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The right incentives?

Written By: - Date published: 12:06 pm, July 7th, 2008 - 25 comments
Categories: wages, workers' rights - Tags:

National tells us that, if we put the right incentives in place, people will work harder and their incomes will go up. National opposes the 39 cent tax bracket because they argue people would be incentivised to work more and earn more if incomes over $60K were taxed 6 cents in the dollar lower. They slashed benefits and let the minimum wage fall behind inflation because they say benefits and the minimum wage make people lazy and poor. The leftwing parties argue that capitalism unfairly concentrates wealth in the hands of the lucky few and government should help redress this inequality inherent to the system.

National’s policies were in place in the 1990s, leftwing policies gradually replaced them from 2000. So, what happened to incomes?

Strange, when people were ‘incentivised’ to work harder 40% of people, the poorest 40%, actually got poorer. It was the richest 10% who did best off National’s policies. That stands in stark contrast to the Labour government period, when everyone got richer faster and the bulk of increase went to lower and middle incomes (although, shamefully, the poorest 10% has been left behind).

While the Left has shown it can deliver social justice without hammering the wealthy, it’s almost like National’s ‘incentives’ were designed to screw the poor and advantage the rich. Almost.

25 comments on “The right incentives? ”

  1. T-rex 1

    National policies mostly come at night.

    Mostly.

  2. bill brown 2

    National policies mostly come at night.

    Mostly.

    I thought they mostly came out on Agenda, by accident.

    Mostly.

  3. T-Rex, you so funny. I never understood a) why the aliens would only come at night anyway b) why, even if they didn’t like daylight, that would be relevant in an underground colony.

    My pick for the righties response to this is the ‘economic conditions were different’ line, never mind that the graphs cover 19 years and the outcomes are exactly what you would expect from the policies that were in place.

  4. bill brown, brilliant

  5. DS 5

    Funny how the people who argue in favour of “incentivising” top tax rates never argue that we should get rid of seat-belts in cars. After all, if we got rid of seat-belts, your chances of getting killed in an accident would increase – but applying the same grim logic of “incentives”, this situation would surely incentivise people to drive more carefully, wouldn’t it?

  6. r0b 6

    Is there any good evidence that “incentives” of this kind (cutting top tax rates) make people “work harder”? Is there any country in which this can reliably be shown to have been effective?

    I’m not so interested in short term blips and anecdotes, I’m looking for long term systematic support for this idea. Does it exist? America, for example, seems to be a counter example:
    http://www.huppi.com/kangaroo/L-taxgrowth.htm

    The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent.

    Almost all rich nations have higher general taxes than the U.S., and they are growing faster as well.

    Here’s a discussion of more recent stuff in the American context:
    http://www.cbpp.org/9-27-06tax.htm

    Myth 3: The economy has grown strongly over the past several years because of the tax cuts.

    Reality: The 2001-2007 economic expansion was sub-par overall, and job and wage growth were anemic.

    Members of the Administration routinely tout statistics regarding recent economic growth, then credit the President’s tax cuts with what they portray as a stellar economic performance. But as a general rule, it is difficult or impossible to infer the effect of a given tax cut from looking at a few years of economic data, simply because so many factors other than tax policy influence the economy. What the data do show clearly is that, despite major tax cuts in 2001, 2002, 2003, 2004, and 2006, the economy’s performance between 2001 and 2007 was from stellar.

    So where does this fundamental Tory belief come from? I think it’s time it was retired. (In fact I say we take off and nuke it from orbit. It’s the only way to be sure.)

  7. It comes from being too self-centred to realise that paying tax is the price of a civilised society – so, lower tax rates and pay for it with lower government expenditure on things like benefits and the social wage.

  8. Felix 8

    so, lower tax rates and pay for it with lower government expenditure on things like benefits and the social wage.

    Enough of your gobbledegook. I just want to know one thing:

    i can haz plazma tv?

  9. dk 9

    To make the numbers work National must intend to fund their tax cuts and redistribute income upwards by increasing GST.

    An increase to 15 or 17.5% will fund plenty of tax cuts and effect a highly regressive clawback of Working for Families without having to touch WFF itself.

    Has anyone asked them about their intentions wrt GST?

  10. Daveski 10

    Credit to your persistance Steve – you won’t let this one go. Any economic benefits are solely due to Labour’s successful policies while any negatives are due to National’s failures or outside events.

    I normally enjoy your posts as while I almost always disagree with your conclusions, your analysis is usually detailed and coherent or at least consistent with your outcomes.

    So let’s have some constructive criticism.

    1. Your simplistic argument about “tax rates” ignores the point that regardless of the tax rate, the rich will always pay more tax and almost certainly get less back. And rightly so. Even with a flat tax, the rich will pay more – again, rightly so.

    2. Your analysis of the 39% is simplistic. It avoids any discussion of the problems caused by having the highest personal marginal tax rate at 39% and company taxes at 30%. It ignores the point that the tax was only supposed to target the top 5% – Labour’s words, not mine.

    Tax is only one part of the equation. In fairness, I would argue a lower marginal tax rate should be applied along with means testing for super and student allowances – the first of which I agree would be political suicide, the second is obviously unpopular in the least. However, to focus only on tax rates as a way to redistribute wealth ie ignoring how the tax revenues are redistributed only half the argument.

  11. T-rex 11

    Ha!

    My bad Bill, you’re right. Like Steve says: I was thinking of Aliens.

  12. sean 12

    I just got my tax return in – saved $17,000 this year and put it back into my families company.

    I don’t qualify for Working for Families, so this is my way of ensuring I get close to $400 a week in benefit for my family too.

    This scheme is called “Working for my family”. Labour can go and jump off a bridge with their greed and lies.

  13. T-rex 14

    Sean,

    I don’t mind that you saved $17k – good for you, you shouldn’t have to pay more tax than is reasonable.

    The thing is, Labour doesn’t actually mind that either… they’re the government of the day remember, they’re allowing you to do it.

    They’re not lying and saying you can’t, and they’re not being greedy and stopping you.

    You’ve been suckered by National Party smear.

    All Labour is saying is that once your company is profitable you should put some of its profit back in to keeping hospitals staffed and people unable to work fed/sheltered. Why? So that the society that allows you a tax holiday while you’re starting a company can continue to do so for future companies.

  14. Lint Remover 15

    Labour has not created NZs economic growth (circa 2000-2007). Name one person who does not work for the Labour party that says otherwise.

  15. T-rex 16

    Lint – If you argue that Labour hasn’t created the economic growth you’re essentially arguing that economic performance is independent of government, which neuters any argument that National will improve economic performance.

  16. djp 17

    steve you need to investigate into the PNG image format for these kind of images.

    captcha: Smaller national (heh)

  17. Lint Remover 18

    No- that economic performance and conditions isn’t soley caused by govt policy. The other side of the coin is that Labour cannot be blamed for high oil prices.
    National will not improve economic performance.

  18. T-rex 19

    Yup, fair enough.

    There are numerous factors, obviously, but I think it’s fair to say that the original point of the post (That Labour was at least as good at encouraging economic growth as National) is valid.

    I agree with you that National probably won’t improve economic performance. In light of that, they should probably stop pretending that they will!

  19. bernard 20

    Lint arksed:
    > Labour has not created NZs economic growth (circa 2000-2007). Name
    > one person who does not work for the Labour party that says
    > otherwise.

    I don’t work for the Labour Party, and I think they’ve had a pretty good hand in it.

    IIRC , one of the very first things that the post-99 Labour-led govt did was lift the Reserve Bank’s target inflation rate. Recall during the 90’s that the RB Govenator would lift interest rates whenever inflation was threatening to get too high, which tended to match periods of decreasing unemployment, funnily enough.

    I think I also remember screams and howls that this was going to lead to rampant inflation et al, which oddly enough never transpired. I’m not a LP voter, by any stretch, but I’m pretty sure that the easing back of this target & thus reducing the cost of credit for small businesses has done wonders for our economy.

    From what I remember of the 90’s, all the NP did to tackle unemployment was slash benefits and conditions for the low paid. Oh, and push the idea that despite Govt policies leading to a pretty solid trickle of job losses (my political memory only stretches back to the late 80s LP, when this started), the unemployed were really to blame for their lot, to justify this.

    National focussed on making it real shit to be poor as an ‘incentive’. Labour focussed on easing the cost of credit to employers.

    I can still remember the weeks after the ’99 election, everywhere I went people just seemed happier.

  20. QoT 21

    *dons geek hat* @Steve: Well, the aliens are incredibly efficient killing machines and probably adapted to when their prey was most vulnerable, i.e. during the colony’s sleep/night cycle, and when things were dark, which to a 9-year-old would probably translate as “coming at night”.

  21. randal 22

    people in new zealand work bloody hard now. more money is no incentive at all if people have to work harder. what would make the difference is if the captains and industry and the banks and the risk takers and all the other blowhards organised work that paid more for the end product by producing a higher value item.. unfortunately they dont seem to be capable of that. all they can do is hector and harass and threaten one of the best work forces in the world with punitive measures concerning superannuation and any other racket they can dream up. typical right wing double talk from the cheapest of cheapskate carpetbaggers.

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