web analytics

Who says tax swap boosts growth?

Written By: - Date published: 11:35 am, May 17th, 2010 - 33 comments
Categories: Economy, housing, spin, tax - Tags: ,

Brent Edwards is a damn good journo but even he’s fallen into the trap of not seeing the ubiquitous spin on tax for what it is. Three aspects of his piece this morning were repetitions of spin:

When you cut income tax, of course those who pay the most tax get the biggest cuts

What rot. If you put in a 0% percent tax bracket (nearly) everyone would get the same cut in dollars. If you cut each bracket by the same amount, everyone would get the same percentage cut. But the Nats aren’t doing that. They’re saving the biggest cut for the top tax bracket – that can only benefit the rich. That’s not an inevitability, that’s the Nats paying off their class.

Landlords will bear the cost of higher tax on housing investment

No. They will pass as much as they can on to renters. In technical terms, the landlords may pay the tax but the incidence of tax is on the renters – mostly low income working families.

Tax cuts are expected to boost growth

Who says that? The Tax Working Group never said that tax reform would increase growth. Here the TWG has expected economic effects of its proposed changes (1B is closest to the actual changes we expect).No mention of higher growth. Higher inequality? Yes. Higher growth? No. Remember, the TWG wasn’t tasked with working out how to create a tax system that would grow the economy faster, it was tasked with working out how to pay for aligning the top tax rates at a low level.

Meanwhile, the Herald’s editorial comes from a depressingly predictable rich person’s viewpoint. The title is enough of a give away:

It may hurt but decisive Budget vital

‘It might hurt you, but it’s for your own good’. Let’s be clear. Working Kiwis, especially the renting poor, will hurt and so will property investors to some extent. But the rich are going to make off like thieves. We’re talking thousands of dollars a week for the richest New Zealanders, money that hasn’t come from higher growth or even from less spending but from increasing the tax on someone else.

The Herald then makes this ridiculous assertion:

Ideally, the top rate would be aligned with company tax at 30 per cent to remove further opportunities for avoidance.

Why should that be a priority? What good what that do? It would make taxation slightly more administratively simpler but would it do anything to make this a more prosperous, more equal society? No, it owuld make inequality rose. The money would go to the rich elite and would have to be funded by more tax on working Kiwis or cuts to the public services they use.

33 comments on “Who says tax swap boosts growth? ”

  1. Bored 1

    Sounds to me more like fornicating flies fighting over the dung hill. Theres an assumption that the dunghill must grow, but hey the animal has eaten all the grass, done its bit and moved on, so thats all there is. And for the purpose of the fetid feast the heap as it sits is all that matters. The dunghill is not for the benefit of the small flies in this case, its for the fat flies who are merely concerned with eating what they can, and bugger the skinny flies. And the little flies might starve and perish whilst the fat flies wander off looking for their next meal. Perhaps some pesticide is in order for the out of control fat flies.

  2. Clarke 2

    You missed that other great tax-cut myth … that a lower top tax rate will create jobs. The mythology around this one should be easy to test – we only have to check the “before and after” employment numbers for Telecom once Paul Reynolds gets his income tax cut.

    • Craig Glen Eden 2.1

      Exactly Clarke, how the hell does reducing the top personal tax bracket result in businesses employing more employees, how does that improve productivity, this is all right wing crap for let me have more of the money!

  3. tc 3

    Bend over middle and lower NZ…..here comes another shafting by Sideshow’s mob with accompanying music to be served up by the msm to the tune of ‘ be grateful for having us as rulers you heathens’.

    The rich are doing it so tough aren’t they ? they simply don’t give an F for any other part of society.

  4. RedLogix 4

    Spot on Marty.

    It is vital not to forget that NZ has the second lowest tax wedge in the OECD, bar Mexico. The idea that we are somehow on the ‘negative’ side of the Laffer curve, and reducing taxes even further will increase total productivity has to be utterly risible.

    If low taxes were the route to national prosperity we would already be one of the wealthiest nations on Earth.

  5. It’s just a redistribution of the tax burden off the rich and onto the poor.
    Good for National’s wealthiest mates, but not the country or the economy.
    Plain and simple.

  6. Kevin Welsh 6

    So, what happens when Australia bring their company tax rate down to 28.5%? Will NZ follow suit? Does that then mean the top personal tax rate will then need to be aligned to the new company rate?

  7. Santi 7

    I had enough of subsidising lowlives and no-hopers. I work hard and prefer to keep my money instead of paying higher taxes destined to prop losers.

    If you believe taxes are low, why don’t you pay more? Follow your own advice and donate 70% or more of your income, but don’t ask the rest to do the same.

    • Bright Red 7.1

      “Follow your own advice and donate 70% or more of your income,” If you’re a low income worker coming of a benefit, your effective tax rate is at least 82.5% and can be over 100%.

      “I had enough of subsidising lowlives and no-hopers. I work hard and prefer to keep my money instead of paying higher taxes destined to prop losers.” Who would have thought – Santi is a Randian. Oh, please don’t shrug ,mighty Atlas, what would we do without you to carry us?

      • Lanthanide 7.1.1

        BR, can you show the maths that allows a rate over 100%?

        Several authors here have stated that this is a right-wing myth, and have been unable to find a set of circumstances where such a rate would materialise.

        • Bright Red 7.1.1.1

          Someone showed once how it worked. I can’t remember exactly. It involved student loan repayments and Working for Families abatement on top of benefit abatement and income tax. Arguably, student loan repayments shouldn’t count because they have to be made some time.

          • Lanthanide 7.1.1.1.1

            I remember I provided an example with student loan repayments, however my example was still short of being over 100%.

            • Zorr 7.1.1.1.1.1

              It is easy enough using a simple situation of a married couple (without a child in this case) where there is a single main income earnt by the person with a student loan:

              For them the cut out point on the UB is a grand total of $543.00 gross meaning that at the point they are no longer eligible their annual income is $28236.00.

              Using base rates with no ACC earners levy (though I would assume most people would pay this):
              $0 – $4160 bracket tax rate is 12.5%
              $4160 – $14000 bracket tax rate is 82.5%
              $14000 – $19084 bracket tax rate is 91.0%
              $19084 – $28236 bracket tax rate is 101.0%

              That is just the simplest example I can think of because I am one of those people who have ended up in this sucky situation. I still look at it positively because I am working my way out of the unemployment trap but it is still depressing some days.

    • Clarke 7.2

      I think it’s interesting that when push comes to shove, the Righties like Santi just blurt out what they actually think – it’s about greed, not economic growth, not jobs, but solely about having more money in your back pocket at the expense of anyone else in the country.

      He would therefore appear to be agreeing with Marty’s main point ….

    • fatty 7.3

      “I had enough of subsidising lowlives and no-hopers. I work hard and prefer to keep my money instead of paying higher taxes destined to prop losers.”

      Actually the “lowlives and no-hopers” are the ones propping you up.
      Through capitalism, the rich get rich from the hard work and low pay of the majority, not from hard work themselves.
      Or do you think all NZ’s can be rich, with no one poor?
      Come on Santi, this isn’t Homer Simpson’s fantasy land

  8. Fisiani 8

    The biggest inequality is that 10% of taxpayers effectively pay 70% of tax. This has to be fixed.
    Bring on a fairer tax system on Thursday.

    • Bored 8.1

      Yes, me too. So to fix this we will slash the rich 10%s incomes and redistribute to the rest of us and then we can all pay “our share” in an even handed way.

    • Bright Red 8.2

      The biggest inequality is that the wealthest 10% have more wealth than the remaining 90% and the bottom third have no net wealth at all.

      The progressive tax system and the public services it funds go some small way to redressing the inequalties at the heart of capitalism.

      Ultimately, that is for capitalism’s own good. progressive tax and public services = a pittance for buying off the revolution.

      captcha: truths

      • Indiana 8.2.1

        Is it possible to reach a state of nil inequality? I mean has that ever existed?

        • Bright Red 8.2.1.1

          Irrelevant.

          We have a highly inequal economy. There are societies that are wealthier, healthier, better educated, less crime-ridden, and happier than us and thay have got there by being more equal – Sweden, Norway, Finland etc.

        • Clarke 8.2.1.2

          The stats and the analysis around inequality come from The Equality Trust in the UK, who have conducted the most thorough research in the field. The takeaway message: the more unequal a society is, the worse the economic, health and life expectancy outcomes. They use NZ as an example of a highly unequal society that’s doing badly as a result.

  9. tc 9

    “This has to be fixed.Bring on a fairer tax system on Thursday…” Yeah Right……which alternate reality have you been living in ? That’d take intelligence and bollocks to broaden the base with a CGT and other measures, which this mob have already dismissed.

  10. aj 10

    What redlogix said at 12:42

    [lprent: You mean comment 4 ? I put those nice numbers on the right of the comment specifically for this type of reference.. ]

    • Lanthanide 10.1

      I think the visibility of the comment numbers could be improved a bit. For the first generation numbers, it looks like it is bold or perhaps a slightly larger font, anyway it is very visible. But for the child numbers it appears to be a paler grey. If you could make the child numbers the same shade as the first gen numbers, that’d be good.

  11. aj 11

    Ref comment 10

    Ahhhhhh. I see 🙂

    captcha: ‘inform’

  12. Nemesis 12

    It’s an economic fact that if you lower marginal income tax, the disincentives to work will decrease. It’s also an economic fact that if you increase consumption tax, people will be less likely to spend, and more likely to save and invest. Sadly marty doesn’t care about economic facts.

    • Bright Red 12.1

      Um. Marty writes that he supports higher GST if the revenue is used to lower tax on low income Kiwis, which would encourage them to work more.

      The problem is that the Government is using the money to give big tax cuts to the rich, and there’s no evidence that encrouages the wealthy to work more. They’re already wealthy why would give them more wealth for no extra effort encourage them to work more?

      No evidence has been presented that this tax swap will boost growth, just that it will worsen inequality

    • Lanthanide 12.2

      Unless you’re only (significantly) dropping the marginal tax rate in a bracket that most people never see. Which is exactly what National are doing.

      Sure, in the right-wing utopia, everyone can earn a $100k+ salary, but in the real world, there will always be people at the bottom doing low-paid jobs, and cutting the top marginal tax rate in no way provides them with increased incentive to work, because obviously from their current position they’d be perfectly happy earning $70k at 38% tax. Dropping that to 33% tax does not suddenly make them want to “work harder” because this change does not, and never would affect them directly (they will get all the indirect “benefits” like slashed social spending as a consolation prize, though).

  13. graham 13

    Why dont we just set a maximum wage in this country say 30k
    if you earn more than that you have to give it all away to the state
    If tax cuts are bad then a maximum wage limit has to be the answer

    • RedLogix 13.1

      I think you need to read this. Although you’ve kind of hit on the idea from one extreme end of it…the answer is yes there probably is an optimum total tax take.

      Obviously 100% tax is too much or no-one would have much incentive to do much more than provide subsistence level food and shelter.

      And obviously 0% tax is too little or the country would be such a dysfunctional hell-hole as no-one be able to do much more than provide subsistence level food and shelter.

      Somewhere in between is a civilised optimum. Most people thinks its somewhere in the 35-45% range. This puts NZ at around 20% uncomfortably close to the ‘dysfunctional hell-hole’ end of the spectrum.

Links to post

Recent Comments

Recent Posts

  • Worsening housing crisis must prompt action
    A growing public housing waiting list and continued increase of house prices must be urgently addressed by Government, Green Party Co-leader Marama Davidson said today. ...
    11 hours ago
  • Twenty highlights of 2020
    As we welcome in the new year, our focus is on continuing to keep New Zealanders safe and moving forward with our economic recovery. There’s a lot to get on with, but before we say a final goodbye to 2020, here’s a quick look back at some of the milestones ...
    3 weeks ago

  • Jobs for Nature funding will create training and employment opportunities
    A major investment to tackle wilding pines in Mt Richmond will create jobs and help protect the area’s unique ecosystems, Biosecurity Minister Damien O’Connor says. The Mt Richmond Forest Park has unique ecosystems developed on mineral-rich geology, including taonga plant species found nowhere else in the country. “These special plant ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • Pre-departure testing extended to all passengers to New Zealand
    To further protect New Zealand from COVID-19, the Government is extending pre-departure testing to all passengers to New Zealand except from Australia, Antarctica and most Pacific Islands, COVID-19 Response Minister Chris Hipkins said today. “The change will come into force for all flights arriving in New Zealand after 11:59pm (NZT) on Monday ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Bay Cadets learn skills to protect environment
    Bay Conservation Cadets launched with first intake Supported with $3.5 million grant Part of $1.245b Jobs for Nature programme to accelerate recover from Covid Cadets will learn skills to protect and enhance environment Environment Minister David Parker today welcomed the first intake of cadets at the launch of the Bay ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Cook Islanders to resume travel to New Zealand
    The Prime Minister of New Zealand Jacinda Ardern and the Prime Minister of the Cook Islands Mark Brown have announced passengers from the Cook Islands can resume quarantine-free travel into New Zealand from 21 January, enabling access to essential services such as health. “Following confirmation of the Cook Islands’ COVID ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Supporting communities and landowners to grow employment opportunities
    Jobs for Nature funding is being made available to conservation groups and landowners to employ staff and contractors in a move aimed at boosting local biodiversity-focused projects, Conservation Minister Kiritapu Allan has announced. It is estimated some 400-plus jobs will be created with employment opportunities in ecology, restoration, trapping, ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Border exception for some returning international tertiary students
    The Government has approved an exception class for 1000 international tertiary students, degree level and above, who began their study in New Zealand but were caught offshore when border restrictions began. The exception will allow students to return to New Zealand in stages from April 2021. “Our top priority continues ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Tiwai deal gives time for managed transition
    Today’s deal between Meridian and Rio Tinto for the Tiwai smelter to remain open another four years provides time for a managed transition for Southland. “The deal provides welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • New member for APEC Business Advisory Council
    Prime Minister Jacinda Ardern has appointed Anna Curzon to the APEC Business Advisory Council (ABAC). The leader of each APEC economy appoints three private sector representatives to ABAC. ABAC provides advice to leaders annually on business priorities. “ABAC helps ensure that APEC’s work programme is informed by business community perspectives ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Govt’s careful economic management recognised
    The Government’s prudent fiscal management and strong policy programme in the face of the COVID-19 global pandemic have been acknowledged by the credit rating agency Fitch. Fitch has today affirmed New Zealand’s local currency rating at AA+ with a stable outlook and foreign currency rating at AA with a positive ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Additional actions to keep COVID-19 out of NZ
    The Government is putting in place a suite of additional actions to protect New Zealand from COVID-19, including new emerging variants, COVID-19 Response Minister Chris Hipkins said today. “Given the high rates of infection in many countries and evidence of the global spread of more transmissible variants, it’s clear that ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • 19 projects will clean up and protect waterways
    $36 million of Government funding alongside councils and others for 19 projects Investment will clean up and protect waterways and create local jobs Boots on the ground expected in Q2 of 2021 Funding part of the Jobs for Nature policy package A package of 19 projects will help clean up ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New Zealand Government acknowledges 175th anniversary of Battle of Ruapekapeka
    The commemoration of the 175th anniversary of the Battle of Ruapekapeka represents an opportunity for all New Zealanders to reflect on the role these conflicts have had in creating our modern nation, says Associate Minister for Arts, Culture and Heritage Kiri Allan. “The Battle at Te Ruapekapeka Pā, which took ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Better care for babies with tongue-tie
    Babies born with tongue-tie will be assessed and treated consistently under new guidelines released by the Ministry of Health, Associate Minister of Health Dr Ayesha Verrall announced today. Around 5% to 10% of babies are born with a tongue-tie, or ankyloglossia, in New Zealand each year. At least half can ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Prisoner disorder event at Waikeria Prison over
    The prisoner disorder event at Waikeria Prison is over, with all remaining prisoners now safely and securely detained, Corrections Minister Kelvin Davis says. The majority of those involved in the event are members of the Mongols and Comancheros. Five of the men are deportees from Australia, with three subject to ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Pre-departure COVID-19 test for travellers from the UK and the US from 15 January
    Travellers from the United Kingdom or the United States bound for New Zealand will be required to get a negative test result for COVID-19 before departing, and work is underway to extend the requirement to other long haul flights to New Zealand, COVID-19 Response Minister Chris Hipkins confirmed today. “The new PCR test requirement, foreshadowed last ...
    BeehiveBy beehive.govt.nz
    3 weeks ago