The test

Written By: - Date published: 8:40 am, October 8th, 2008 - 83 comments
Categories: election 2008, labour, national, tax - Tags:

After building a political career that has consisted of little more than calling for tax cuts and attacking those that were delivered, John Key will finally present his party’s tax cut package today. Already, they have had to reduce its size but they will still make it the central part of their mystical economic platform that is meant to stop emigration, lift us out of recession, prevent junior doctors’ strikes, and make our whites whiter. The supposed transformative powers of larger tax cuts underpins and defines National’s ‘time for a change’ message. So, they better deliver something that can make a difference

As a guide to what to expect, let’s take one element of National’s promises- reducing emigration via tax cuts. I find it hard to believe that anyone’s decision to emigrate to Australia or not is tipped by less than $2000. So, say, National could reduce emigration significantly by offering tax cuts, I think it’s fair to say that would need to offer more than $40 a week to most Kiwis above Labour’s tax cuts (which National dismissed as the block of cheese tax cuts). If they don’t pony up, their wailing that Kiwis are emigrating because of Labour’s tax policies will be revealed as completely hollow. As will their promise of transformative tax cuts.

Before the announcement, it is opportune to look again at the distribution of income as well who benefits and how much from the Government’s cuts:

[Update: Just saw this in the Herald: “The $50 reduction [for a worker on the average fulltime wage] won’t be reached until until April 2011, and will include the tax cuts Labour introduced on October 1.” Now, Labour’s cuts have already delivered $16 increasing to $32 by 2011 for the average worker. So, National will be offering just $6 a week than Labour each year to 2011. $6? All this over $6?]

83 comments on “The test”

  1. I have to say, having just remade those graphs, I’m even more impressed with the elegance of Laobur’s cuts. Look how the biggest % impact of the cuts goes to the greatest number of taxpayers. They actually make our tax system more progressive by taking most % off the lowest incomes.

    As Keith Ng showed in a post, the tax cuts above $46K will, by 2011, have accounted for fiscal drag since 1999, and everyone earning less than that will have a larger tax cut on top of that.

    As of last Wednesday, 800,000 tax payers are paying only 12% income tax, and about 2.4 million pay less than 20%.

  2. Tane 2

    SP, let’s not kid ourselves. Labour’s tax cuts were a sop to the political reality that they’d lost the argument on tax. And they’re now looking increasingly unaffordable.

  3. Tane, I was never cheerleading tax cuts (although I do see the justification in adjusting for inflation, its happened in the past too), but they were always going to happen and I think they’re well designed.

  4. insider 4

    If it’s only $6 then why get upset about it and claim it is reckless?

  5. insider. If it’s just $6, it makes a joke of Key’s entire political career. Talk about failing to meet expectations.

    Anyone care to propose a food-related nickname for National’s cuts? The ‘where’s the beef?’ cuts, maybe?

  6. Tane 6

    Six dollars? Hell, that doesn’t even buy a big mac combo these days.

  7. and, insider, anything will still require more borrowing or cuts to Kiwisaver.. you might be happy for our country to take on more debt or undermine our savings while the financial markets are in turmoil for the sake of $6 a week but I’m not.

  8. Go The Right 8

    Most people I believe want a change of Government anyway tax cut or not. Doesnt matter whether it $6 or $18 .

    I thought Helen Clark was very brave to say who wants a change of Government in New Zealand for $18
    Most people want to see her go for nothing

  9. Matthew Pilott 9

    I have to say I’m genuinely interested in hearing where National’s head’s at. All this panning of New Zealand over the last nine years, so this seems to present itself ads the moment where they give their vision of what went ‘wrong’ as they see it, and what they’d do to correct it.

    If tax cuts aren’t a panacea now, they never were, which, of course, makes much of National’s 9-year diatribe about tax cuts nothing more than cynical political bullshit. We already knew that though, that much is obvious to anyone with more than a remote passing interest in politics and economics; I’m interested to see what they’re really thinking, behind the facade.

    I wonder if National will be honest enough to let their intentions out, even slightly. I seriously doubt it, but if there was ever a time to say “here’s the plan, you might not like it but we’re facing some tough times” then this is it.

    I just think National are too far into their cynical electioneering to come forward with this much honesty.

  10. All this over $6?

    The brighter future.. riiiight!

    And to think as I travelled the highway and saw these billboards y’day I wondered whether the message related to someone’s dislike of low-energy light bulbs..

  11. Tony Norriss 11

    Well, Labour can’t criticize National anymore for “borrowing” for tax cuts. Labour’s own tax cut policies will be funded out of deficit, and so effectively borrowed.

    The only reason that National is having to restrict its tax cut program is that Labour has so severely rooted the economy that there is little other option.

    Also, you don’t seem to take into account the NPV of the tax cuts. By bringing forward the tax cut program, people get the cash into their hands much earlier. The fact that they have had a whole year of tax cuts they wouldn’t otherwise have had adds up to quite a lot.

    [the question is should we let National borrow more or cut programmes like kiwisaver. tim, one part of national’s tax cuts will come in on year ahead of the rest of labour’s. Tax cuts are budgeted on a permanent basis, so the difference of one year in part of the implementation is triffling in terms of NPV. SP]

  12. vto 12

    The people need as much of their money in their pockets as possible at this time. Tax cuts are the right thing.

  13. Ianmac 13

    Is it true that Mr Key is going to alter the employer input into the Kiwisaver in order to find enough for his promised taxcut? “We will keep Kiwisaver unchanged!” Bill/John said

  14. higherstandard 14

    Ianmac

    Indeed – bit like the finance ministers comments that we weren’t going to be overly effected by the global economic situation at the beginning of the year.

    Times change – both of the two major parties need to make some hard decisions – have either of them got the gumption to make them before the election (I very much doubt it) after the election (we’ll have to wait and see).

  15. Tim Ellis 15

    As I see it, the fundamental difference on tax is that Labour doesn’t believe in tax cuts and is only offering them because National won the argument on tax and were forced into it, whereas National does believe that reducing tax in the long-term is an important economic tool.

    Labour have only delivered the first round of tax cuts. Can they be trusted to carry them out? Cullen cancelled the 2005 tax cuts after the 2005 election, when they were much more affordable than they are now. Given his antipathy towards cutting tax in the first place, the international financial crisis sounds like a perfect excuse to cancel them after the election.

  16. DeeDub 16

    vto:

    “The people need as much of their money in their pockets as possible at this time. Tax cuts are the right thing.”

    Well, they’ll need a lot more than what’s on offer in tax cuts if the Nats get in. Road tolls, unrestricted doctors fees, minimum wage erosion to inflation… just to name a few things they’ll be doing that they’re actually prepared to admit to!

  17. Vanilla Eis 17

    Tim: Labours tax cuts are written into law. Remember that bit? Where Cullen tabled the legislation so that everyone knew that he couldn’t go back on it? Oh, and the bit where National voted for it – under protest – when they’d been threatening to veto it?

    “Oh yeah…” you say.

    Personally, I’d rather Labour scrapped the cuts they have planned and used the money to keep the deficit under control. The fact that National are willing to blast Labour for letting it blow out but are willing to reduce govt revenue even further shows how little they actually believe the words spewing out of their own mouths. It’s just an attack line, they don’t give two shits if the deficit is growing.

    Now, repeat after the rest of the front-bench: “GIVE ME THE MONAY!”

  18. Tim Ellis 18

    Tim: Labours tax cuts are written into law. Remember that bit? Where Cullen tabled the legislation so that everyone knew that he couldn’t go back on it?

    Vanilla, I don’t see the difference between whether a tax cut is legislated for, or not. Michael Cullen promised a tax reduction in the 2005 budget. He cancelled that plan after the 2005 election. I don’t see legislating for a tax cut as making them any more certain, given the speed at which government can legislate when it wants to do so. Cullen could easily say, after the election: “When we legislated those tax cuts, we didn’t realise the extent of the international financial crisis. The government can’t afford them now, so we are legislating to undo the proposed tax cuts.”

    Labour has a record of not delivering on announced tax cuts. Cullen has been lukewarm about lowering tax throughout the last nine years. I don’t trust him to deliver the tax cuts, legislated for or not.

  19. Pascal's bookie 19

    What does ‘believe in tax cuts’ mean?

    Is it more Laffer curve stuff, or what?

    It sounds like there is some theory that tax cuts are some sort of panacea to any problem, regardless of what level tax rates are at, or how the govt books look.

    Surely whether you believe tax cuts are appropriate depends on circumstances, but the way it’s phrased, and I hear that phrasing a lot (Bill English used it yesterday), makes it sound like tax cuts are a general principle rather than a specific tool.

    I suspect it’s Norquist derived govt drowning in bathtub rhetoric.

    In any case it’s slopppy thinking.

  20. randal 20

    tough titty tim ellis…I suppose that you are a rugged individual who doesnt need the help of any government anyway for a FEW EXTRA BUCKS. Or perhaps you are a tinpot tory mortgaged to the hilt. who knows. The fact of the matter is that John Keys can promise anything he likes and after the election he doesnt have to deliver. Thats why this election is a matter of trust and not bankers trust either.

  21. Vanilla Eis 21

    Labour has a record of not delivering on announced tax cuts. Cullen has been lukewarm about lowering tax throughout the last nine years. I don’t trust him to deliver the tax cuts, legislated for or not.

    No they don’t. They reneged once, in 2005. They’ve also paid out once, in October 2008. That’s not a record of “not delievering” – that’s hardly enough for a record at all. In fact, by my count it’s 1-1. Care to draw any conclusions from such a short history? Oh wait, you already have…

  22. Akdnut 22

    Vanilla “Labours tax cuts are written into law. Remember that bit? Where Cullen tabled the legislation so that everyone knew that he couldn’t go back on it?”

    Tim “Labour has a record of not delivering on announced tax cuts.”

    National has a policy of adopting left wing policies and going back on what they say as well or have you conveniently forgotten keys many flip flops or the Nat govts promises of the 1990s

  23. r0b 23

    The only reason that National is having to restrict its tax cut program is that Labour has so severely rooted the economy that there is little other option.

    Tony Norriss knows that this is a lie, but he’s bound to keep repeating it. See here for quotes from Treasury and the Governor of the Reserve Bank on how robustly our economy is positioned to weather the current international crisis.

    And from Armstrong in The Herald today:

    The ugly numbers are down to international circumstances. They are not the finance minister’s fault. But the update is so full of bad news that National is punting it will hang around Cullen’s neck through this campaign like the albatross around the neck of the Ancient Mariner.

    So expect plenty more nonsense about the economy from the ill informed or manipulative.

  24. Steve 25

    Akdnut: I wouldn’t say so much that the Nat’s have a policy of adopting measures introduced by the left, it’s more a case of saying whatever they need to, to whoever they are talking to (often contradicting due to differences in audiences) in order to get into office. Once in office though we know who they look after and it sure is not those on the lower rungs of the economic ladder

  25. Akdnut 26

    At the very least there will be a vote on labour going back on this law which the Nats will have a say.

    Whereas on a promise this dosn’ need to happen.

  26. Tim Ellis 27

    PB,

    That is an interesting debate. As I see it, the Right believes that governments should only tax what is required to pay for necessary expenditure. The Left believe that governments should raise as much tax as the public will accept, for redistribution.

    National believes that New Zealanders are paying too much tax. Labour doesn’t believe New Zealanders are paying too much tax. Whether you are actually committed to tax cuts is dependent on how you view the government’s tax take.

    randal, if you want to debate rationally then I’m happy to engage with you. But you’ll have to climb out of the sandpit first.

  27. Akdnut 28

    lol well put SP

  28. higherstandard 29

    r0b

    Correct r0b

    Much as the good economic times during the last many years were not due to the Labour government – the real test of economic competence for any government is how you deal with global downturns, inheriting an economy that’s in a state of collapse or dealing with a regional crisis.

  29. Tim Ellis 30

    Akdnut, that’s like saying National had a say on the ETS and the EFA. It is nonsense. If you are the Government then you have the majority of Parliament behind you. You can legislate for what you like. If the Government decides that the next round of tax cuts are unaffordable, they will simply legislate them out of existence, just as they legislated them into existence. It is not a complex step. Labour doesn’t have to consult with National to achieve it. They don’t have to have National’s permission.

    Vanilla, I understand your point, but Labour has had the opportunity for nine years to cut tax, with large fiscal surpluses. The one time they promised it, in 2005, they cancelled the promise after the election, saying it wasn’t a priority. We are now supposed to believe that the post-October tax cuts will be a priority for Labour, when the government books are in the position they are in, after Labour has said for the last year that National will have to borrow for tax cuts?

  30. Pascal's bookie 31

    haha, thanks Tim. Do you wonder why I call you a sophist? 😉

    I’ll reply tonight, when I’ve got enough time.

  31. randal 32

    why tax cuts? The tories have been bludgeoning the NZLP for three terms with an american invention that has no relevance. Everything is done on the cheap here and the all the boobies are continually crying out for more (cheap stuff) but they dont wazn to pay for it. If you want more money go somewhere else. Dont stay in New Zealand moaning and shilling for a right wing consp[iracy.

  32. Akdnut 33

    Tim I agree thats the reality of majority vote & MMP but under MMP if they minor parties in coalition are against it coupled with Nats votes there is a real chance of it not happening unlike going back on JUST A PROMISE

  33. Tim Ellis 34

    Akdnut, can we take from what you are saying that promises only have legitimacy if they are legislated for?

    Minor parties in MMP coalitions can’t vote against the government on confidence and supply. Minor parties simply can’t vote against the government’s budget. Legislation could easily be included in the next budget removing the tax cuts.

  34. Vanilla Eis 35

    Tim: Why on earth do you think they’ve had 9 years to cut tax? They campaigned in ’99 on a tax INCREASE. I don’t remember anything in ’02 about a tax cut from Labour – English made a lot of noise about them (much like now) and was crushed in the election. In ’05 they promised a grand total of about 70 cents a week, and were rightly ridiculed, so they cancelled those ones, which they were further ridiculed for.

    Again – They’ve promised twice, and cancelled once. That’s not a “history”.

  35. r0b 36

    Much as the good economic times during the last many years were not due to the Labour government

    Recalling, as you well know HS, that our economy has grown faster than relevant others during this time, and we have also been retiring acres of Muldoon era debt.

    the real test of economic competence for any government is how you deal with global downturns, inheriting an economy that’s in a state of collapse or dealing with a regional crisis.

    Well soon we will get to see how whomever is in government deals with that. But as usual it’s largely down to the preparation, and I refer you again to quotes from Treasury and the Governor of the Reserve Bank on how robustly our economy is positioned to weather the current international crisis. When we come out of the other side of this in reasonable shape (whomever is in government at the time) it will be largely due to Cullen’s careful management.

  36. r0b 37

    Again – They’ve promised twice, and cancelled once. That’s not a “history’.

    On the same criteria National has a history of voting against business tax cuts.

  37. lprent 38

    TE:

    As I see it, the fundamental difference on tax is that Labour doesn’t believe in tax cuts and is only offering them because National won the argument on tax and were forced into it, whereas National does believe that reducing tax in the long-term is an important economic tool.

    I’d agree that the left generally doesn’t believe that tax cuts do much for an economy like ours. At muldoon (where my nominal top rate was over 45%) levels it was worth while because it incentivised widespread avoidance. But at the current low rates of taxation, then the brackets should be moved to compensate for fiscal drag.

    But I have yet to see anyone prove to me that cutting tax in real terms further does ANYTHING for the economy as a whole. IMO: It is just a religious mantra chanted in unison by the right to justify feathering their pockets. I have yet to see any evidence of it going into investment in businesses in any country (business tax cuts often do, personal income ones usually don’t) – again that just seems to be an article of faith for some.

    What I have seen is that tax cuts will usually reduce the effective investment into required public infrastructure. This causes major economic problems further down the line when the economy hits those limits in skills, roads, comms, legal structures etc. But the right are definitely think short-term and prefer to have consumption now rather than ensuring everyone’s future. This probably arises because they have this remarkable ability to ignore the positive effect of those same investments by previous generations on their current circumstances. This usually expresses itself in the myth of the self-made man.

    You do a real tax cut (ie not just adjusting for drag) when you have the country at low levels of government debt, no upcoming major problems, and where you have funded your forward liabilities. We we have the first one done last year – for the first time in my working life. The latter two aren’t.

    Obviously there are going to be problems coming in from our trading partners for the next few years as well as cost increases in materials and borrowing. That is a major economic problem. We can stimulate the local economy for a time. However personal tax cuts are an incredibly imprecise way of doing that. It is far better to spend in appropiate areas of the economy, for instance getting our transport systems ready for higher energy costs.

    We have partially pre-funded the super hole. Partially done the investment in infrastructure that stopped dead in the 1970’s and only resumed recently. Partially brought our training systems to the point where they start training for the citizens we will need in 30 years. There is more to do.

    So tell me again – what is the expected benefit of personal tax-cuts now to NZ in 30 years? Some mythical and unproven productivity gains? Or investment in things we know will assist our economy?

  38. Daveski 39

    There is a clear difference between Tweedle Dee and Tweedle Dum.

    Labour has foregone tax cuts to increase govt expenditure, which is supported by all the graphs SP provides.

    National supports a smaller footprint for government and hence lower taxes. In this light, it is possible to have tax cuts in the current climate although clearly that will be at the cost of some governement spending.

    Cullen’s believed this with his almost petulant refusal to consider tax cuts until forced to and the way in which he withdrew the chewing gum taxes.

    It should also be noted that the intention of the envy tax (the 39% tax on the rich pricks) was to caputure just the top 5% of earners. Through stealth, this now captures closer to 20% of earners.

  39. Daveski 40

    Strangely (for me), I kind of agree with LP – we have a reasonable tax structure even allowing for the rich prick tax.

    Having said that, Labour is IMO being rightfully punished when it refused to adjust the thresholds given the favourable economic conditions we experienced.

  40. insider: upset about $6..

    Because that is then, and NOW is NOW.. hey taxcutters use scythes and no shilly shallying.. scything away even in the face of fiscal responsibility.. Looks to me like we truly have here a riiight aka labor-lite..

    upset..? try again..huh

  41. vto 42

    come on folks the left is correct. we are merely serfs of the state and our daily toil is actually theirs for taking and using. when will you learn?

  42. Bill 43

    The Labour tax cuts equate to precisely zero, nada, zilch $0 extra in pocket for people on a benefit.

    That is, no increase in net benefit now. No increase next time. And no increase the next time.

    How many people on a benefit are feeling really fucked off about now? What’s the deal? Let them eat cake?

    Where’s the fucking cheese!?

  43. rave 44

    The point of the Key tax cuts is to ensure that National gets elected so that it can use the taxes of the majority of middle income earners to pay for the massive nationalisation of the losses of the filthy rich entrepreneurs while they get their second wind and begin privatising everything again.

  44. Quoth the Raven 45

    come on folks the right is correct. we are merely serfs of the rich and our daily toil is actually theirs for taking and using. when will you learn? fixed it for you vto.

  45. vto 46

    ha ha qtr well done.

    But seriously, the appearance to me from watching especially Cullen these last 9 years is that his attitude is that people’s incomes are his and that he should decide how much is enough for people. He has made more than enough comments along thiese lines.

    The government comes first and the people second (which is obviously backwards).

    And, the government is rich and the people are poor (also backwards).

  46. ghostwhowalks 47

    So nationals extra $6 pw will amount to ( in their words) half a block of cheese???

  47. gobsmacked 48

    National are betting on the media being fixated on the headline figure (“it’s FIFTY! … er … minus a bit … eventually … and only including the cuts already locked in …), and not bothering with the detail on cuts to Kiwisaver etc.

    Unfortunately, they’re probably right.

  48. Strings 49

    I see you are predicting a total exodus of population over the next 80,000 years! Any logic behind this?

  49. Matthew Pilott 50

    GobSmacked – it’s $47, and yes that’s all the headline is.

    Top rate cut to 38%

    No employer credit for kiwisaver – but it can be negotiated out of your salary instead

    No R & D tax credit

    Remember all those idiot tories who said WfF is a welfare system? Turns out the nats liked making all NZ families beneficaries with WfF so much that they have decided to extend it to people without WfF – $10 credit to people who don’t qualify for any state assistance.

    I kinda want to find every comment that said WfF was a benefit now, and mock the bastards.

    No ideas whatsoever on helping the economy along, apart from tax cuts. Visionless, spinelss lot the lot of them.

  50. gobsmacked 51

    “Key presented the tax cuts as part of an economic recovery programme National has worked out to bring New Zealand through the international credit crisis.” (TVNZ)

    Sure. And me sitting here clicking a mouse is a calorie-burning fitness programme.

  51. Strings 52

    >
    >>That is, no increase in net benefit now. No increase next time. And no increase the next time. How many people on a benefit are feeling really fucked off about now? What’s the deal? Let them eat cake?
    >

    Let me see if I’ve got this right. Someone on a COL-indexed benefit, who therefore doesn’t pay any tax, is complaining that they are not getting additional benefit from a tax reduction! Wow!!!!!

    ISn’t the base point here a debate on what the function of Government is?

    In my view, government is like a master insurance that everyone has to join. It should provide the basic platform of our society, and no more. This means that a health system, an education system, a law and order system, a defense system and a ‘we won’t let you die of starvation’ system should be in place that we all pay for, irrespective of the extent to which we use it in any ‘premium year’. This means I don’t mind paying towards the education system today, even though my yojngest child is in their mid 20s and not gaining any benefit from it. I haven’t used a doctor or medical service this year, but I’m happy to pay my premium. Etc..

    ANything that doesn’t fit this ‘paying on a communal basis for the things we couldn’t afford for ourselves, but that we ALL need’ should be funded by those who wish to benefit from it, in my opinion. Hence, I want lower taxes and more personal choice. What’s wrong with that?

  52. Pascal's bookie 53

    “No ideas whatsoever on helping the economy along, apart from tax cuts. ”

    Matt, just believe.

  53. vto 54

    MP, WfF is a benefit. Funny how the top rate was put up to 39% because ‘they could afford it’ according to this govt, yet a mere few years later those same rich pricks could not, according to this govt, afford to adequately look after their families and needed govt assistance.

    ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha.

    p.s. one of those hector dolphins washed up on our beach last week. Don’t know what it died of – no obvious injuries.

  54. toms 55

    WOW! National’s big gun is Labour’s tax cuts plus a block of cheese!

    And they’ll gut Kiwisaver to pay for it all.

  55. Bill 56

    So labour put through ‘block of cheese’ tax cuts which (somehow) excludes those on a main benefit.

    And wff is obviously predicated on people being in work.

    With a recession/depression in the offing and treasury predicting unemployment to go to 5% (based on old data and probably optimistic given current global conditions), a hell of a lot of lower income people qualifying for wff are suddenly not going to qualify any more due to being unemployed.

    That would be bad enough for poverty rates, those parents and their children. But the oncoming situation has been exacerbated by the now increased disparity between those in work and out of work because the tax cuts do not lead to any increase on benefit levels.

    While most people might not care to notice at present due to high employment rates, the fact is that unemployment is about to increase. Odds are it will increase more in the low skill/wage sectors where a lot of borderline wff recipients are employed.

    And the drop they are heading for is that much steeper and deeper due to the slight of hand employed in the tax package. What’s Labour’s stand on childhood poverty and poverty in it’s more general sense again?

    Did anyone on this blog realise that increasing the lower threshold from 9.5k to 14k and dropping the tax rate from 15% to 12.5% on the threshold was going to further immiserate the poorest in society in comparative terms?

    Anybody in the know care to explain what the fuck?

  56. Matthew Pilott 57

    VTO, if WfF (which is getting your OWN tax back) is a benefit (as opposed to a real benefit, not an imaginary ‘I’m a National supporter and I’m struggling to make a point’ benefit, but one whereby you are given money that is not taken from your own taxes) then all National are doing is extending that so every middle-class New Zealander is a beneficary, not just those with families.

    Ambitious, huh?

    What is your problem with 39% and WfF lot ablation rate? I know you’re not thick, so I’ll assume you forgot to think about it, vto! Raise tax rate to 39%. Offer WfF for Families, so those with children can get assistance rasisng them. In a few cases (i.e. fewer than 100 families over $100,000 qualify, and the cost is bugger-all at that stage anyway) people will pay top tax rate and get WfF – this is so the ablation rate isn’t excessively punitive for those earning more.

    Would you rather it cut off at $60,000 but you only got an extra 2 cents for every dollar you earned between $30,000 and $60,000? That’s the only way to stop higher income earners getting it. So I gather you think that people should have no incentive to work harder. It’s like you’ve become what the dim right thinks the left is all about…

  57. Tim Ellis 58

    Remember all those idiot tories who said WfF is a welfare system? Turns out the nats liked making all NZ families beneficaries with WfF so much that they have decided to extend it to people without WfF – $10 credit to people who don’t qualify for any state assistance.

    That is an interesting feature, Matt. As I read it, the $10 tax credit to non-families effectively abolishes the preferential tax credit treatment of families (which is the definition of welfare), to provide universal cover to non-families as well.

    My view is that the big difference between National’s tax policy ($47 a week) and Labour’s tax policy ($?) per week is that National is committed to delivering lower taxes, and has a record of willingly reducing tax, whereas Labour has spent the last nine years rejecting the opportunity to lower taxes, reversed its commitment to cut tax in 2005, and can’t be trusted to deliver the next round of tax cuts after the election.

    National has credibility on cutting tax. Labour doesn’t.

  58. Matthew Pilott 59

    Bill, I’d start by checking whether a tax cut would affect those on beneficaries. I think you’ll find that it does, though I can’t think of a source to back that up off the top of my head.

    Have you actually checked that?

  59. Pascal's bookie 60

    National has credibility on cutting tax.

    So does George Bush.

  60. Tim Ellis 61

    Weak, PB. That’s like saying George Bush has committed troops to Iraq and so has Helen Clark. Not very relevant to the discussion, is it?

    [lprent: You know better than that.

    There is a hell of a difference between putting in troops for combat in a invasion and putting engineers (from the army) in to fix infrastructure at the behest of the UN. That has got to be the silliest comment I’ve seen you make.

    On the basis you’re using I’d have been invading Fiji in the 1970’s when I went there on exercise as a army medic. That Singapore is still under colonial rule because a number of nations keep troops stationed there (including us I think). That the troops we put into the Solomons were there to shoot locals.

    Perhaps you’d like to extend it to the police as well – the slow expansion of NZ law over the globe.]

  61. lprent 62

    Daveski:

    Labour is IMO being rightfully punished when it refused to adjust the thresholds given the favourable economic conditions we experienced.

    Yeah and the sooner we get some automatic or semi-automatic system in place to move tax thresholds the happier I’ll be. The idea of calling tax threshold movement largely to compensate for inflation a “taxcut” is stupid.

    On the other hand, the labour-led government has managed use that tax revenue wisely to:-

    1. drop our level of government debt down massively (mainly incurred by a national government and its inability to change with world economic changes).

    2. started doing the infrastructural investment that got stalled in the 1970’s (due to that debt, and because Muldoon didn’t like Auckland voting against him)

    3. started to fulfill its obligations to future generations with the Cullen fund and Kiwisaver (ie make National’s bloody silly “National Superannuation” more substainable).

    The governments (of the last three terms) use of those extra government revenues has been worth the cost. It means that we are no longer lunging from fiscal crisis to fiscal crisis in a grotesque boom and bust cycle. In fact we are probably one of the best placed world wide to weather the current global storm, despite having a wide-open economy. It was incredibly frustrating in the early 90’s watching the world economy booming and ours tanking because some morons on the right lost their economic marbles and played “the sky is falling”.

    Now the wide-boys of the right are going to do their usual mantra and screw the economy and the gains again. Well I suppose that the meaning of “conservative” is that they fail to learn from past mistakes.

  62. Matthew Pilott 63

    Tim, National voted against the business tax cut didn’t they? I’d say, if I was going to look it in such simplistic terms as ‘do they want to deliver tax cuts’, that National are no better than Labour. They weren’t all that keen on voting for the latest lot either.

    If you want to take a more insightful assessment, you’d look at what the parties want to do – National have said they are committed to delivering ongoing tax cuts, and given that there is only so much waste you can cut than National must be committed to selling state assets, and cutting and privatising what are currently public services such as health, education, defence, law and order, prisons, insurance, roads and other infrastructure and so on.

    Otherwise you can’t have ongoing tax cuts, and they are lying.

    Why the “?” for Labour’s cuts? There’s a handy tax cut calculator if you can’t figure it out…

    Labour is committed to maintaining a level of tax that allows for maningful public provision, while (under the current Finance Minister) has a keyensian outlook that allows for tax cuts in viable circumstances.

    I also think you’re going to lose credibility talking about it if you keep omitting the fact that Labour was voted in on a promise of raising taxes, and National received their worst ever result with a platform of tax cuts in 2002, and still couldn’t win in 2005 with the same.

    And yes, National are making bebeficaries a universal thing, unless you can realise (unlike vto et al) that WfF is not a benefit, but a credit.

  63. Bill 64

    Matthew.

    Yup, I checked and then double checked…first through WINZ then a ben advocacy centre. Main benefits are remaining static.

  64. Pascal's bookie 65

    Weak, PB. That’s like saying George Bush has committed troops to Iraq and so has Helen Clark. Not very relevant to the discussion, is it?

    No Tim. It’s not like that, that’s weak and changing the subject.

    Bush, like National has a record of cutting taxes. Because he ‘believes in them’.

    Other things that Bush has done are not relevant, I agree, but so what?

  65. gobsmacked 66

    Great line from the Dim-Post, and probably all too true:

    “I suspect that the National parties $10/week to middle income earners is there because when they did the numbers one last time at 3 AM this morning someone figured out that there’s a big ol’ demographic of voters that lose more on the Kiwisaver state and employee credit reductions than they make on the tax cuts.”

    Seriously, a ten dollar rebate, cash in hand? That’s so retro. Why not just stand on the street handing out the notes?

    I’d love to see the principled argument for this (as opposed to including it in a tax cut, which has a logic whether you agree with it or not). Anyone care to provide one?

  66. Tim Ellis 67

    If you want to take a more insightful assessment, you’d look at what the parties want to do – National have said they are committed to delivering ongoing tax cuts, and given that there is only so much waste you can cut than National must be committed to selling state assets, and cutting and privatising what are currently public services such as health, education, defence, law and order, prisons, insurance, roads and other infrastructure and so on.

    I disagree Matthew. The projections of fiscal deficits in the out years have some quite basic assumptions built into them, particularly around economic growth. Their accuracy becomes increasingly questionable the further down the line. A two percent rise in economic growth per year would see the deficit disappear very quickly, with large fiscal surpluses again.

    Long term economic growth is very difficult to forecast. In 1999 you would have been hard-pressed to find a commentator who would predict the degree of economic growth New Zealand has had in the last nine years. Surpluses rose to massive levels during this Labour government because of record international commodity prices and a stable international trading environment.

    We know what Labour has done from the proceeds of economic growth over the last decade: they have prioritised social spending over cutting tax. It is also reasonably safe to say that National’s record and present commitments demonstrate that when given the choice, they will lower tax rather than increase social spending.

    Otherwise you can’t have ongoing tax cuts, and they are lying.

    You most certainly can have ongoing tax cuts without increasing debt, and by maintaining social services spending, if there is increased growth in the economy.

    Why the “?’ for Labour’s cuts? There’s a handy tax cut calculator if you can’t figure it out

    Yes, and I should have referred to the calculator, but I was in a hurry to make my point and I was too lazy to look it up. It wasn’t intended to be derogatory, but I couldn’t remember off the top of my head what Labour’s proposed reduction was, didn’t want to put in an inaccurate figure, and don’t believe that Labour will deliver on it anyway.

  67. Tim Ellis 68

    Gobsomacked said:

    I’d love to see the principled argument for this (as opposed to including it in a tax cut, which has a logic whether you agree with it or not). Anyone care to provide one?

    Yes, it seems that this move is to mute the bias towards families that working for families has. It provides all working people on lower incomes a subsidy, rather than just those who choose to have children.

  68. Tim Ellis 69

    LP said:

    [lprent: You know better than that.

    There is a hell of a difference between putting in troops for combat in a invasion and putting engineers (from the army) in to fix infrastructure at the behest of the UN. That has got to be the silliest comment I’ve seen you make. […]

    For goodness sakes, LP. Have a sense of irony. I was responding to PB’s invalid and pointless comparison with another invalid and pointless comparison.

    [lprent: Remember that I’m reading the comments backwards when I’m in ‘moderation’ mode – so probably didn’t see pascals. I noticed yours because as an ex-soldier I notice most comments about the military.]

  69. randal 70

    well how about this. better to have a big block of cheese now than maybe, just maybe two blocks of cheeze in 2011. John “the big cheeze” Keys is turning out to be a bit of a wag, hohohohoho

  70. Pascal's bookie 71

    At least you could tell me why it’s invalid Tim. Bush believes in Tax cuts, just like National. That’s why he delivered them.

    Never mind other things Bush has done. I’m interested in this tax cut belief business.

  71. Tim Ellis 72

    PB, for the simple reason that Bush instituted large tax cuts in tandem with uncontrolled spending. The US federal budget has been in deficit for all but 4 of the last 40 years.

    National inherited many years of budget deficits and increasing government debt in 1990. They dramatically reduced public debt during their time in office–so much so that Helen Clark criticised National for reducing debt so quickly. While reducing debt, they managed to lower tax. They demonstrated that with prudent fiscal management, you can reduce debt and lower taxes, if you make them a priority, even at a time of modest economic growth.

    This Labour government has reduced debt, and increased social spending, at a time of strong economic growth. Those have been Labour’s priorities. Cutting tax hasn’t been a priority.

    National is now saying that its priorities will be cutting tax, keeping debt at a stable level, and reducing tax. It is probable that National won’t increase social spending at the same rate that Labour has over the last nine years. The much more valid comparison is with Australia, which has maintained similar fiscal priorities over the last decade.

    If economic growth improves, it is likely that National will lower debt and reduce taxes further.

    All I have said is that cutting tax hasn’t been a fiscal priority for this Labour Government over the last nine years, and there aren’t any signs of any real enthusiasm for making it a priority. That’s what makes me believe that when it comes to the crunch, and the options are on the table, National will choose to lower tax while Labour will choose not to do so.

  72. Pascal's bookie 73

    Tim, thanks.

    You’re right about US deficits over the last 40 years. What surpluses they ran were by governments that didn’t ‘believe in tax cuts’.

    National in the 90’s slashed social spending and deepened recessions so much that NZ missed out on what other nations called the Clinton Boom.

    More later.

  73. Matthew Pilott 74

    You most certainly can have ongoing tax cuts without increasing debt, and by maintaining social services spending, if there is increased growth in the economy.

    Well those tax cuts would account for inflation, for sure, but growth has and always will be cyclical – cutting taxes to spend part of a surplus will result in a deficit eventually.

    Look, what I said in my previous para wasn’t meant to be contoversial in any way. National believes in tax cuts, and that is because they’d like to sell all assets and privatise everything they could. Less government, personal choice – that’s what those fancy lines really mean. If you don’t agree, then you’re supporting the wrong party or know less about them that I.

    …Labour…have prioritised social spending over cutting tax.

    That’s if you ignore reducing debt to very low levels (which is looking better and better in hindsight), WfF which was, in reality, a targeted tax cut and kiwisaver.

    I do agree with you in general about cutting tax – National is more likely to do so, and do so no matter what the cost. At present, National is more likely to plough ahead and cut tax because it is popular, but a very very bad idea. Labour would be more likely to have the guts to do what’s right (sorry, Rodney) and pull the pin.

    Given National’s 9-year plan to reduce the debate down to the level of “Do you want more money?” as opposed to presenting a rationale behind tax cuts, we’re unlikely to see Labour back down either, unfortunately.

  74. Pascal's bookie 75

    And FTR, observations are either true or false. Only arguments can be invalid. You assumed I was making some argument that I was not making. You castigate others for doing that.

    I merely made an observation that made you uncomfortable, that you havn’t yet denied the truth of.

    Namely, that Bush cut taxes because he believes in tax cuts.

  75. higherstandard 76

    PB

    An interesting article on the Clinton boom.

    http://www.iht.com/articles/2000/02/18/think.2.t_2.php

    “Of course such assertions — like so many in economics — can be influenced by politics. People to the right of center are more likely to date the expansion to Mr. Reagan’s time and attribute it to his policies. Those on the left are most reluctant to accept that.”

    Sounds vaguely familiar somehow.

  76. Tim Ellis 77

    Matthew said:

    Given National’s 9-year plan to reduce the debate down to the level of “Do you want more money?’ as opposed to presenting a rationale behind tax cuts, we’re unlikely to see Labour back down either, unfortunately.

    Oh, come on MP. Labour aren’t victims here, any more than National are the victims of the Labour Party spending many years shrieking about social service cuts, or as you’ve done here, claim that National is hell-bent on selling state assets.

    National also reduced debt by very significant degrees during the 1990s, which also appears to have been a very good idea in hindsight. National managed to do this during only modest economic growth, and with the Asian economic crisis. Labour hasn’t had to face any tough economic policy choices until now.

    I think it is fair to say that there is reasonable public consensus on some broad economic issues: long-term, high public debt is undesirable; the state should maintain its core public services; the state should own its existing core state assets.

    At the margins of these assumptions are whether existing social services should be extended or remain constant; whether short-term debt increases should be extended to fund necessary infrastructure and/or smooth fiscal conditions over the medium term; and whether tax reductions are a priority ahead of extending social services.

    In my view it really is only at those margins that National and Labour are having the debate. As much as both political parties like to demonise each other to score political capital, they aren’t challenging the underlying assumptions about the mix of social services provided by the State.

  77. r0b 78

    In my view it really is only at those margins that National and Labour are having the debate.

    Largely true, but the devil is in the details. Labour’s tax cuts favour low earners, National’s favour high earners. Labour’s employment policies are better for workers, National’s for employers. These differences in emphasis have a huge impact on the lives of the majority of ordinary working people.

  78. Pascal's bookie 79

    Well it’s interesting that Tim is now downplaying the differences between N and L. The difference I am interested in is the one that I heard English talking about yesterday, and that others have mentioned and alluded to here. This ‘believing in tax cuts’ thing.

    I apologise if this sounds like the dreaded semantics, but semantics is simply the study of meaning, and I’m still interested in why people choose to phrase tax policy this way.

    I’m going to quote Tim here a lot so all the quotes are from him.

    Here’s what grabbed my interest, because I also heard the phrasing from English, which makes me think it’s not accidental, but is actually conveying some semantic content:

    As I see it, the fundamental difference on tax is that Labour doesn’t believe in tax cuts and is only offering them because National won the argument on tax and were forced into it, whereas National does believe that reducing tax in the long-term is an important economic tool.

    So there’s the phrase, interestingly tax cuts here are also correctly described as a tool, but tax raising is not. We are not told to what end this tool should be put.
    So I asked what ‘believing in tax cuts’ means, and he replied thus:

    That is an interesting debate. As I see it, the Right believes that governments should only tax what is required to pay for necessary expenditure. The Left believe that governments should raise as much tax as the public will accept, for redistribution.

    National believes that New Zealanders are paying too much tax. Labour doesn’t believe New Zealanders are paying too much tax. Whether you are actually committed to tax cuts is dependent on how you view the government’s tax take.

    I was glad he found it interesting, but disappointed by the lack of any explanation. Tim’s explanation of the right’s position is meaningless. Both Ghengis Kahn and the Dalai Lama could claim to be opposed to unnecessary violence. What matters is ‘what do they mean by necessary’.

    His description of the left is just as silly. Cullen has cut business tax, and has paid back mountains of debt. What is interesting though, is that it gives us an idea about what is meant by unnecessary spending in terms of his statement about the right.

    Something that he develops further, when talking about the 90’s National government:

    They demonstrated that with prudent fiscal management, you can reduce debt and lower taxes, if you make them a priority, even at a time of modest economic growth.

    No one could be opposed to prudent fiscal management of course. But he doesn’t say what that meant in context of that government. Prudence is slashing social spending and selling assets. That was how they able to afford tax cuts and pay off debt. It is fairly uncontroversial that this prudence caused real hardship, and slowed economic growth by removing spending power from the most vulnerable, live week to week. There were also health costs associated with overcrowding that directly stemmed form market rents. This is the meaning hidden behind the unnecessary spending phrase. That useless redistribution that was so prudently cut.

    So what have we learned about what ‘believing in tax cuts’ means?

    All I have said is that cutting tax hasn’t been a fiscal priority for this Labour Government over the last nine years, and there aren’t any signs of any real enthusiasm for making it a priority. That’s what makes me believe that when it comes to the crunch, and the options are on the table, National will choose to lower tax while Labour will choose not to do so.

    Again this is empty. ‘Believing in tax cuts’ just means ‘will cut tax because they prioritise it’. Ok. Tax cuts are a goal, an end of fiscal policy. Understood.

    Tax cuts are a tool of fiscal management. Not an outcome of it. Treating ‘cuts’ as a belief, rules out raising taxes as a tool of fiscal policy. This is exactly the philosophy of the modern GOP, which is why their government books are in such a crappy state. By ‘believing in tax cuts’ they have forced themselves to put two wars on the credit card, along with the current bailouts. There were even a bunch of House Goppers whose response to the crisis was to call for Capital Gains Tax Cuts. It’s a dangerous piece of rhetoric. As friedman was os fond of saying, Ideas matter. Which is why I brought up Bush. They ‘believe in tax cuts’.

    Given that Key has ruled out 90’s style ‘prudence’, his belief in tax cuts as a goal of fiscal policy means I simply don’t believe him about deficit blowouts. Today’s grandstanding included.

  79. You just don’t geddit PB – you gotta believe! or it just ain’t right…

  80. Pascal's bookie 81

    Sorry about the messed up formatting, the second TE quote should only be 2 para’s’

  81. Pascal's bookie 82

    Drop kick me Supply side jeebus, through the Laffer curve of life.

  82. Bill 83

    Merely FYI Matthew.

    UB, DPB, IB and SB are all taxed. However…

    “If you get a benefit other than New Zealand Superannuation or Veteran’s Pension, and you don’t have dependent children, the amount you get paid (the net amount) doesn’t change on 1 October.”

    http://www.workandincome.govt.nz/about-work-and-income/news/2008/october-2008-changes.html

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