SST on Productivity Growth
March 31st, 2008 at 10:50 am by David FarrarIt is good to see the SST editorial on the issue of productivity growth. You see this very obscure statistic is in fact the key to closing or slowing the gap with Australia. You can’t do it by just increasing wages, unless there is also an increase in productivity. Some useful extracts from the SST:
So this might be a time to ask whether all that sunshine has blinded us to certain fundamental problems in our economy. The major one being productivity, an ugly word but a concept of crucial importance. Only by increasing our productivity will we become wealthier. Only by increasing it dramatically will we rise from the bottom half of the OECD to the top half. …
It is, in a way, an index of smartness: it reflects innovation in technology and work practices and better ways of doing things. The fact that the growth rate in this area has fallen under Labour is a serious worry.
Is it fair to argue, then, as Roger Kerr does, that it shows Labour’s aspiration for a knowledge economy has been all talk?
Not necessarily, but it certainly shows that the knowledge economy has been much slower to arrive than hoped and it is noticeable that Labour’s promise to push us up the OECD stakes is less often heard nowadays. …
What we need is a serious national debate about our fundamental economic strategy, a campaign to find the Kiwi way to greater productivity. The good times perhaps allowed us to ignore this vital issue. The coming bad times will force us to face it.
So what are the facts behind productivity growth. Stats NZ has been measuring it since 1978. So let us have a look at it over the March years 78 – 84, 84 – 91, 91 – 00, 00 – 07.
Labour Productivity Growth
- All – 2.0%
- Muldoon – 1.6%
- Douglas/Caygill – 2.7%
- Richardson/Birch/English – 2.6%
- Cullen – 1.1%
Labour productivity is simply measuring the ratio of output to labour input. In the last March year output growth was 1.4% and labour input growth 0.9% so the difference is the productivity growth of 0.5%.
As one can see the record under Dr Cullen for the last seven years is a miniscule 1.1%. Half the average since 1978, and even less than the final years of Muldoon. Only around 40% of the previous 15 years.
The really scary thing is Cullen’s record is getting worse. His first three years averaged 1.5%. For three of the last four years labour productivity growth has been just 0.5%, averaging 0.9%.
Capital Productivity Growth
- 78 – 07: -0.7%
- 78 – 84: -1.0%
- 84 – 91: -3.5%
- 91 – 00: 1.5%
- 00 – 07: -0.5%
Capital productivity is similar but measuring output to capital input. Muldoon had negative growth due to Think Big. The worse period was Mar 84 – Mar 01, when capital inputs grew massively, but little growth in outputs.
The 1990s managed the only growth period – 1.5%, and since 2000 that has reversed back to negative capital productivity growth.
Multifactor Productivity Growth
- 78 – 07: 0.9%
- 78 – 84: 0.6%
- 84 – 91: 0.3%
- 91 – 00: 2.1%
- 00 – 07: 0.4%
Multifactor productivity is basically total productivity growth, excluding labour and capital productivity. It tends to reflect changes in technology, processes, knowledge.
Again a very good growth period in the 1990s, and since 2000 it has fallen to just one quarter of what it was. This suggests the knowledge economy rhetoric
This graph shows labour productivity growth since 1978. You will note nothing over 25% since 2000. I’ve also added a trend line on a three year rolling average in black – again the decline is significant.
We need to do better, if we want to keep people in New Zealand.
Tags: Productivity Growth
March 31st, 2008 at 10:27 am
Watch the usual suspects whine over this one. Are you using mean or median figures?
Vote:March 31st, 2008 at 10:29 am
Also in the SST:
BOB JONES, 68, property developer, Wellington
Everybody would be better off if we had a Roger Douglas-style 15% flat tax. Everyone would be richer, and everyone would be happier. It works. We’ve seen it in Slovakia they were in desperate straits, banged in a flat tax and the place is jumping. The lower the taxes, the richer the society and the more the government gets. I’d love to see that.
http://actoncampus.blogspot.com/
Vote:March 31st, 2008 at 10:38 am
But the Socialists just continue to tinker with their failed Robin Hood taking from the rich and giving to the poor Only in their case the rich get richer the poor get poorer and those in the middle join the poor
the Soicialists have yet toi figure how the bake a bigger cake. Rather their solution is too carve up a smaller cake into even smaller slices.
Socialists are all economic pygmies
Vote:March 31st, 2008 at 10:58 am
Has anyone ever successfully argued with a Labour supporter that flat tax could work? I’ve tried with some of my friends and they just don’t understand. I either have to accept that it’s genetic failing or a deeply instilled one. Rich people must be punished apparently. Unless it’s Helen Clark, the Queen, J.K. Rowling or Peter Jackson.
Vote:March 31st, 2008 at 11:00 am
Good analysis, good to see even the SST waking up to this, BUT, here is the problem in a nutshell:
Archtypical Liarbour voter: “Wot’s productivity?”
Vote:March 31st, 2008 at 11:08 am
Is a flat tax fair? That is a very difficult question to answer. What I would like to see is all our tax coming through income tax. I.e. no tax or levies on anything else. That would add much needed transparency to our tax system. Are there any problems with the idea?
Vote:March 31st, 2008 at 11:16 am
“Is a flat tax fair? That is a very difficult question to answer.”
No it’s not, it’s a very simple question to answer.
There is no such thing as fair.
Vote:March 31st, 2008 at 11:24 am
Way before Roger Douglas came up with his profound idea, social Credit/Democrats had been advocating a flat tax for years. Was Poo Poo’d by Muldoon (and others) as somme sort of scary senario. So not new to Roger Douglas or Act
Vote:March 31st, 2008 at 11:34 am
RossK, you need to think about the huge amount of tax revenue sourced from GST. In many ways GST is the fairest tax … if I want to eat fillet steak I’m going to pay more tax than someone buying blade steak. Also it’s a tax on spending not earning, which to my mind creates healthy financial incentives. And it’s bloody hard to get out of … there’s little or no avoidance.
But, in line with your suggestion, I’ve long thought there’s merit in having a 0% company tax. By all means tax distributions from companies, so their profits get taxed when they’re distributed as dividends (and interest too, to avoid skinny capitalisation problems). But I argue for a 0% company tax on the grounds that:
* The total tax take from company tax is relatively small, we wouldn’t be forgoing a large amount of revenue,
* You’d remove a massive amount of compliance costs, both within companies and within Govt (IRD),
* You’d remove a massive amount of avoidance costs, and I have no problem with making tax lawyers redundant,
* You’d probably attract a number of companies to New Zealand (if it was done right), and
* It creates an incentive for companies to reinvest their profits rather than to distribute them – driving productivity growth
Without having seen/done any modelling on this I suspect that the resulting economic growth (leading to employment growth, productivity growth etc etc) would give the economy a fair bigger lift than the loss of Crown revenues.
Vote:March 31st, 2008 at 11:55 am
Surely the ultimate aim would be to get rid of income based taxes – especially the New Zealand system with some derisory level of income that’s tax free. Taxes should be based largely on what you buy ie. mostly GST – this would have the big advantage of extracting more money from visitors to the country.
Vote:Zero income tax up to $25000 – (minimum wage rate) then a flat rate after that would be a good start.
March 31st, 2008 at 12:00 pm
virtualmark
A great idea but you will never get Socialists or even some Nats to agree Reason They are stuck in a mind set that says success must be punished and lazyness must be rewarded.
Reason The successful will keep on keeping on So its a cynical expolitation of good human behaviour just as rewarding the lazy is an expolitation of bad human behaviour.
Excuses Excuses Excuses trotted out to defend the indefensible Socialist gumints HAVE to keep a large number poor to justify their Robin Hood policies.
The last thing these pollies want is an outbreak of affulence Good Grief This would destroy their reason for being.Thats why they promote WWF to keep more and more enslaved to them fiscally.
These poor slaves are shit scared to vote against them lest their financial life line is removed.
Thats why Cullen doesnt want tax cuts He loses the fiscal hold the little bastard has over them
WFF is nothing more than slavery dressed up in a pretty skirt
Vote:March 31st, 2008 at 12:10 pm
So it’s simply a matter of reducing company tax even more then? Why are people implying that income tax is relevant for a company’s productivity growth in terms of increasing the worth of a product? By all accounts we don’t produce especially high value products and we send these products OVERSEAS rather than selling much to Kiwis, so how will this help? This is a genuine question, please don’t negative karma me, I couldn’t take it.
Vote:March 31st, 2008 at 12:15 pm
If I was playing with taxes I would:
– introduce a carbon tax
– leave the top tax rate alone
– cut the company tax to 25% (this tax is only paid by foreign owners anyway)
– increase the tax free threshold such that the surplus was only 1% – which should put it up around 30,000 or so
– smooth the benefit abatement rate so that moving from a benefit into work didn’t have an effective tax rate of 60% or so
– as we increase the tax free threshold, get rid of WFF for those people (can’t have a tax credit if you don’t pay tax)
If we move the threshold up far enough, we get to a flat tax rate (I’m pretty sure the normal flat taxers actually say ‘flat tax rate with a zero tax threshold’) which is different from a flat tax rate – it’s actually two tax rates (0% and 30% or whatever). Doing it this way is very hard to argue with – we’re just giving tax cuts to the poor. Eventually you get there.
Vote:March 31st, 2008 at 12:16 pm
Not sure if this is on topic or not, but I think the reason you hear a lot of retaliatory comments from “the socialists”, whenever the need for productivity to reflect a pay rise is mentioned – particularly by anyone visibly on the right – is that a lot of little people see “The Dairy” and “The Service Station” (and pretty much everyone else the basic worker has to pay for goods and services) raising their prices for the same goods quite drastically in the last year, which looks quite a lot like “a pay rise not linked to productivity” to them.
Hence an inference that it seems to be only “the poor workers” who have to up their productivity before they deserve a pay rise, as everyone else appears to be taking a step upwards while producing just the same old thing…
(Now, before the usual tirade of abuse starts, let me just say that I do not necessarily subscribe to this kind of thinking. But the above logic has been put to me more than once, so there you have it…)
Vote:March 31st, 2008 at 12:21 pm
Productivity is a somewhat general catch-all title for what is a very complex and poorly understood aspect of economics. But even if you’re talking about ‘aggregate’ effects it still boils down to a lack of sufficient individual incentives to generate more income or build more wealth.
Why bother if it just means pushing further into the stratosphere of rich prick status on the income side or not getting R&D writeoffs or finding that an overnight decision by some history lecturer has just screwed a chunk of your retirement investment for political gain. The response is going to be “why bother”.
Worse – people will simply turn into being a rentier. They’ll rely, for some of their income, on whatever savings (especially property investment) that they’ve built up and then move, in increasing numbers, into the great government cash cow as employees or members of some so-called ‘private sector’ firm or other that feeds off the government teat. Life’s easier – if more boring but actually better paid than many private-sector jobs nowadays.
When I look at NZ I see virtually everything pushing against productivity improvements:
1 A lack of venture capital due to a warped capital gains tax regime and potentially small market returns because of the size of the country and the challenge of reaching out overseas, even in this Webified and globalised age.
2 A sharemarket that people don’t trust, both because of the insider knowledge nature of a small country and the ever-present threat of a Peters or Cullen or Muldoon arising to appeal to populist stupidity with arbitary rule changes that fuck over any built up wealth.
3 An overall tax regime that is driven not by actual needs but by a simple belief that ever increasing government spending is good and that to pay for it there is always plenty more money available from taxpayers.
4 The corresponding attitude of taxpayers that gaming the system will be their focus, with all the dead weight of accounting and lawyer work to enable that. Take a look at Gareth Morgan’s stats on the huge increase in the number of people reporting $60,000 per year as their annual income!
5 People who decide to simply scale back their earnings, not just in reaction to feeling that they’ve long passed the “from each according to his ability” threshold, but also because they’re comfortable with what they’ve got.
Then there are the societal attitudes:
- That people who get rich are scumbags who did it at the expense of the poor, so why encourage them further. One can see how that attitude feeds the idea of a government generating ever more regulations and red tape – all for the common good of course.
- That ‘gummint should do something about it’ – whatever ‘it’ may be.
- The oft-noted characteristic of NZ business people: once they get a starter company or concept to a decent size they sell the idea or even the whole shebang to some overseas outfit, take the money and plonk themselves down in some beach-side pool to enjoy the rest of their lives in hedonistic joy. Some may have made the money overseas and then bought it back to enjoy it.
The societal attitudes may have always existed in NZ culture but they are now feeding upon the first factors so it is not a good look and it will require across the board changes in more than just tax rates – though that would be a good start.
I don’t think that a New Zealand that combines significant populations of actual retirees with ever increasing medical and care costs, people who’ve returned with their foreign piles of cash to enter psuedo-retirement and live outside the income tax world, and young people desperate to make their way in the world but stymied by their tax and cost burdens, is going to be a successful, happy society.
Vote:March 31st, 2008 at 12:30 pm
dude your correspondant peter dude in first answer above has boiled down some part of the issue .. and that is a flat tax low will make NZ prosper
Vote:NZ TAX RATE 15%
tax rules previous rescinded,
We call hope to be catch up with Slovenia like you say but it a fact farrar and you got to realise that ACT is dead Douglas is even older,
yous people what want progress farrar have to come across now to the fact that if we circulate the money in NZ we increase wealth if you send yous money oversea it gone farrar, it not NZ wealth
we best keep it in the family farrar
March 31st, 2008 at 12:34 pm
Tom, add to your list:
– an education system that isn’t good enough to help people become productive – it isn’t teaching the skills we need
– a savings regime (particularly retirement savings) that doesn’t create a massive long-term savings – KiwiSaver is a start, but what we need is more like the Australian system
RRM, if your contention (that you don’t agree with) was right, then it would be inflation, not a pay rise. And when we talk about pay rises requiring productivity growth, we are talking about pay rises in real terms – after inflation. I think there is general acceptance that most people in the country should get at least an inflation adjustment every year, anything beyond that has to come from higher productivity, or from redistributing wealth within the economy.
Vote:March 31st, 2008 at 12:40 pm
PaulL … good post. I kind of agree, if I was King-for-a-day and could redesign the tax system I’d be aiming for:
* A flat income tax, with something like a 25% rate, applying to all income (salary, interest, dividends etc)
* No changes to GST
* Zero company tax (no compliance costs, no f*(king around with worries about depreciation, amortisation etc etc)
* New taxes introduced on bad externalities, like a carbon tax, but also potentially rubbish/waste taxation (if it could be done with low compliance costs)
* A GMFI/”tax free” allowance that, as you suggest, is set to give a small surplus to the Govt accounts (I think this’d probably result in a raise for all beneficiaries)
It’ll never happen. Too many blinkered “social justice” advocates who just don’t get the big picture.
Vote:March 31st, 2008 at 12:46 pm
And now I’m wondering why I have negative karma points….I’m hoping someone pushed the wrong button, cause I can’t see what was offensive about my comment.
Vote:March 31st, 2008 at 12:50 pm
NZ is not interested in being competitive. Most of the Kiwis like the socialist motherland. Aspirations are non-existent. Political leaders go for the me too approach. NZ will be just another Pacific island and that’s it. We’re too late for a change.
Vote:March 31st, 2008 at 1:41 pm
Great stuff DPF. This was exactly the point I was (trying) to make to Philu a couple of days ago. Naturally he was in denial.
It is easy to understand why things have gone so awry under Cullenomics. First, the massive increase in non productive jobs in the state service, added to by the communist approach of paying everyone the same amount regardless of whether they have earned it (referring of course to the stupid WFF package).
They say “the seeds of destruction of every organisation are sown in its foundation.” It’s easy to see the inevitable long term problems we will suffer (unless Key does something more radical than just being Labour lite) when you consider the fundamental weaknesses in our economies foundation.
Vote:March 31st, 2008 at 1:42 pm
The latest poll results in the herald might give some food for thought to the Nats. Being a me too is not necessarily going to hold them in good stead going forward AND John Key seriously has to get his shit together. Every time he gets asked a question now I cringe – he is seriously starting to get a case of the “Brash” wobbles.
Vote:March 31st, 2008 at 2:17 pm
How on earth does a post about productivity get waylaid by the flat tax nutters?
Why would slashing tax rates (and inevitably social services) make any difference to productivity in NZ, when the fundamental problem is that NZ has a third-world low-value export profile, lots of small firms that cannot afford capital investment, and business leaders that would “would like to see wages drop” rather than increase to a point where investing in labour-saving capital is worth doing.
Aussie businesses have been forced to invest in their technology and machinery because wages have been kept high. Net result- their productivity has increased, their economy has grown faster than ours.
The govt needs to dramatically increase minimum wages and conditions and increase the incentives for employers to pay more- despite the crying about a skills shortage, employers are slow at offering competitive wages with Australia and investing in new technologies that would bridge the gap.
Vote:March 31st, 2008 at 2:28 pm
PeterQ – no matter how fast you push the velocity of money in a closed system, which is what ‘keeping it in the family’ really implies, you cannot increase wealth unless your ‘family’ has every single ingredient needed for its sustenance.
NZ doesn’t. We must trade or fade.
Vote:March 31st, 2008 at 2:40 pm
uk_kiwi: Why would slashing tax rates (and inevitably social services) make any difference to productivity in NZ, when the fundamental problem is that NZ has a third-world low-value export profile, lots of small firms that cannot afford capital investment, and business leaders that would “would like to see wages drop” rather than increase to a point where investing in labour-saving capital is worth doing.
That is a rather simplistic, myopic view, isn’t it?
Flat taxes would open the way to foreign business opening and operating here. Think of an example where IBM, Oracle or other major software development houses can place their Asia Pacific headquarters here, paying a flat tax rate of 15%. It is the type of work that can easily be “exported” cheaply and with our fabulous life-style here and abundance of clean, green environments it is ideal for employees as well. The main goal (From my perspective) is to stimulate foreign investment in “office” productivity style companies without endangering our international image through industrial / production type of capabilities.
Simply forcing employers to pay higher wages – well – why should they? You can force them to pay employees more and force them to invest in more productive measures, but what then? I propose that they’ll look at it, much like who was it … Fisher and Paykal … have done and say “Fuckit, we’re moving overseas”. What does your wage / salary earner do when the company that employed him no longer exists in New Zealand because of legislation?
Secondly, how do you propose to have small companies grow if you keep them at higher tax rates and if you increase the cost of them employing people through this “relatively” complex taxation system?
Vote:March 31st, 2008 at 2:42 pm
“Virtualmark”, good posting, I think that going to zero company tax would be the single best shot in the arm we could give the economy, capital investment, and productivity. Company tax is probably the single most glaring example of electoral ignorance leading to destructive policy. As you point out, profits can be reinvested OR distributed as dividends. To tax profits PRIOR to reinvestment, is a tax on growth and productivity, pure and simple. The electoral demand for “the wealthy” to be made to pay their share is an irrelevance when you are talking about taxing reinvested profit in contrast to DISTRIBUTED profit. Socialists can set the tax on DIVIDENDS as high as they like without it having anywhere NEAR as much negative influence on economic outcomes as taxes on the profits themselves have.
Vote:March 31st, 2008 at 2:43 pm
UK-Kiwi, so flat tax is for nutters eh? Are you a tax lawyer? They would be unemployed if we adopted flat tax
Since, like me you are in the UK, how about you go meet some Czechs or Slovaks and tell them flat tax is a nutty idea. The ones I know are thrilled about it. Obviously you see money going to politicians is more important than ordinary citizens having to choice to do whatever they like with their income.
Whos the nutter now?
Vote:March 31st, 2008 at 2:43 pm
I noticed a marked productivity increase with my children when they were paid by the piece rather than a lump sum for the job for stacking wood. They ran to get wood from the pile to stack it. Took half the time and there was a remarkable lack of whining about sore hands and legs. Did double my costs though. Not sure what the lesson is there.
Vote:March 31st, 2008 at 2:55 pm
“The govt needs to dramatically increase minimum wages and conditions and increase the incentives for employers to pay more”
Vote:Why do people keep repeating this mantra over and over? Especially from someone saying that advocates of flat tax are “nutters”. Forcing the minimum wage up is inflationary, your new minimum wage will soon be eaten up by the increase in costs of petrol and food. After all, these evil businesses that deliver food to your supermarket and the evil supermarkets themselves, they all pay people. So if they pay more, the food you buy costs more. What we need is for our businesses to become more productive, so we have more money to pay for things. Dis-incentivising making money makes a country poor and that is where we’re heading. Flat tax has been shown to make countries more productive, I hope that wasn’t too crazy for you. Not entirely sure we’re you’ve found the correlation between flat tax and “inevitable social service” cuts, I’d be very interested in seeing the stats here. Or is it that you can’t understand that if a country becomes more productive, even if you tax “rich people” less, the country can still have a bigger tax intake? Nutters.
March 31st, 2008 at 3:01 pm
@VirutalMark: Is there any published theory behind 0% company tax? I’ve never heard it suggested before and would like to reserve my judgement on the idea till I’ve read more. It certainly sounds like it has merit.
Vote:March 31st, 2008 at 3:11 pm
uk_kiwi,
you are being simplistic. Setting up a system that rewards hard work (eg, flat tax therefore no extra penalties regardless of how much you work) encourages productivity.
This is illustrated by the fact that more than 20 european jurisdictions now use a flat tax as a proven instrument of sound fiscal policy to stimulate high levels of economic growth. Leading the flat tax charge is the island Jersey which introduced a flat tax of 20 percent in 1940. Hong Kong followed with 16 percent in 1947 and Guernsey with 20 percent in 1960. In 1994, the former communist country of Estonia was next to introduce a flat tax, followed by Latvia in 1995 and Lithuania in 1996. These three Baltic nations are now growing so fast they have become known as the “Baltic Tigers”. This year the Czech Republic will introduce a flat tax of 15 percent and Bulgaria a flat tax of 10 percent.
NZ is rapidly falling behind these countries. As one economist put it a short time ago we are “sleep walking to the poor house.”
Vote:March 31st, 2008 at 3:13 pm
“so flat tax is for nutters eh? ”
Yes. And those dumb enough to get caught up in the spin. We have already basically done this in NZ, our tax code is all of one volume! Growth barely moved.
Flat tax is a misnomer, the concept is that by eliminating the higher tax brackets, somehow everyone will be much richer and the economy will magically grow. Only problem is that government revenue will be destroyed; leaving the poor to be hit with user-pays and cuts to social services; and the loopholes that are supposed to be removed are usually there for a reason and are left alone. Effectively you just give a massive tax cut to the richest earners, while disadvantageing everyone else.
Many of the former soviet countries you mention are now part of the EU, the main driver of their growth. The growth has been from very low levels of economic activity so it’s not hard to post great figures.
“Flat tax has been shown to make countries more productive, I hope that wasn’t too crazy for you. Not entirely sure we’re you’ve found the correlation between flat tax and “inevitable social service” cuts, I’d be very interested in seeing the stats here. Or is it that you can’t understand that if a country becomes more productive, even if you tax “rich people” more, the country can still have a bigger tax intake?”
As explained above, a flat tax is basically lowering taxes for the wealthy, with the inevitable cut in government revenue. If that’s what you support, fine, but why dress it up in propaganda for the masses? It’s dishonest.
Vote:March 31st, 2008 at 3:31 pm
uk_kiwi. Crap. You believe that productivity increases when you pay people more. We believe that you can afford to pay people more when productivity increases. What comes first etc etc.
The thing is, if you find a way to increase productivity, you will definitely end up with higher wages. If you increase wages, there is no guarantee at all of increased productivity. You are much more likely to end up driving companies offshore (worst case) or driving up inflation (more likely). Inflation impacts the very poorest the most, so a policy of pushing up wages, which is then all consumed by inflation, is counter productive. Interestingly, with a flat tax rate inflation wouldn’t hurt so much. Without a flat tax, inflation leads the the govt share of the economy growing (bracket creep) at the expense of the workers.
In short, pushing up wages without productivity growth will either just be consumed by inflation (minus a bit that the government gets), or, if somehow magically absorbed by employers, is just another form of redistribution. Pushing up productivity growth will always lead to wage growth, and that wage growth will be without inflationary impacts.
How do we push up productivity? Well, we could look at NZ’s history to see when productivity growth was high and when it was low. Like DPF has just done. Guess which policies lead to higher productivity growth?
Vote:March 31st, 2008 at 3:31 pm
uk_kiwi:
you’re clearly devoid of any knowledge of microeconomic behaviour and the power of incentives.
additionally giving a “tax cut” to “the richest earners” (when in actual fact this is a total restructuring of the tax system that changes incentives and thus individual behaviour) disadvantages nobody. you’re and envy-based socialist.
-edited overuse of “clearly”
Vote:March 31st, 2008 at 3:40 pm
uk_kiwi … can you explain to me just how a flat tax would destroy government revenue and hit the poor with user-pays and cuts to social services????
Shurely those concerns are more related to just what rate you strike the flat tax at, and what level of income you allow to be tax free.
Methinks the only flat tax nutter here is you.
Vote:March 31st, 2008 at 3:57 pm
uk_kiwi … I have some sympathy for your comments that “The govt needs to dramatically increase minimum wages and conditions and increase the incentives for employers to pay more- despite the crying about a skills shortage, employers are slow at offering competitive wages with Australia and investing in new technologies that would bridge the gap.”
However, I think you’ll find the way economics work that:
* The Government can’t really dramatically increase minimum wages and conditions. Sure, they can legislate the minimum wage be raised to, say, $40,000 per annum. But just watch employers shed staff like crazy and migrate as many jobs as possible to low-cost countries offshore. And just watch inflation go through the roof. And interest rates spike to never before seen numbers as the Reserve Bank strangles the economy to keep inflation even within cooee of its target bands.
* Employers can’t raise wages overnight to be competitive with Australia because if they did they’d all go out of business. They can only raise wages to Australian levels if they could also raise revenues to Australian levels. Hey, I’d love to see our economy as vibrant and strong as Australia’s but that ain’t going to happen overnight – and arguably it’s never ever going to happen with Labour & the Green’s economic policies.
Your post suggests you don’t understand the interconnectedness of modern day economies. Stuff doesn’t happen because of Government edict and fiat. It happens because rational people make rational choices about their personal wealth.
Vote:March 31st, 2008 at 4:48 pm
Repeated this before but here goes I learnt about the stupidity of so called progressive taxes in the UK mid 70s with rates of up to 85% earned and 98% unearned No one paid these rates I was paid to find schemes to legally avoid them and did so.
Very easy as the more Gumints try and plug the gaps the more new gaps open up
Dead weight cost and the burden falls on wage and salary earners the Gumints so called ‘people’ who cant aviod the taxes.
Low flat rate tax means the rich dont bother the avoid them As everyone has a pain thresehold so they also have a tax thresehold.
Mine is 20% so I dont and have never paid more than a flat 20% of my gross regardless of the gross.
But thats unfair as others cant do this. So you bleating dumbarse Socialists cause the very people you profess to support to pay more tax that they need to.
Its called the Green eyed Monster Anyone who earns a dollar more than you is a rick prick who deserves to pay twice the tax you do.
Come on admit it Dont be shy.You know thats how you really feel.
Gumints need to be made to be more efficent The pollies need the jack boot up their arses on an ongoing basis to keep reminding them that they are wastrels and spendthrifts.
The needy ( genuine ones not the lazys) who are earning get a tax credit to give them a decent income.
What we need is the missing link Common sense. Cut the crapola. High tax rates make Soicalists feel good about themselves Punishing the rich pricks Blah Blah Blah
Alas they do nothing to help those who want to help themselves.
Vote:March 31st, 2008 at 5:05 pm
virtualmark says:
Exactly. I’ve never understood why a political party hasn’t run on a platform of zero income tax, and a mix of consumption-based taxes. GST would cover most situations, but additional consumption taxes could be added where necessary (e.g. Australia’s “luxury car tax”). Even the self-employed wouldn’t be bugged by provisional taxes and the rest of us would never need have anything to do with the IRD, which could sell it’s multiple ivory towers and be run out of a Portacabin behind the Beehive.
As virtualmark says, avoidance possibilities are virtually nil, people opting to purchase less expensive items (because they’re saving and/or investing in productive enterprises or because they’re on lower incomes) pay less tax. Conspicuous consumers pay more. That, plus doing away with rules permitting negative gearing of investment properties, would sort out a lot of inequity – thus achieving the supposed goals of socialist governments – while giving us the ultimate decision over what to do with our heard-earned incomes – thus satisfying much of the right’s ideological demands.
Or is there some reason I’ve overlooked why this can’t possibly be done?
Vote:March 31st, 2008 at 5:09 pm
Hmmm, you mention magic, destroy, loopholes and “richest earners” all in one paragraph and you’re telling me that I’ve been sucked into spin? I asked you to give an example of where government revenue has been destroyed because of flat tax but all you did was point to the magical European Union integration as a cause of the growth in these entirely “nutters” countries. Are you advocating NZ joining the European Union before handing out tax cuts? I know alot of our “richest pricks” live over in the UK so perhaps we should.
Rich people are generally smart people, smart enough to get around paying arbitrarily high tax rates so they will get around it. I think someone referred to Gareth Morgans point of the huge number of people who earn exactly $60k. That’s a real strange co-incidence with the highest tax rate. Maybe if everyone paid the same tax, they wouldn’t bother avoiding it and then some magical money would turn up or maybe people would work harder, just like some of those Central European countries found out.
Vote:March 31st, 2008 at 5:12 pm
Douglas and Richardson were the best. Vote ACT.
Vote:March 31st, 2008 at 5:21 pm
@uk_kiwi: Here is an article on tax avoidance by Gareth Morgan. A man a good deal smarter than me and maybe even you. This could be some of the magic money (that you’re so fond of) which would be freed up with flat tax (something you’re not fond of) and end up in the government revenue stream (not destroyed) because it either would be spend (and subject to GST) or used to make more money (which would be spent or taxed etc etc).
Vote:March 31st, 2008 at 5:44 pm
You cannot realise productivity gains by just increasing wages or just cutting taxes either. And you cannot realise productivity gains by just increasing government or by just cutting government either.
Vote:March 31st, 2008 at 6:52 pm
Go Rex I can’t figure why the greens don’t go for zero income tax. All the things they hate could be taxed business’s tax capital gains on second homes, road taxes and water charges, pollution taxes.
Stop taxing workers!
Vote:March 31st, 2008 at 7:11 pm
Rex, Virtualmark,
Consumption taxes are well known to be regressive. The worse off in society who by necessity spend all of their money on goods and services subject to tax end up paying a greater porportion of their income in tax than the better off who are in a position to save or invest. Surely you guys know that – I believe Virtualmark does as he refers to “healthy financial incentives”.
As for the massive amount brought into the coffers by consumption tax that is rather my point – it would be more transparent if all tax was income tax (flat rated or otherwise).
Vote:March 31st, 2008 at 7:13 pm
It is rather sad that so many people minimise their tax in ways that are often immoral if not illegal.
Vote:March 31st, 2008 at 7:40 pm
Muldoon introduced a luxury tax on boats and caravans.
Companies producing such goods lost orders to the point that they were in danger of failing.
The expected job losses in small towns such as Otorohanga, which had such manufacturers, were untenable.
The tax was dumped.
Vote:March 31st, 2008 at 7:52 pm
GST is the only tax that people cannot avoid. It is the only tax on undeclared income.
GST on imports is not regressive, GST on food and power is regressive. This is why most countries exempt food from GST/VAT.
Given the way power prices are going and the need to move to carbon charging (of only to manage the use of a depleting and polluting resource) we should add that to food as a GST exemption and replace the money with carbon charging and a lower budget surplus.
Then to aid productivity, end subsidy of rental owning (except for new home building for rental) and bring in capital gains taxes which finance a lower tax on interest income (say a maximum of 33% and after deducting the CPI rate off the interest income rate before assessing the tax liability). The current system encourages people to speculate in housing or speculate through investment funds – think an industry sector interest being subsidised beyond need after Kiwi Saver, this when we have this huge amount of international money financing our overvalued housing (which has to be refinanced regularly at high rates). We have to face up to saving to meet this borrowing or otherwise continue with a high OCR and dollar which is undermining our productivity (high borrowing costs to business and an uncompetitive trading position deter people from investment opportunities).
Vote:March 31st, 2008 at 7:55 pm
RossK … your comment that consumption taxes are regressive because the worse off in society have to spend a larger portion of their money is a misnomer.
Granted, the poorer off in society will inevitably be spending a larger portion of their income on the essentials like food.
Meanwhile the better off are inevitably going to have surplus money after they’ve bought the essentials that they then have discretion to save or spend. But … if they save it then that money will all but certainly be spent eventually (maybe after its been inherited!). I think it’d be very very unusual for money to be saved for ever and ever and never spent – that level of scrooginess is very rare. And if it’s spent, well, have you ever thought how much GST the Government collects on every $200,000 Mercedes?
Realistically, most of the “rich pricks” (TM) that you’re worried about are saving money thinking to themselves “I’m going to buy a boat” or “I’m going to get that BMW” … and the Government collects GST on it all.
Vote:March 31st, 2008 at 8:06 pm
GST can be avoided.
You get some repairs made to your house. The builder does it for cash. No GST paid by you, none accounted for by the builder. A cheaper job for you, no paperwork or tax for him.
A panelbeater repairs your vehicle. Cash job, no tax involved.
Happens all the time. The end user, you, avoids paying GST.
Vote:March 31st, 2008 at 8:25 pm
thats good Gerry but it seems a long way around the problem, we need a
NZ GOVT NAT 2008 FLAT TAX 15%
Vote:March 31st, 2008 at 8:35 pm
Ha ha what a crack up, a flat tax rate of 15%, the socialists must be rolling on the ground with laughter. For people like Dear Leader and Sullen the ability to set taxation (usually as high as possible) goes to the heart of what a true socialist lives for. Taxation for these bastards means power, why would a power crazy government hand over power to their citizens in the form of tax cuts . The socialists need a population dependent on welfare and big nanny government as they believe we lack the ability to fend for ourselves. The more money in the back pocket the more choices one has to govern their own life, socialists fucking hate this!!!
Oh, I found out the other day what the knowledge wave means. The knowledge wave is when you stand at the airport and wave to all the people with knowledge who are leaving the country.
Vote:March 31st, 2008 at 8:46 pm
GST or any other tax should not be avoided in the manner I noted.
The example given was in response to the claim by SPC that GST is the only tax that cannot be avoided.
High tax structures encourage taxpayers to break the law.
Reasonable,equitable tax structures by a non-profligate Government will reduce the incidence of this dishonesty.
Vote:March 31st, 2008 at 9:10 pm
Consumption taxes are well known to be regressive. The worse off in society who by necessity spend all of their money on goods and services
When I was on the dole briefly in 2000, I remember paying $110 a week for a tiny room in a long-stay hotel in Hamilton. My benefit was around $170. The rent was exempt from GST, so GST was only applicable to the $60 I had spend each week. Hence, I argue as the poor spend a larger proportion of their income or benefit on either rent or mortgage payments, both of which are exempt from GST, it is not true GST generally hits the poorest the hardest.
Vote:March 31st, 2008 at 10:06 pm
“Labour Productivity Growth
All – 2.0%
Muldoon – 1.6%
Douglas/Caygill – 2.7%
Richardson/Birch/English – 2.6%
Cullen – 1.1%
Labour productivity is simply measuring the ratio of output to labour input. In the last March year output growth was 1.4% and labour input growth 0.9% so the difference is the productivity growth of 0.5%.
As one can see the record under Dr Cullen for the last seven years is a miniscule 1.1%. Half the average since 1978, and even less than the final years of Muldoon
”
In practice the Labour productivity is a meaningless figure, the concept is not meaningless but the way it is measured is.
If you look at the underlying figures you quickly see that periods of high labour productivity growth are the same periods as that rising unemployment, while periods of low labour productivity growth are periods of declining unemployment. Hence the highest labour productivity growth under National was in the disastrous years of 1990 and 1991 with record unemployment. Now it might be possible to design a measure that removes employment level from the distorting influence that it has and gives a true indication of how innovation and improved labour practices are increasing output. But the fact is that such a measure does not exist.
So it appears that National has two secret plans
Vote:1. The secret plan to reduce Australian wages
2. The secret plan to raise labour productivity to 1990/91 levels (ie 10% plus unemployment)
April 1st, 2008 at 7:49 am
UK Kiwi has a point though, flat tax ain’t going to fix the problem on its own. Sure it would be nice to compete on taxation on a par with say Singapore or Hong Kong and be more competitive than Australia but lets be real, the NZ economy isn’t going to hold that, to begin with anyway.
The real issue is how to raise productivity with a broad range of policies, tax being only one. Others surely have to be raising investment in non Fonterra activities, reduce no-skill immigration, increase workforce skill levels and get more export revenue.
Oh, and did I say slashing the bloated 40% of GDP that the Heleban inefficiently redistribute to the workers via the taxation and welfare machine. We also need to get the stupidly priced NZD/interest rates down, perhaps removing the ridiculous tax dodging loop allowed for investment properties known as LAQC.
All high rates, exchanges and house prices do is divert cash to foreign investors that could have been reinvested in NZ.
And NPOG, growth in productivity is correlated to unemployment historically in NZ because we have had such basket case economic models such as Muldoon the conservatives socialist, Douglas the conservatives fiebrand. And now we have Clark the middle class liberal socialists answer to Muldoon.
Vote:April 1st, 2008 at 8:31 am
Sice we’re talking about tax – try this one:
Vote:http://www.articles.garethmorgan.com/tax-series-5–integrating-the-tax-and-welfare-system_268.html
April 1st, 2008 at 9:38 am
It is actually electoral ignorance that has prevented suggestions like that one from Gareth Morgan from becoming the norm all over the Western Democratic world long since. Gareth Morgan’s one might differ in details but integration of the tax and welfare systems has certainly been suggested again and again by some quite famous economists.
Vote:April 1st, 2008 at 10:34 am
“Labour Productivity Growth
All – 2.0%
Muldoon – 1.6%
Douglas/Caygill – 2.7%
Richardson/Birch/English – 2.6%
Cullen – 1.1%
So this would confirm
Cullen is the worst finance minister at least since the Great Depression
Vote:April 1st, 2008 at 11:16 am
Yeah, it is the first time I’ve seen it presented quite that clearly. I like the idea of a GMI, it would fix all the abatement rate problems that I see with benefits, and I also like the idea of every adult in NZ being entitled to a certain income, pretty much as part of their rights as a citizen. A very left wing idea that, but at the same time would make so many things easier.
The much lower abatement rate would make it much more likely that those on a benefit would take a part time job for a few extra dollars, then push up the hours, before they know it they’re full time. It means we no longer have a need to do all sorts of work testing, and we no longer have to screw around moving people from benefit to benefit.
Those who really like family based subsidies could probably modify it slightly, so that you get $7,500 GMI per adult plus $2,500 per wholly dependent child, or some such. That would make everyone happy (and, given the paper was written in 1999, probably the numbers in it would need revision).
I wonder why ACT don’t pick this one up – it would be much easier to explain and much harder to attack than their current policies.
Vote: