apologies for disgusting you. Perhaps I could make myself clearer so to remove the jumps in moral conclusions.

          My knowledge probably fails because I’m not aware of the numbers of people below the poverty line in NZ. (you may read self-centred, but I help a family on the DPB whilst being on average wage and am comfortable with my morals) To my knowledge we’re not at the levels of other countries, and I’m lead to believe that whilst there are some in poverty, the numbers aren’t so high so as to be labelled an epidemic. I know that no one should be below the poverty line in a perfect world, but a couple is better than all if the economy fails completely. Judging by your comment, I’m horribly wrong in this premise. I am not aware of ‘people suffering disproportionately’ and would invite some serious statistics that shows the government is contributing to this.

          In this situation, obviously we need to help. My understanding is we draw from the economy to pay for the assistance these people need. Does this mean we have a chicken-egg situation?

      • Pascal's bookie 14.1.2

        I’m unsure. Seems to me that if people are saving, then they are not in the market for borrowing, if you catch my drift…

        The problem arises when due to bad economic weather, people on aggregate start saving (or paying back debt) more than business wants to borrow. If business can’t see the profit in building new plant or what-have-you, and are in fact cutting back on production, then the banks aren’t going to have much luck in trying to loan them money.

        One argument against the ‘paradox of thrift’ being a problem is that, as you say, money ‘saved’ in a bank is actually money just being ‘spent’ in a more productive way than the saver could think of (through loans etc). Recent events re banking might dilute this idea somewhat… 😉

        • Strathen 14.1.2.1

          Good comments Pascal, it opens my thinking up a bit more.

          Using an example to aid my thinking regarding your second paragraph, can you expand on my following thoughts. Let’s say I’m someone who doesn’t believe in borrowing. I just build my assets, business, wealth etc. Whilst my personal returns and growth probably aren’t going to be as high as others in the long run, I’m never in debt. What effect, positive or negative, do I have on the economy?

          What would happen if everyone did this and borrowing and debt was eliminated from an economy? (completely hypothetical of course)

  15. Ianmac 15

    If you give tax cuts to middle and upper incomes, and leave working for families as is, and give no rise to that group, then it follows that although the WfF group is not being cut, the richer are moving ahead leaving the others behind, which is like a cut in income.
    I stall at the lights and the car beside me can quietly slip ahead with little effort! (Well I know what I mean!)

    • Macro 15.1

      Yes I know what you mean Ianmac – Ruth did it in her “mother of all budgets!” and what a mother that was! The take home pay differentials for those on higher incomes went thru the roof! I had a graph of the before and after effects from the Stats Dept once – but its probably lost in antiquity now. It was quite startling to see it so graphically. The same will be revealed in the future with this handout to the wealthy. They have done it before and the average, mean, – no i think in this case MODE voters have such short memories.

  16. Stephen 16

    Good point about not knowing what Cullen would’ve done, and Labour hadn’t scheduled any tax cuts for 2009 anyway. I do know that he probably wasn’t going to give the not-so-rich the chance for 2% Government/employer Kiwisaver though.

    It’s generally accepted that targeting tax cuts at the lower end provides more stimulus, as most of it gets spent rather than saved

    Is that “generally accepted” in the emprical sense, or just ‘common’ sense?

    • Ari 16.1

      Stephen- The empirical data and theoretical models sense. Ask an economist and they’ll tell you that targeting assistance at those with smaller incomes results in much better circulation for any realistic figure- whether we’re talking about tax cuts, programs like WFFs, or even benefit increases, and that both real-world data and market theory backs up the assertion.

      (Of course, they’ll also say you can only tax the rich so much before you poison productivity, but there’s a lot of disagreement as to exactly how much is “too much.”)

    • Pascal's bookie 16.2

      ,i>Is that “generally accepted’ in the emprical sense, or just ‘common’ sense?

      Bit of both, care to dispute it?

      this gives some hints…

      http://www.econbrowser.com/archives/2008/10/pocketfull_of_m.html

  17. Stephen 17

    Ianmac, does the ‘rich’ being richer affect the less rich’s ability to buy goods and services? I should add that the ‘rich’ do need to be paid some attention re: tax, or they’d all just f*** off!

    • IrishBill 17.1

      Probably not in this case but if we weren’t in a recession then that $2bn would probably put the cpi up a bit. As it stands it will probably all go into the bank in one way or another and not help stimulate the economy at all.

      Just as well we’ve got that cycleway coming.

    • Macro 17.2

      does the ‘rich’ being richer affect the less rich’s ability to buy goods and services?
      Yes they do actually. Especially if the goods and services are in short supply. Those who have – can afford them, and those who haven’t – can’t!

      In the 1950, 60s and 70’s the difference between who was rich and who wasn’t was far less marked than it is now, and those who had – didn’t all disappear out of the country. Its just an empty threat! There are far more important things in life than earning money!

  18. Watching National now is like a re-run of the Bush presidency in early 2001. Tax cuts for the wealthy conceived in a boom get implemented in a bust anyway. Record deficits replace surpluses. Regulatory bodies are gutted and neutered. Cronies are moved into place so reality won’t intrude on the agenda to loot the state through poorly supervised PPPs where the regulator is run by allies of the regulated. Early moves to privatise Corrections have red flags all over them.

    All underway so far…..Just like Bush did.

    What I find most fascinating is National are oblivious to the role these very policies played in bringing about the present financial mess and limiting the resources America had to respond.

    It’s as though they don’t understand very much about a whole lot. They have their flavour of market-driven / private business is best religion and never mind that it has just conclusively demonstrated on a global scale it can’t be trusted and may destroy wealth and opportunity on a massive scale if left to its own devices.

    I have yet to hear National speak in any conscious way about its policies and the context they now operate in.

    I make these observations as one who began to see the Crash as inevitable from March 2003. National never saw it coming.

  19. Watching National now is like a re-run of the Bush presidency in early 2001. Tax cuts for the wealthy conceived in a boom get implemented in a bust anyway. Record deficits replace surpluses. Regulatory bodies are gutted and neutered. Cronies are moved into place so reality won’t intrude on the agenda to loot the state through poorly supervised PPPs where the regulator is run by allies of the regulated. Early moves to privatise Corrections have red flags all over them.

    All underway so far…..Just like Bush did.

    What I find most fascinating is National are oblivious to the role these very policies played in bringing about the present financial mess and limiting the resources America had to respond.

    It’s as though they don’t understand very much about a whole lot. They have their flavour of market-driven / private business is best religion and never mind that it has just conclusively demonstrated on a global scale it can’t be trusted and may destroy wealth and opportunity on a massive scale if left to its own devices.

    I have yet to hear National speak in any conscious way about its policies and the context they now operate in.

    I make these observations as one who began to see the Crash as inevitable from March 2003. National never saw it coming.

  20. Ari 20

    If you’re going to get into medians, you should probably stop talking about “averages” and start talking about “means”, (and perhaps even arithmetic, geometric, and harmonic means) as the list of what counts as an average is rather long.

  21. Stephen 21

    Yes they do actually. Especially if the goods and services are in short supply. Those who have – can afford them, and those who haven’t – can’t!

    Probably should’ve been a bit more specific – I know gold is in short supply, but apart from that, is good/service in short supply that really matters at the moment?

  22. Stephen 22

    Watching National now is like a re-run of the Bush presidency in early 2001. Tax cuts for the wealthy conceived in a boom get implemented in a bust anyway.

    I agree that Bush was a total disaster financially, but if you’re going to make that parallel, does that mean you don’t think that National is going to cut spending?

    • BLiP 22.1

      No. National will increase spending. Only, the money will be going to the private sector.

  23. Strathen 23

    My interpretation is that by giving tax cuts to the upper end, allows a lot more money to be both spent and saved. Thus giving the economy more stimulus in sheer quantity than giving tax cuts to the lower end. The number provided earlier is that this will provide $2bn to be spent/saved. Does anyone know of the total $$ that tax cuts for the lower end would provide for the economy?

    IMO – Another point of view would be that the middle – upper end would be more likely to have debt that requires servicing and therefore targeted tax cuts for these people will allow them to service their loans and reduce the risk of further financial institutes from going out of business.

  24. Hilary 24

    Has anyone considered that as the recession hits both the median and mean income levels will drop. Which means that someone might be in the tax cut range on 1 April but could drop below it later in the year so will in effect have a tax increase.

    • BLiP 24.1

      First of all, its a depression, not a recession.

      Yes. Many thousands of New Zealand families will have to manage a loss of income and many will fall into the trap you mention. Depending on their circumstances, they may qualify for state assistance, assuming National hasn’t outlawed it.

      Also, considering the increase in ACC levies, the increase in petrol tax, and the increase in car rego – don’t you think National has already pocketed your tax cut, or perhaps you’re so rich you will still have some money left to spend on what you choose?

      • Hilary 24.1.1

        If that comment is addressed to me I can tell you I am one of those not getting a tax cut. But I don’t mind increases to ACC levies if we can still keep the scheme in public ownership, as it is a lot cheaper than any of my other insurances, and the payout potential much higher.

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