Why is it that whenever you see discussion of introducing capital gains tax, land tax etc, the assumption is always that the money will be used to cut the top tax rates?
That seems completely misguided to me. Why should tax reform be all about taking tax burden off those most able to bear it? Taxes to disincentivise housing as an investment won’t only be borne by housing investors. In fact, the Tax Working Group says the effect of closing the tax breaks for housing will be regressive (ie take a higher portion of the incomes of people on low incomes than those on high incomes) because there will be pass-on to rents. So, if the new taxes, as desirable as they are, will be felt by a broad section of the population, why should the counteracting tax cuts only go to the wealthy elite?
Now, a lot of you out there will be saying ‘I earn over $70,000 and I’m not rich’. Two points:
1) relatively, you are. 91% of New Zealanders earn less than $70,000. The median income in New Zealand is $28,000, which means half of New Zealanders get by on less than that. The median wage is $41,000 and the median full-time wage is $45,000. So, yeah $70,000 is a bit. (see NZ Income Survey)
2) Sure, if you’re on $75,000 or $80,000 you get a little bit from a cut to the top tax rate but a 1% reduction in the top tax rate only gives you a dollar a week per $5,000 over $70,000 you earn. And consider: on $80,000 you get a whole $2 a week. But if you’re Rob Fyfe on $3.1 million you get $600 a week. Top bracket tax cuts aren’t only unfair to everyone earning below $70,000, they’re unfair to nearly everyone earning above $70,000 too.
Serious consideration should be given using the revenue from new property-based taxes to pay for a tax-free income tax bracket. OK, let’s say the combination of new taxes brings in $2 billion a year. If that money is used to cut the upper tax rates the top tax rates could be cut to 26% but three out of four people would get nothing, most of the rest get less than $20 a week, and 1.5% of taxpayers make off with tax cuts averaging $178 a week.
(in the graphs, one worker=100,000 taxpayers, each stack represents an income bracket $10,000 wide, the last two are $100K to $150K and $150K + the blue is the weekly tax cut)
A tax-free bracket up to about $5,300 would cost the same amount and would give everyone $13 a week.
Now, which sounds fair to you?