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The tax cut fizzer

Written By: - Date published: 9:05 am, October 1st, 2010 - 72 comments
Categories: gst, tax - Tags:

For a long, long time National and the Right have tried to convince us that all we really need is tax cuts. You can understand why: their other policies are deeply unpopular, cutting taxes is a roundabout way of cutting public services, which they hate, and tax cuts deliver the most to their wealthy base.

Now, the ‘great tax switch’ has happened. We’ve been promised that this will make a step change for the economy. Will it? No.

1) Don’t expect more cash at the end of the day. Unless you’re in the wealthiest few percent (and, let’s face it, not many of you are) then your income tax cut will be eaten up by the GST rises, ACC levy rises, and the need to privately purchase services that were provided publicly before National’s cuts.

Let’s think about it: the money for these tax cuts didn’t come out of thin air. It comes from GST and borrowing. Every dollar spent on the tax cuts is one that can’t be spent on underfunded public services. It’s a zero-sum game: what you get in income tax cuts, you lose somewhere else.

2) Don’t expect higher growth/more jobs. It’s strange that National are claiming that the tax swap will boost growth. Absolutely no evidence has been provided to suggest this is true. And why would it be true? At the end of the day, most taxpayers are getting a 2-odd% increase in their take home pay and paying for that with a 2.2% increase in the cost of their purchases. Marginal stuff.

The only people who will get a serious difference out of this are the Bill Englishes, John Keys, and Paul Reynoldses of this world who will get hundreds of dollars a week. That’s funded by borrowing and don’t expect them to spend it all to boost the economy. Trickle down has never really existed.

3) There is no real evidence that the tax switch will encourage people to work more or spend more money. The tax changes haven’t created more work, so why would employment go up? At best lower income tax might make people willing to work for lower gross wages, lowering labour costs. Marginal stuff again, and not how we build a high wage economy.

As Fabregas4 said in a guest post contribution: “My personal payroll expert (Mrs Fabregas4) tells me that come the tax cuts I’ll be getting an extra $182 per fortnight.  I already earn over $105k per annum.  I don’t need it, don’t particularly want it, would rather it was used for teachers, doctors and other good things.  Have I invented Tax Cut remorse!

No you can’t have it – any of you – not directly anyway – but if you are poor kid in Africa you might just get it (not helping our economy at all I realise).”

4) Don’t expect the wage gap with Australia to close. NZIER has shown that tax cuts will do nothing to close the wage gap with Australia. Quite simply, tax cuts cannot make up for wage rises. Even if we eliminated income tax altogether the wage gap would still exist (and we would have to be buying all the things we used to get as public services out of pocket).

If we want to close the wage gap, we need to boost wages. And National has opposed every single wage rise under its watch.

So, this is it. This is National’s big magic trick. What a fizzer.

The question, now that the government has mismanaged the books so badly they have had to borrow just for these tax cuts, is what National will present to us at the election. It’ll have to be something pretty fancy to distract us from its privatisation agenda. I’m guessing it’ll be more tax cuts, paid for with more borrowed money.

72 comments on “The tax cut fizzer”

  1. jimmy 1

    A good quote I came accross on Wikipedia (Supply-side economics page):

    “the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows”

  2. just saying 2

    I hope intending Labour voters take note of this post.

    David Cunnliffe was talking tax “relief” for the middle class just a month or two ago.

    Remember: Labour is willing to take from our underfunded services, to fund an election bribe for soft National voters, so that they may remodel their kitchens and travel internationally more often.

    Hospitals, schools, social services….. – COMMUNITIES – could use some ‘relief.’

    But Labour’s sympathies lie elsewhere.

    “The many not the few” huh?
    pffff

    • Craig Glen Eden 2.1

      Unlike National Labour do care for the many. Labour do understand that it is getting harder and harder for many in the middle class and even well paid middle class to make ends meet as they fund Nationals elite who will get the most from this tax switch.

      National never change they have just get worse as the years roll on, same old theory except they apply it even harder each time they get in, this lot are starting to make Ruth look moderate.

  3. Tiger Mountain 3

    “north of $50” is definitely looking a bit sick (as others have noted)

  4. Olwyn 4

    Having given up on manufacturing and the like, employment is largely in retail and service jobs – or jobs pertaining to consumption. Now we want to stifle consumption by replacing some income tax with a higher consumption tax. Should this work it will mean less jobs in retail and service industries, but what other jobs are there? Especially with the public service being decimated at the same time. The line of thought seems to go like this: we will be richer if we don’t do much manufacturing in this country, since it can be done more cheaply elsewhere. But we don’t want a rabble with no money and time on their hands. So let’s take up low grade inane consumption, so as to absorb them all into low paid jobs – this will give them a little money and no time on their hands. But wait a minute, if we curb their consumption habits as well we will have still more money. Except if we curb their consumption habits, there goes the low paid jobs. Just about every line of thought that comes from neo-liberalism leads into a contradiction, reminiscent of that associated with the tyrant toward the end of Plato’s Republic.

  5. tsmithfield 5

    “You can understand why: their other policies are deeply unpopular”

    Have you got any evidence for this statement, Marty? The opinion polls certainly wouldn’t support you on this.

    • prism 5.1

      What those on-line polls populated by really deep thinking people like here?

      • tsmithfield 5.1.1

        Nah. I was thinking more of the average of all public polls

        • Pascal's bookie 5.1.1.1

          What do they tell you about the popularity of their other policies?

          • tsmithfield 5.1.1.1.1

            It wasn’t me who made the claim that National’s policies are “deeply unpopular”. I just asked for evidence. My point is that the polls don’t provide any. Haven’t seen anything else from Marty yet. He has made the statement. Its not up to me to prove the reverse.

            • roger nome 5.1.1.1.1.1

              ts:

              “polls don’t provide any”… evidence

              That’s not what the pollies seem to think. If what you said you were true, there would be no need for all the internal polling that the major parties do. You’re really just quite hopeless at this bloging thing aren’t you?

              • tsmithfield

                Roger,

                IF National’s policies are deeply unpopular as Marty asserts, THEN this should be reflected in the polls.

                The consensus of all public polls shows the reverse. Therefore, unless Marty can come up with evidence to contradict this contrary evidence, then he is talking nonsense.

                • roger nome

                  ts – public opinion is mainly driven by the mass media, and if you believe what they tell you, all you’ll think of National is “gee what a smiley face that Mr Key has. His government must be benign”.

                  Again: the popularity of Brand Key, and the popularity of the policies that he gets his “bad cop” ministers to announce, are not the same things.

                  • tsmithfield

                    I don’t actually have to “believe” anything. Whether or not you accept the polls does nothing to provide evidence to prove Marty’s unsupported assertion that National’s policies are “deeply unpopular”. Even if I accepted that the polls provide no evidence that National’s policies are popular, they certainly do nothing to support Marty’s assertion that National’s policies are “deeply unpopular”.

                    The burden of proof is on Marty, not on me. To date I have seen no evidence whatsoever produced to support this assertion.

                    • Pascal's bookie

                      What? marty has the burden of proving your assertions?

                      “The opinion polls certainly wouldn’t support you on this.”

                      “My point is that the polls don’t provide any”

                      “The consensus of all public polls shows the reverse.”

            • Pascal's bookie 5.1.1.1.1.2

              “I just asked for evidence.”

              Here’s what you said:

              “The opinion polls certainly wouldn’t support you on this.”

              And:

              “My point is that the polls don’t provide any”

              emph. mine.

              Those are claims, not questions.

              • tsmithfield

                Pascal, you seem to have some difficulty in comprehending this argument.

                It was Marty who made the unsupported assertion:

                “their other policies are deeply unpopular”

                He provides no evidence to support this assertion. The burden of proof is on him to do so. He can’t rely on the consensus on polls which run in the opposite direction to what he would require as proof.

                I have seen nothing else put forward that would amount to “evidence” from anyone here.

                Comprehende?

                • Pascal's bookie

                  No no I comprehend all that just fine. (Well, that of it which makes sense anyway). It’s transparently simple stuff. So simple even you get it.

                  The thing is that you responded to marty with a series of statements.

                  In any sort of discussion there isn’t just one burden of proof. Such burdens apply to all statements. Including yours. This may seem terribly unfair that you have to also support what you say, but think about it. It’s not.

                  You didn’t just ask him for his evidence, you said he was wrong. You said the evidence went the other way, that this was certain, that the polls in fact, show the reverse.

                  These are claims of yours that I am merely asking you to support.

                  geddit?

                • Pascal's bookie

                  The data you linked to does not support your claims made about the popularity of national’s other policies, before you start imagining that it is relevent in any way to the question.

                  • tsmithfield

                    Have to disagree with you AND you still don’t seem to understand what you describe as “transparently simple”.

                    1. I started off pointing out that Marty was making an unsupported assertion that National’s policies were “deeply unpopular”. As it stands he hasn’t provided evidence for that.
                    2. I pointed to polls that were inconsistent with the proposition that National’s policies are “deeply unpopular”. You might not agree that the polls mean that (I think they do) but they certainly are not consistent with Marty’s statement.
                    3. Regardless of whether you accept the evidence I have put forward as contrary evidence or not, it still doesn’t change the fact that Marty’s initial assertion is unsupported.

                    Look at it this way. All I really had to say in response to Marty’s unsubstantiated assertion was “prove it”. That is where the position still is at the moment. Whether or not you accept the consensus of polls as contrary evidence is irrelevant to that. I don’t have to prove that National’s policies are popular to disprove Marty’s assertion that National’s policies are “deeply unpopular”. Get it now?

                    • Pascal's bookie

                      “I don’t have to prove that National’s policies are popular to disprove Marty’s assertion that National’s policies are “deeply unpopular”.”

                      Sure you do. That is, if it is your position that Marty’s thesis is not true, then that is what you have to show. You don’t get to say that Marty hasn’t proved his point so therefore it’s false.

                      And you don’t seem to understand what it is that you have said. You have said that, for example,

                      “The consensus of all public polls shows the reverse.”

                      that is a statement you are amking. It’s something you are under exactly as much burden to prove as marty is his statements.

                      Marty’s thesis was that National sells it’s tax cut meme so hard because it’s other ideas are not popular.

                      You responded by claiming that it’s policies are too popular and that the evidence supports you.

                      For this evidence you tried pointing to polls showing that National is popular, which tells us nothing about marty’s thesis.

                      1)National can be popular because people like the way John Key keeps preventing his ministers from implementing things like mining in our parks and SOE sales.
                      2)National could be popular because it is good at selling it’s tax cut meme. People could well believe that the tax cuts which they like are worth all the other things that National does.

                      So there’s two blatantly obvious ways in which Marty’s thesis could be entirely consistent with the polls you mentioned.

                      You’re just a bit thick mate.

                    • tsmithfield

                      I don’t disagree with you.

                      However, at least I have put up something as evidence for my position. This is something we can debate. I believe on the balance of probability (the civil test) that the consensus of poll results would indicate that National’s policies are not “deeply unpopular”. This is because policies that meet the threshold of “deeply unpopular” are likely to be reflected in the polls.

                      The difference with Marty is that he has put up nothing to support his assertion at all. Thats the difference.

        • roger nome 5.1.1.2

          ts – the popularity of Brand Key, and the popularity of the policies that he gets his “bad cop” ministers to announce, are not the same things.

        • bbfloyd 5.1.1.3

          TS… i find it hard to believe that there could still be people so out of touch with reality as to be still incapable of understanding how pollsters operate in this world. for you benifit, i will explain…. the polling companies get paid to do polls.. with me so far? good… the people who pay for those polls generally are looking for a result that reflects well on themselves, or their product. three… polling companies will then confine their polling to demographics that will tend to provide the answers required.. and as added insurance, will ask questions in a way that makes it difficult to give answers that negate the point of the poll in the first place….. this is the short version of the lesson.

          the point to remember is that polls can not be trusted to give accurate answers and hanging your hat on them only weakens your already shaky credibility..

          • luva 5.1.1.3.1

            Riiiiiight

            any evidence to back yet another crazy conspiracy theory up.

            How in gods name do you know where the poll was taken.

    • roger nome 5.2

      Smithfields are quite intelligent dogs, so what the hell are you doing with that name?

      A relatively scientific UMR poll found that 80% of NZers think that people should be allowed at least some minimum work rights. So the the Nats are wayyyy out of whack with the public on industrial relations, and have been for so long i can’t remember the last time they got it righ. Muldoon was a control-freak interventionist (wage freeze etc) and Bill Birch was a “leave it to the market, slash state spending, watch unemployment soar, and wages plummet” kind of guy.

      With a record like that, how can anyone claim that National isn’t the bosses’ party?

    • Draco T Bastard 5.3

      There’s a reason why Jonkey promised not to sell off state assets in his first term even though it’s obvious that NACT want to. When Banks said that he would be unelectable if he wore his policies on his sleeve he was speaking for the entire National Party and Act.

      • The Baron 5.3.1

        But they wouldn’t need to sell off anything if we just started printing more money and stopped importing bananas, right Draco?

        Viva la revolution! Everyone will be paid with MILLION DOLLAR NOTES! Then go home and have to build their own cars…

        • Draco T Bastard 5.3.1.1

          Getting desperate I see.

        • bbfloyd 5.3.1.2

          Baron.. that’s even stupider than your last silly rant. i’m starting to think you just do this for a cheap thrill. you are a very sad individual.. i can recommend a good therapist if you ever surface from your fantasy world..

  6. Bruce 6

    So where does this end in future governments? Do many (based on current polling) NZ workers accept that tax cuts (not pay rises) are the way forward? Will we eventually pay very low or zero income tax and say 50% GST? If so what will right wing governments bribe the public with then?
    How long before the balance tips and people start seriously complaining about poor performance from our underfunded and understaffed public services?

    • Colonial Viper 6.1

      Bruce perhaps you missed the strategy here. You underfund public services so that they start falling apart and start failing to deliver. Then you blame the inability of the public sector to do anything capably.

      The obvious solution to problems at that stage is to then privatise remaining functions of Government (schools, prisons,…), because competition is always good, markets are always good and private companies are always better at doing things than publicly focussed organisations.

      Same Tory ****, different day, with a style of smile and wave this time around.

      • Blue 6.1.1

        The other part of the strategy is keeping workers focused on tax cuts to increase their incomes, rather than asking for wage rises.

        The tiny increase from tax cuts is used to distract from the fact that their wages in many cases are either not increasing, or just barely increasing (and not even keeping up with inflation).

      • Draco T Bastard 6.1.2

        And this is what we would end up with.

      • Vicky32 6.1.3

        Which is why the councils, and Housing NZ don’t have their own maintenance staff, but use private contractors – which is why it took 2 weeks for HCNZ to prune the dangerous trees that were hard up against the front windows of the house where I live. In the 2 weeks, the house could have been demolished by the high winds and storms we were having – but HCNZ told me that they had to wait for the private contractors to ‘get around to it’. It also explains why the cracked, sunken pothole ridden pavement that my 85+ neighbour used to complain (in vain) about has never been fixed, 4 years after the death of said neighbour! Private contractors are “too busy” no doubt!
        (In the 90s, all government positions that could possibly be privatised and contracted out were, for ideological reasons – the same reasons why Key and Blinglish have sacked 1500 government workers this year alone!
        Deb

  7. ianmac 7

    I would rather pay a little more income tax and keep the best of Education, Health, Security.
    Why do we accept that less tax is good? I don’t.

    • Lats 7.1

      I agree Ian. I was against the tax cut proposal from day one. It makes no sense to offer tax cuts when we still have to borrow internationally. Sure, give us some tax relief once our economy is strong, we have a nett surplus, and have built up some decent reserves. But to do it now at the expense of the lower income folk in this country is heartless and stupid. Mind you, the voting public on this country must also shoulder some of the responsibility, we elected this bunch of toe-rags (well, not me personally, I gave my vote to Labour, but you know what I mean.)

      • Draco T Bastard 7.1.1

        Would people stop with the “tax relief” meme? It’s not a relief to pay less tax but increased pain as your society falls apart.

        • just saying 7.1.1.1

          That is the point I was trying to make when I used the term in a comment earlier.

          I find the term offensive. The fact that it doesn’t jar with most, particularly when used in regard to the comfortably off, shows just how much we’ve been manipulated in regard to our new ethos of callous disregard, and hateful victim-blaming of the poor and the disadvantaged.

          • Colonial Viper 7.1.1.1.1

            And it is the ethos, the values, the societal memes that the Right have very cleverly manipulated and disseminated so that even when we are damning their destructive wrong headed ideas we end up using the very vocabulary that they created.

            Damn smart of ’em, I’ll give ’em that.

            • just saying 7.1.1.1.1.1

              The vocabulary Labour uses.

              Maybe they aren’t an opposition, maybe Labour is actually part of a “grand coalition” of the right, and they are waiting for the right time to tell us. Maybe it’ll be announced along with all their top-secret policies just before the next election, when they’ve had time to repaint and reprint all the Labour images royal purple…..

    • jacinda 7.2

      Excuse me, but under Labour Health and Education received shitloads more funding, and went down hill at a rapid rate also. Look at the mess we have with NCEA for a great example. Labour had 9 years to clean it up, and the kids coming out today can’t even spell.

      Clearly throwing bags of money at problems has no effect.

      • felix 7.2.1

        Gee wizz “jacinda”, that’s an interesting URL.

        If you really think “the standard fucking sux shit” then why don’t you just say it in a comment?

        Also, why come here at all?

  8. jbanks 8

    Could you please add a “percentage of total tax paid” line to the graph?

    k thax bye.

    • roger nome 8.1

      heyhey jbanks – i’d like to set up a system where i’m rewarded for my parents being poor, so i can play the stock market and make more millions off the millions i get in “childhood poverty inheritance grants”. Then i’ll whine about how my grant is taxed to high, and pay a political party to lower my tax burden.

      k thanx bye.

      • jbanks 8.1.1

        No. We live in a meritocracy. If you want a reward then get your arse out there and earn it. I’m sick of my tax paying for leeches.

        • Draco T Bastard 8.1.1.1

          BS we live in a meritocracy. If we did then Jonkey would still be living on the sufferance of society.

          • roger nome 8.1.1.1.1

            That’s true – i used to see a woman who worked for meryll lynch and she said that currency trading was the numpty’s job. The glamour job is of corse raising capital for buying up failed companies for a pittance, restructuring them etc, then selling them off for a huge profit. That’s the game JK would have been in if he had any sort of intellect.

            • roger nome 8.1.1.1.1.1

              So fuck knows how they decide which goons get to play the “make millions from a padded seat” game. i’m starting to think that the whole conservative-commerce circuit is run by closet or repressed gay guys who exchange favours as a form of contrqact. Too many of these people have been “outed ” lately, and too many have a sort of homo-erotic hyper-masculinity thing going on.

              Is JK a closet case? hmmm

        • Colonial Viper 8.1.1.2

          I see jbanks is continuing with the Right’s AMWAY meme.

          “Work hard enough for us, sell enough shit for us, and one day we will let you too join us as one of the privileged (hahaha as if)”

          I’m sick of my tax paying for leeches.

          I’m sick of you driving on my roads, drinking my water, being protected by my police, having been taught how to read and write by my teachers.

          Ungrateful sod.

          • Draco T Bastard 8.1.1.2.1

            It was when I was in Amway that I learned (was told quite specifically) that “working” will never make you rich, what you need to do is get a lot of other people working for you. Capitalism is a ponzi scheme.

            • The Baron 8.1.1.2.1.1

              Yeah, so lets just start printing money, cos its consequence-less!

              Economics 101, Draco style – no sources, no credibility, no clue.

              • Blighty

                hey, let’s not borrow money to give tax cuts to the wealthiest kiwis.

                • The Baron

                  Yeah, why borrow when we can just print more, right? Then everyone can have a tax cut!

                  Cor, why didn’t we think of this earlier!

                  • Colonial Viper

                    The Baron clearly has no idea where most of the ‘money’ in circulation comes from, despite fancying himself as a commercially minded Righty. Usual right wing ignorance.

                    Baron, maybe you should look up ‘fractional reserve banking’ and then you should figure out what banks are able to do when the reserve they have to keep on hand is zero or near zero.

                    That’s right, they get to print credit money, pretty much as much of it as they like (as long as they can find suckers to take on the debt created), and then go on to charge us interest on all of it.

                    And where does the money come from to pay off the interest on all that credit created money?

                    Yes, that’s right even more debt.

                    Its a frakkin ponzi scheme. One you are supporting.

                    Yeah, why borrow when we can just print more, right? Then everyone can have a tax cut!

                    Cor, why didn’t we think of this earlier!

                    Actually, the Government doing this is a far better solution than borrowing the money (from a bank) and then having to pay back interest on it as well as the principal.

              • roger nome

                Yes Baron – ‘cos inflation is spiraling out of control. No credibility, no clue….

                • The Baron

                  actually, i thought thay was one of the key lefty lines against the GST increase, and for backing pay rises… remember, 4.5% one off inflation… run for the hills etc etc…

                  So, your point was again…?

                  • roger nome

                    Baron – i don’t buy in to that “lefty” argument. Sounds more rightist to me.

                    Actually I’m concerned about more people becoming more economically and socially marginalised as a result of the GST rise. Inflation only becomes a real problem once you get over 5%ish. On the other hand, the relitive material inequality we have at the moment causes so many serious problems that we don’t need. Takes a heart and a brain to arrive there though.

                    • The Baron

                      Really? I got it from the likes of here: http://thestandard.org.nz/tax-swindle-graph/

                      “This is using the Government’s own figures as dutifully re-printed by the media – so no adjustment for the massive inflation caused by the budget…”

                      As for the rest, shall I assume that you’re another advocate of “riches through the printing press” style economics? Wow, Phil, when are you buying your ticket to Zimbabwe then?

                    • roger nome

                      Te Baron, are you in Dunedin? I find settling discussions with people who use reductio ad-absurdum arguments best done in person. 🙂

              • Draco T Bastard

                As I stated – it’s the general practice on how money is created already. If it doesn’t work by governments printing money then it doesn’t work when banks print it either. So, why are you supporting the present system?

                You seem to be the one without a clue as you really have NFI how things work now.

              • bbfloyd

                Baron… it’s still better than the drivel you come out with. are you really convinced that you have an opinion worth listening to? cause you would be the only one so far.

        • I presume you had a state education ? I presume you have used the state health service? I presume you travel on state highway. I presume l one day you will draw the state pension if you are not already? I presume that if you or members of your family are made unemployed you will draw the dole? Well thats just a few of the reasons to pay tax.The facts are that countries that pay high tax have the highest standard of living.The percentage of tax that goes to bludgers is infinitesimal and of no concern .

  9. AndyB 9

    well at least it’s an attempt to give some money back to the masses. For years we were told there was no room for tax cuts, but every year inflation went on going up, prices carried on going up beyond the level of inflation, house prices doubled, etc. some people saw there wages rise, but not everyone.

    • Colonial Viper 9.1

      well at least it’s an attempt to give some money back to the masses.

      Bad characterisation; since most of the money is going to the wealthy its actually an attempt to reduce services and increase debt for everyone so that the Government can givethe most $$$ back to the few at the top.

      Its a ponzi scheme.

      For years we were told there was no room for tax cuts,

      You ever wonder why there is room for tax cuts when the Govt is borrowing tens of millions a day from overseas

      Maybe National decided there is room for tax cuts because they don’t give a rats ass that the country as a whole is going into debt for them?

  10. tsmithfield 10

    Besides the fact that the question that that particular poll was based on was decidedly dodgy, there is no way that poll could be claimed to show that the 90 day bill itself is unpopular. That is extrapolating from one aspect of the bill to the whole thing, so the logic doesn’t follow.

    • Bobby 10.1

      So whats everybody spending their tax cut on?

      I assume all you lefties are giving it away to charties to help spread the joy?…yeah right

      Personally i might put in towards a nice big LCD TV

  11. Jeremy Harris 11

    It’s strange that National are claiming that the tax swap will boost growth. Absolutely no evidence has been provided to suggest this is true.

    A Treasury report stated the tax changes would induce 0.9% extra growth over 6 years… Small yes and doesn’t make these tax changes a good idea but it does show you need to fact check…

    • Blighty 11.1

      0.9% over 24 quarters?

      Margin of error stuff.

      • Jeremy Harris 11.1.1

        Agreed but that’s not the point, saying:

        Absolutely no evidence has been provided to suggest this is true.

        is completely incorrect…

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