No tax free income for New Zealand
May 8th, 2008 at 9:18 am by David FarrarMichael Cullen has ruled out making the first few thousand of income tax free. This is a pity because I think there is a strong case that there should be no tax on your income until you are earning more than the minimum amount you need to live on. The welfare system then tops people up to that minimum standard, but it is significantly wasteful to tax people just to then give them that money back as welfare.
In Australia the first $11,000 of income is tax free, and by 2012/13 the first $20,000 will be tax free.
So what does this mean for someone earning say $40,000. Well in NZ you $8,070 of tax which is an average 20.2% and this has not changed since 1999. Now in Australia it used to be $9,802 in 1999 which is an average of 24.5%.
But Peter Costello, and now Kevin Rudd, have shown what you can do if you reduce tax just a bit every year. In 2012/13 someone earning $40,000 in Australia will pay only $3,400 of tax – an average tax rate of 8.5%.
So because Michael Cullen has refused to reduce taxes until forced to at near gunpoint, the NZer on $40,000 who used to pay $1,800 less tax than an Aussie, now will be paying around $4,500 more by 2012/13 – less whatever he announces in the budget. But it is hardly going to close the gap he has allowed to grow.
Related posts:
- After tax income gap with Australia
- Ha I was right
- Massive Australian Tax Cuts
- NZ vs Australia tax rates
May 8th, 2008 at 9:32 am
I’m picking two maybe three full flights a day heading to Aussie soon.
New Zealanders – overtaxed or overseas.
Vote:May 8th, 2008 at 9:39 am
June cannot come quick enough for me! Might come back once Cullens legacy has diminished and the countries back on track, for now I want to enjoy my life with my family – not work my arse off so some one else can have that luxury.
Vote:May 8th, 2008 at 9:40 am
To the 30% diehard labour supporters
Do us all a favour and piss off to
Scandanavia
Cuba
China
In fact anywhere
We do not have the wealth to fund your follies
Vote:Bugger off and let hard working Kiwis live in peace and prosperity.
May 8th, 2008 at 9:47 am
David, is it just coincidence, do we have exactly the same thought patterns, or are you using my blog for inspiration?
Yes, I (again) blogged about exactly the same thing this morning, and since we both hit the publish button within seconds of each other I was just kidding about the inspiration bit.
I’ve been an advocate of a tax-free income threshold for many years and I would have thought that from a social justice perspective a left-leaning party like Labour would have been all over it. I therefore accuse Cullen of dishonesty in the reasons he gives for steering clear of such a move. We all know the real reason don’t we — it’s all about *controlling* the voting patterns of the poor.
Shame on you Michael!
[DPF: Well Aardvark is probably the first ever blog I started reading regularly - even before it was a blog
]
Vote:May 8th, 2008 at 9:51 am
It’s good for Labour for those who are less well off to be made dependant on the state. It’s no good for those made dependant in this way.
Vote:May 8th, 2008 at 10:00 am
Is National planning to introduce a tax-free allowance?
Vote:May 8th, 2008 at 10:04 am
Only a very brave and confident government would dare to introduce the tax-free allowance due to the power they relinquish in the process. And remember — politics isn’t about the salaries or even the post-employment perks. Ultimately, it’s all about power and control. (call me a cynic).
Vote:May 8th, 2008 at 10:07 am
Shylock!
Vote:May 8th, 2008 at 10:21 am
Having a relatively high tax-free threshold like this is one of the best paths to tax cuts, tax simplification and reducing compliance costs.
But I figure that Michael Cullen hates all three of those things, so his announcement shouldn’t be a surprise.
Will be watching very closely though to see the underlying philosophy of National’s tax cuts. This approach of making the first $x,000 tax free, and making a commitment to raise the threshold over time, would be a great move. It’s the right fiscal approach, and it spikes Labour’s guns about tax cuts for the rich.
That said, they should take away that 39% top tax rate. It introduces all sorts of distortions between personal tax, company tax, trust tax etc … it’s got to go.
Vote:May 8th, 2008 at 10:22 am
Bearhunter – I don’t know, but I would be surprised as if you do so, you need to rejig WFF, welfare benefits etc etc and I doubt in opposition one can work out how to do that, so no one ends up worse off.
Vote:May 8th, 2008 at 10:24 am
bwakile said:
We *are* living in peace and prosperity. Just not in New Zealand.
Vote:May 8th, 2008 at 10:27 am
” I doubt in opposition one can work out how to do that, so no one ends up worse off”
Who cares if dole bludgers and DPB recipients end up worse off, I am sick of paying for their lifestyle.
Vote:May 8th, 2008 at 10:38 am
What we need is for National to be bold.
Take the bull by the horns.
Mucking around on the arse end of the convoluted tax system that Labour has created is a waste of time.
This will also be bwakiles last post (by the way it means “the sun has risen or good morning in Gusii)
Being the most important election year in our short history as a great nation, I will be posting under my own name from now on.
Vote:Am happy to stand up and be counted.
Lou Taylor
May 8th, 2008 at 10:40 am
Australia’s tax burden has flatlined at 130 days for the last 15 years while ours has climbed under Labour from 140 to 160: http://www.interest.co.nz/ratesblog/index.php/2008/01/06/chart-tax-burden/
Working For Families has unfortunately made a large number of working New Zealanders psychologically dependent on the state: I presume it will be difficult for National to unpick that dependence when elected. Anyone want to rent a house in Ponsonby while I and my family bugger off to Australia ? ?
Vote:May 8th, 2008 at 10:58 am
Tax free threshold is a good start, but still leaves lots of anomalies in the system. If we are really serious about the low paid and the unpaid getting a break, how about trying this one (I know, I’ve linked to it before, but I really really like it):
Vote:http://www.articles.garethmorgan.com/tax-series-5–integrating-the-tax-and-welfare-system_268.html
May 8th, 2008 at 11:01 am
The sad truth is that Nats could but won’t change the tax system root and branch….it’s all just too radical.
Time to accept Teedle dum and Tweedle dee are incapable of change.
Vote:May 8th, 2008 at 11:06 am
Sounds as though Cullen plans to delivery more “chewing gum” tax cuts, judging by his speech to the Chartered Accountants yesterday
http://keepingstock.blogspot.com/2008/05/chewing-gum-2008.html
There’s a certain irony in the way this has all panned out – Cullen resisting tax cuts for so long so as to be able to give a real election-year sweetener, then the economy going south and slamming the door in his face!
Vote:May 8th, 2008 at 11:24 am
Sounds as though Cullen plans to delivery more “chewing gum” tax cuts, judging by his speech to the Chartered Accountants yesterday
Thats good, I look forward to him delivering the final nail to Labour’s coffin.
Vote:May 8th, 2008 at 11:37 am
DPF When will you come to understand that Socialists work on the principle that they take the money off you waste at least half of it in administration then reluctantly give some of it back. Only on the basis that you must vote for them in order to ensure you keep receiving back your OWN money.
If they left you with the money in the first place then you wouldnt have a connection to them and the reciept back of your OWN money so you wouldnt necessarily feel afraid to NOT vote for them Escpecially as they continually tell you the OTHERSIDE will take the money and not give some of it back.
I apologise that this is so confusing but the Socialists set this up to be so.
How many Socialist supporters do you hear talking about getting some of the government money.
Almost all of them make no connection between taxes ( well many dont pay any) and welfare payments.
Vote:May 8th, 2008 at 1:39 pm
This could leave the door wide open for National. If National were to make a move on tax free income up to x point (with more promised in the future) it would kill the “tax cuts for rich pricks” mantra. That just leaves two, erm, minor issues for National – WFF and reversing the bracket creep.
Vote:May 8th, 2008 at 1:47 pm
I too would like to see National step up and make some bold announcements…..soon guys.
GD your comment on everything going through the state reminds me of Iraq. There everything went through the state, and when the americans got rid of it they found that all the state institutions stopped working, and since everyone was relying on these institutions for basics and infrastructure the whole country quickly collapsed. Damn!
Vote:May 8th, 2008 at 3:13 pm
David — another excellent piece of analysis! It is amazing how much tax we pay? Unfortunately we seem to have become conditioned to a government that takes too much from us in order to do too much for us.
I like many others, am hoping for a change of government. A government that does less for us, doesn’t try to govern everybody and everything, maybe even tried to get smaller? I think less government and less government interference in our lives would benefit all Kiwis
Vote:May 8th, 2008 at 3:25 pm
“Michael Cullen has ruled out making the first few thousand of income tax free. This is a pit…”
So would Key introduce this kind of progressive tax, or would he give one that just benefits the rich? Take a wild guess.
I’d also like to see DPF criticise him if he “rules it out” as Cullen has. But then again pigs might fly.
[DPF: As I have said it is near impossible to do in Opposition as one has to adjust WFF and benefits as part of it. What I would like to see is National once in office to look at how you could make the 1st $18,000 tax free, with welfare benefits rejigged to merely top people up to this level of income.]
Vote:May 8th, 2008 at 3:27 pm
“It is amazing how much tax we pay?”
Yes just phenomenal isn’t it? The OECD doesn’t seem to think so (see the source).
http://en.wikipedia.org/wiki/Image:Income_Taxes_By_Country.svg
Vote:May 8th, 2008 at 4:24 pm
roger nome
Jump onto the IRD website, work out the tax a NZ worker pays on say $50K salary, then do the same using the calculators available on the Aussie Tax Office website.
When you have done that, look in wonder and confusion at the OECD stats and wonder who’s counting what and how to get such a major distortion of reality.
Vote:May 8th, 2008 at 4:25 pm
roger nome
When you have done that, do the same for say $30K and $130K, once again wonder in confusion about how the OECD stats show us ahead of Aussie when talking about income tax. Some serious reporting/statistical BS is being used in the official stats.
Vote:May 8th, 2008 at 10:51 pm
I’ve already voted myself a tax cut when I moved to the UK last year. They have a tax free-threshold here. It’s good to live in a country in the top half of the OECD for income per capita.
Vote:May 8th, 2008 at 11:23 pm
Burt:
It’s bad enough comparing tax paid in New Zealand and Australia at different income levels – what’s even worse is factoring in the higher incomes. DPF summed it up well last year (the Rudd Government, with one exception at the top end, has affirmed its commitment to the new tax rates):
Vote:May 9th, 2008 at 1:49 am
Roger: Quit it with those ‘facts’ and ‘statistics’ of your’s will ya? Just think about how much better off we all were back in the late 90s when the nats were in charge and no one paid fuck all tax ever, OK?
Vote: