Surplus Forecasts
December 29th, 2004 at 9:29 pm by David FarrarJordan’s latest defence of the indefensible, namely the suggestion there is no money for tax cuts, is to say that the $6.5 billion surpluses we have had the last two years will not last, as the forecasts for future surpluses is lower, at around 3% of GDP.
Luckily when DEFU came out earlier this month, I was bored and went back through the last 12 forecasts to see how actual surpluses measure against forecasts. And as I suspected Treasury is very conservative and systematically forecasts surpluses much lower than reality. Taking just the last five years.
00/01 in the 2000 budget forecast was a $1.012B surplus. Ended up $2.107B
01/02 in the 2001 budget forecast was a $1.376B surplus. Ended up $2.751B
02/03 in the 2002 budget forecast was a $2.228B surplus. Ended up $5.580B
03/04 in the 2003 budget forecast was a $3.761B surplus. Ended up $6.629B
04/05 in the 2004 budget forecast was a $5.671B surplus. DEFU has it already at $6.467B and final outcome over DEFU is normally an extra $1.5B so may make $8B.
The forecasts for the next four years are $6.2B, $5.3B, $4.9B and $5.4B. Not at all small surpluses, and this takes account of all of Labour’s bribes. Now in the last four years the actual surpluses compared to budget have been at 208%. 200%, 244% and 176% so one could well have surpluses into the region of $8B to $10B.
Of course until Dr Cullen announces otherwise, we will still have these Chicken Little warnings of doom if we should actually give taxpayers any of their own money back.
No tag for this post.
December 30th, 2004 at 5:42 am
Labour has tax cuts in the pipeline. have you been in Bulls for the last 6 months and havent heard about it. Let me , if i may bring you up to speed. Families on incomes of between $25000 to $45000 will be better off by $95 pw by 2007. 61% of all families with dependent children will on average be $66 pw better off. These amounts will decrease up to the $70,000 level.
Vote:Perhaps Cullen might speed these tax cuts up so that the max will be reached by 2006, with even more available BEFORE THE NEXT ELECTION (09/2005).
I knew you would be pleased with all this wonderful news. Whats this I hear,you arent getting any, since you dont have dependant children. Boo Hoo.
December 30th, 2004 at 7:05 am
Sorry I am such a nasty bugger, but it comes so naturally.
Vote:December 30th, 2004 at 7:33 am
labours $66pw tax cuts is great news
Vote:December 30th, 2004 at 7:38 am
They are not tax cuts they are welfare handouts that because they are related to income involve very high marginal rates of tax. It will provide a disincentive to get richer and keep people frightened and dependant on welfare.
Vote:December 30th, 2004 at 7:47 am
Once again Ztev you prove that you are only half the facts make it OK to espouse a theory. Is the actual percentage of PAYE going down? How do you access this miracle money? If you don’t recall,You need to front up to a WINZ office (which some people have complete disdain for) estimate your yearly earnings (ooops can’t do that overtime as I’m going to overshoot my ceiling income for the year- sorry boss you’ll just have to tell the customer we can’t do your job) and if you have the temerity to go ahead and get a promotion you will be stung for penalties.
Vote:A fairer simpler and more cost effective measure would have simply been to allow people to keep more of what the worked for, in their own pay packets.
December 30th, 2004 at 8:03 am
Labours tax cuts must have caused a few jaws to drop in the national caucus, just like the last time when Jim Bolger announced that Winston was to be economic panjandrum, I bet a few false teeth fell into whiskey glasses then. There must have been some who were tired and confused and mixed up the glasses. That would explain why some havent been able to put two words together since.
Vote:In a nice twist of irony Cullen is to be made attorney general while staying as finance minister( how does he find the time), when national rewarded St Ruth by offering her the same job but changing the locks at treasury/inland revenue so she couldnt work more of her economic magic
December 30th, 2004 at 9:33 am
I am such a genius and witty fellow, I think I will go boil my head.
Vote:December 30th, 2004 at 9:48 am
So ZTEV, having children is the key to getting tax cuts – that’s a very selfish reason to bring a child into the world. But then, Cullen is very selfish – he changed his vote from Goff to Clark in 1996 when she promised him deputy leader and finance. (She won by one vote.)
Vote:December 30th, 2004 at 10:56 am
One problem I can see in this debate is the differing perceptions about what tax cuts are. The Right sees them as a reduction in tax and therefore reckons they should go “back” to those that pay them. This they perceive as being fair and just.
The Left approaches things from the other side. They seem to see tax cuts as another form of welfare payment, a government benefit, a gift to the people, and therefore reckon they should go to the people who need them the most, regardless of how much they actually paid. This they see as being fair and just.
The Right takes into consideration things that are directly affected or influenced by tax cuts, ie tax payers, government spending. The Left sees fit to take into consideration a whole pile of other stuff, ie social justice/equity, crime, health and anything else really if it will help them form an argument.
The Right argues the point in a specific way, the Left needs to bring in a wide variety of dubious arguments, that bear little relation to the central issue, in order to form a, not insubstantial, counterpoint. This is to force the opposition to argue on many fronts, as well as to trick them into arguing against some basic human right. By introducing this extra material the Left feels it is presenting a substantial counter argument. But, in fact, they are skirting around and refuse to confront the central point. The reason for this seems to be the Lefts refusal to acknowledge anything that benefits the rich in anyway, as fair and just.
The Left are and will always be propogators of the “Class Warfare” myth. As such, anything that is good for the rich, MUST be bad for the poor. The resulting cognitive disonance, when presented with as simple a point as “It is fair that those who pay more, and use less, should benefit from any tax cut”, forces a bizarre contortion of argument that reveals their true, ethically bankrupt, duplicitous nature.
Vote:December 30th, 2004 at 12:17 pm
As others have pointed out they are not tax cuts, but indeed a massive transfer of tax from those who pay it to those who have kids.
And even with Labour’s handouts, there is still plenty of money available for actual reductions in tax, as oppossed to redistributions.
Vote:December 30th, 2004 at 12:43 pm
It seems to me that this is related to a core objective, namely how to broadly increase the standard of living of the population.
One side says cut taxs, relying on the market to distribute that income.
The other side says target people by need, either in tax breaks or benefits.
The problem I see in targeting is that you just cannot think up all the tricks to exploit targeting, or indeed unintended consequences.
So, I think you are best to create a welfare system that directly supports those in genuine need, anything more is social engineering & that is plain tricky & easy to stuff up.
Then you cut taxs as you can afford too, but in a way which encourages those on low-mid incomes to increase income ( those on high incomes benefit fully from any tax cut ).
Anyway, just my thoughts & I really hope the govt does this right & does not go for buying votes.
Vote:December 30th, 2004 at 2:34 pm
I think people who use the term “unintended consequences” should get a refund on their psychobabble school fees.
Vote:December 30th, 2004 at 2:44 pm
If (eg) we changed income tax rates to 0% on the first $10000, 20% from $10001 to $40,000, 30% from $40,001 to $60,000, 40% from $60,001 to $100,000 and 50% above $100,000 then that would represent real tax cuts for most New Zealanders but increases for those earning more than $120,630. It would be a highly left-wing readjustment (and not one I advocate) but it would still be a genuine tax cut.
For the same reason increases to Family Support are, in most cases, tax cuts. The payments are administered by IRD (for employed taxpayers) and WINZ has nothing to do with the process. If a family is dependent on a benefit (eg unemployment) then family support is administered by WINZ and arguably might be considered welfare rather than tax cuts but on the other hand, what real difference is there between changes to positive or negative transfers.
There is a tendency on the right to focus on the top nominal income tax rate but that does not mean that only cuts in the top rate can be called tax cuts. National appears to have discovered the plight of families on very high (> 90%) effective tax rates in the post-working for families environment and I would have thought they would acknowledge the priority of this group over people who are paying only 39%.
The big payoff from Dr Cullen’s frugality is that it is now feasible to make serious reforms to the whole benefit and tax system in NZ so that the blatant anomalies identified by Don Brash are removed permanently. I discuss a scenario for doing just this in the posting “Tax and Welfare – a Window of opportunity” in my blog (greyshade.blogspot.com). I propose replacing the entire array of means-tested benefits with a Universal Basic Income regine and a standard (=top) rate of income tax unchanged from the current 39%. Should the (FY 2008) surplus blow out as you predict that rate could be reduced to 36%.
Vote:December 30th, 2004 at 3:20 pm
David – your figures are interesting. Do you think Treasury will overshoot on the upside when/if the economy slows down, by as much as they have overshot on the downside as economic growth has taken off (under Labour)?
I’ve already said, and I repeat it here, that there is space for more spending or lower taxes. The thing I think you are missing is that most New Zealanders prefer the former.
Vote:December 30th, 2004 at 4:06 pm
On what basis do we know that the majority of kiwis want more spending, last time I checked there hasn’t been a referendum or even a decent and reliable poll taken. If your going off election results I would suggest that not everyone votes solely on which party has the most tax cuts or highest spending.
Vote:December 30th, 2004 at 4:07 pm
The zpawn of the union of Ztev and Xena has finally made it blinking onto daylight, after being stuck to the underside of someones jandal for nine months. How amusing that like oscar wilde he has a fully formed sense of parody, but only having one orifice mistakes his own farts for genius. Who knows one day he too may be a ztar in some minor firmament but for now like zpot the dog he follows obediently behind zniffing any available bollocks
Vote:December 30th, 2004 at 6:42 pm
Ztev, stop drooling – could we please stick to the topic on hand?
David’s point, and Jordan’s tacit admission that tax cuts are possible is the matter for discussion. But regardless of whether one is politically pre-disposed to tax cuts or govt spending of surpluses, it remains a fact that Labour promised that it’s 39c income tax rate was to only affect the top 5%. It no longer does this. It now affects 9%, or more. There is no reason why Labour could not extend the highest bracket out to a % that is equal to the top 5% of earners, not break is promise yet also claim to lower taxes.
What would be even better of course is a tax cut for all workers – attack the bottom rate (or bracket), then the mid-rate, then company tax and the top rate.
Vote:December 31st, 2004 at 12:06 am
Aaron – if you go back and look at what was written at the time, you’ll find Labour never promised no more than 5% of people would *ever* be affected by the 39c rate. It was a snapshot calculation at the time, and at the time it was correct.
The fact that incomes have grown and more people are paying more tax as a result is a good thing, not a bad thing.
Vote:December 31st, 2004 at 7:23 am
Jordan, do you have any links or empirical evidence to that effect?
Of course the fact that incomes are growing is a good thing – but taking more tax than is necessary, in my opinion, is not. This money could be invested by the people who earned it for the things that matter to them – education, a new home, improving their business. A rapacious government harms incentives to work harder and creates barriers to more investment.
Vote:December 31st, 2004 at 11:45 am
The govt needs to tax to pay for things, it is that simple. If they dont have anything they need to spend it on, they shouldnt hold onto it or keep claiming the excess. Does anyone disagree?
Does anyone reckon that the Government has a right to take as much tax as they please? Where would it stop? When would it be enough?
Here’s a damned good story I found to explain tax cuts. Sorry, it is quite large but still a worthy read.
TAX CUTS
Let’s put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
* The first four men (the poorest) would pay nothing.
* The fifth would pay $1.
* The sixth would pay $3.
* The seventh $7.
* The eighth $12.
* The ninth $18.
* The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.”
So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.
So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his ‘fair share’?
The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being ‘PAID’ to eat their meal.
So, the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
* The fifth man, like the first four, now paid nothing (100% savings).
* The sixth now paid $2 instead of $3 (33% savings).
* The seventh now paid $5 instead of $7 (28% savings).
* The eighth now paid $9 instead of $12 (25% savings).
* The ninth now paid $14 instead of $18 (22% savings).
* The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man “but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than me!”
“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all.. The system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Europe and the Caribbean.
(Attributed to David R. Kamerschen, Ph.D., Distinguished Professor of Economics, 536 Brooks Hall, University of Georgia)
Vote:December 31st, 2004 at 7:36 pm
The problem, kimble, with the distinguished professor’s example is that it does not reflect real distributions of income or taxation.
If you care to do some real analysis rather than an amusing, albeit utterly false, story you will quickly discover that the gini coefficient in the United States (around 45, iirc) is amazing steep and the taxation system is a lot flatter.
This is nothing to say of the marginal utility gained by putting $10 per week in the pocket of a person on $100 pw and taking $10 per week out of the pocket of a person earning $1000pw.
Vote:January 1st, 2005 at 2:27 pm
Thanks for that Kimble. It is a nice analogy of how taxation works, and Yes Lev, it does refer to the US rates more directly than to NZ rates, but the principle is what matters here. Overtax the wealth creators and they simply leave. Since Labour introduced it’s envy tax increase at least 19 friends earning high 5- 6 figure incomes have left NZ. Most of them have stated that it is not worth their while to come back to NZ as they would have to take income cuts, on top of a punitive taxation rate.
Vote:What Labour will never tell the populace is the number of jobs created by the likes of Watson, et al since they have relocated to more wealth friendly environs; jobs that had those people not been shepherded out would have been created in NZ for all of our benefits (by growing the pie instead of trying to cut the thing more evenly).
January 1st, 2005 at 10:31 pm
Jackal ,my wife and I will come home in 6 weeks.We have been in the top 2% income earners in the past, Ipersonally paid tax on 180K,in 99,let alone the GST,and PAYE.Painfull but worth the effort to build the best damn country in the world.If you do not like it fuck of to Taiwan where they have a “proper ” laisez faire” economy.And a fucked environment.Or pay up and shut the fuck up ya winger.
Vote:January 1st, 2005 at 10:42 pm
Ps.Is Baxter the tory tragic “Ross”" ,who happily fell into line behind piggy in the 80′s when he put my tax rate up to 66%.I bet he is .He should look in the mirror and say “HYPOCRITE”.Crikey that piggy was a self proclaimed genius when most of you toe -rag’s were young Nat’s.
Vote:January 1st, 2005 at 11:04 pm
Jackal,what did these people do.List please.FOREX?please,they did us a Favour.I doubt they actually produce any thing hence ,good riddance ,you just do not get it do you drones with shiny arses.Oxygen waster’s too a man and a waste of space.
Vote:January 2nd, 2005 at 8:44 am
You know, both Red Fred and Jackal are partially correct.
The “wealth producers” in any country are those who engage in productive physical and mental labour and those who invest in capital equipment.
The people who reduce wealth in a country (but increase their personal wealth) are those who speculate by monopolising resource holdings. Economists refer to the practise of “rent-seeking” – attempting to derive an income without adding to productivity.
In a nutshell? Reduce income tax. Reduce company tax. Increase land tax.
This is the point of view of almost every major economist in the world, which seems to be equally matched by the lack of political will on the matter.
Vote:January 3rd, 2005 at 7:43 pm
If you dont like it you can GITART! Red Fred you’re an abusive twat. And Jackal, I didnt realise you were a winger. Which province did you play for?
Vote: