The Tax Cuts
The level of tax cuts is in line with what I expected. If they were part of a continuing series of tax cuts over the last few years, they would probably meet expectations. But by having given nothing back (to the 80% who don’t have Working For Families) for eight years, people will find it really doesn’t even compensate for fiscal drag.
Dr Cullen has spent so much everywhere else that all he has been able to do is drop the 15% tax rate to 12.5%, and move the thresholds up by a few thousand a year.
From 1 Oct 2008 it will be 12.5% on the 1st $14,000 of income, then 21% to $40,000, 33% to $70,000 and 39% over that.
On 1 April 2010 the thresholds move to $17,500, $40,000 and $75,000 respectively.
And on 1 April 2011 they move to $20,000, $42,500 and $80,000.
The table below shows what we currently pay in tax, and what under this plan it will be from now until 2011. The percentage shown is the average tax rate on that income.
Next I look at what the extra income will be for people
So someone working part-time on $10,000 is $280 a year better off or $5.40 a week. Go to near the average wage of $40,000 and they are $860 a year better off or $16.50 a week. By 2011 that will be $1,370 better off or $26.27 a week.
But what has been bracket creep since 2000? Someone on the average wage in 2000 earnt $33,968 and paid tax of $6,623 which is an average tax rate of 19.5%. In 2007 their earnings were $44,123 with tax of $9,430 which is an average tax rate of 21.4%.
Now assume by 2011/12 the average wage will be $50,000 (I suspect it will be more than that). Even under these tax cuts the tax will be $9,700 which is 19.4%. In other words for someone on the average wage, this merely restores you to where you would be without bracket creep.
Now let us look at how we will compare to Australia
So even after these tax cuts are implemented, someone in Australia on $50,000 will pay $2,800 less tax which is $54 a week less. You would pay $6,900 tax in Australia or $9,700 tax in New Zealand. Someone on just above the minimum wage at $30,000 will still pay twice as much tax in NZ – $3,100 compared to $1,500.
So it’s not a bad start. It is reasaonably well balanced, but it is still quite modest in comparison to Australia. Also the proportion of tax paid in the year to March 2009 by those rich pricks earning over $60,000 increases to 55%. Yes the top 15% pay 55% of the tax, and the bottom 15% pay 1%. Now of course the top earners will always pay more, but with wages higher and tax less in Australia, the incentives to move remain strong.
The real challenge is to deliver tax cuts which not only give people some more of their money back, but also are designed to boost economic growth. It is by boosting economic growth that one can really close the gap.
May 22nd, 2008 at 2:39 pm
Thanks for the movie ticket Mr Sullen!
May 22nd, 2008 at 2:40 pm
Thanks for the rational analysis. The key point – as you make clearly – is that these are NOT tax cuts but simply restoring average tax rates to what they were ie removing the impact of bracket creep.
May 22nd, 2008 at 2:42 pm
It seems like a very strong budget. Hitting the right notes. It will be interesting to see how National react to them and what their detailed response to the tax cuts are.
That next Opinion poll is going to be very important.
May 22nd, 2008 at 2:44 pm
Is that it? No big surprises, no dramatic initiatives- just a few dollars more?
Phil Goff for PM.
May 22nd, 2008 at 2:45 pm
Oh and of course, they “Cost” nothing. Not taking peoples’ money in the first place is not a “cost”.
May 22nd, 2008 at 2:45 pm
I’m gonna spend my extra $28 on prozzies and wide screen TV!
No, wait, maybe I’ll lease some office space and employ some bearded folk & lesbians to write some reports and attend a lot of courses.
Shit hang on, which will have less affect on inflation?
May 22nd, 2008 at 2:45 pm
A 1% tax cut! I must scream it to the heavens! Oh thank you Mr Cullen, thank you so very much for your generosity!
May 22nd, 2008 at 2:46 pm
At least this is a step in the right direction, maybe not quite enough but at least a start.
DPF, I like the fact your table goes up to $200K, considering the average wage is less than $50K and only something like 5% earn over $80K that means for 95% for the population two thirds of your table is just wishful thinking.
[DPF: Actually my table goes up to over one million dollars as it is only at around $1.2 million do you pay more tax in Australia. I went to $200k as one of the aussie tax brackets start at $180k]
May 22nd, 2008 at 2:49 pm
DPF – the comparison with Australia’s tax system isn’t valid. According to the OECD there are other things that act as “taxes” in Australia which mean that a higher percentage of “labour costs” are paid in as tax than is the case here.
http://en.wikipedia.org/wiki/Image:Income_Taxes_By_Country.svg
May 22nd, 2008 at 2:49 pm
Those 5%, rocketboy, pay 15% of all the tax.
May 22nd, 2008 at 2:51 pm
Im going to splash out and buy one of them 50 packs of chewing gum on October 1!
May 22nd, 2008 at 2:53 pm
Thats a huge drop moving the 39% threshold from 60K to 70K and then to 80K.
Will they be happy, DPF says its cynical. Which is code for beating NP at there own game
May 22nd, 2008 at 2:56 pm
DPF, I like the fact your table goes up to $200K, considering the average wage is less than $50K and only something like 5% earn over $80K that means for 95% for the population two thirds of your table is just wishful thinking.
You say wishful thinking, I say aspiration.
May 22nd, 2008 at 2:57 pm
Will they be happy, DPF says its cynical. Which is code for beating NP at there own game
Sorry ghostie, but these Tax Cuts are six years too late. Not going to make me cancel my tickets. The rates in 2011 should be the starting rates, then further cuts from there.
May 22nd, 2008 at 3:02 pm
Great quote from Key, ‘he (Cullen) wants to go into urgency to legislate for tax cuts cause he doesn’t trust himself to enact them later!”
May 22nd, 2008 at 3:04 pm
Even in 2002 that would have addressed a number of issues relating to bracket creep (or fiscal drag) but does seem too little too late now. Nine long, squandered, years.
This government will be remembered as the govt who blew the golden years.
May 22nd, 2008 at 3:12 pm
“I like the fact your table goes up to $200K, considering the average wage is less than $50K and only something like 5% earn over $80K that means for 95% for the population two thirds of your table is just wishful thinking.”
The productive people that are taking off overseas who we want to come back are earning over $80k. Many of the people leaving NZ for good because pay over seas earn over $80k. It is relevant.
May 22nd, 2008 at 3:13 pm
Those tax cuts are a complete waste of money.
They will be virtually unnoticeable.
edit: I would prefer that money to go into my kiwisaver account.
May 22nd, 2008 at 3:16 pm
Wow I’m so stoked, Mr Cullen’s going to give me a $5 a week increase on my student loan living costs & about $5 a week in tax cut. Yet my rent will probably go up about $20 a week, so yeah I’m so much better off! Yeah Right!
Typical lefty desperation. I’m surprised the tax cuts weren’t on for those who vote labour, or would that of been to much of a bribe.
But then I guess the money for tax cuts was spent on buying a broken down train set, and useless report writers (with probably fake degrees) for useless govt depts
May 22nd, 2008 at 3:17 pm
And he had the unmitigated gall to call the restoration in brackets a “reward” to hard working New Zealanders.
Arrogant prat
May 22nd, 2008 at 3:29 pm
More pathetic flailing from a dying administration
Clearly Sullen Cullen is expecting to be earning $200,000 or more after he is thrown out – yeah right – maybe if he is lucky he will be able to benefit from National’s work-for-the-dole scheme and get a job sorting mail at a post office. Who knows he might have a talent for that, it wouldn’t take much to be greater than his talent as an economist or a historian (anybody with any real sense of history knows where socialism leads)
I can see now why Labour gutted the armed forces… if not for the fact that they were having to scratch and scrape to make ends meet and pass around the hat to buy bullets the patriotic boys and girls of our armed forces might be tempted to take military action to restore democracy
May 22nd, 2008 at 3:33 pm
It’s interesting that these tax cuts – otherwise called giving us back our own money – will be implemented over a three year period. Cullen must realise that he is very unlikely to be the Finance Minister during that period. Is that why he has gone with this plan, in the full knowledge that he won’t be around to oversee it? The question I keep asking myself is this: why did it take him almost 9 years to realise that tax cuts – or giving us back our own money – was actually the right thing to do?
May 22nd, 2008 at 3:35 pm
Helen is like a broken record on “investment”. I do not think it means what she thinks it means.
May 22nd, 2008 at 3:49 pm
Once again we see a scorched earth policy from a failed Labour Government.
May 22nd, 2008 at 4:06 pm
Do those Australian numbers rely on the usual trick of ignoring payroll taxes?
May 22nd, 2008 at 4:27 pm
Isn’t the real question whether the govt will survive long enough to deliver the 1 October tax cuts?
May 22nd, 2008 at 4:41 pm
Been in a meeting all afternoon, so missed Budget so far and just come straight to Stuff website and my thoughts are: Not exactly exciting tax cuts But at least I will be able to buy an extra 16 packets of chewing gum per week compared to 1 in 2005… I’m on a reasonably high pro rata pay rate at the moment but these figures don’t motivate me to want to increase my work ours at all as the amount back into my pocket is negligible… I suppose the same goes for most workers…
Still haven’t seen how beneficiaries benefit yet, if at all…
May 22nd, 2008 at 4:45 pm
Any reason for someone earning decent money in Australia to return home?
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…
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Didn’t think so.
May 22nd, 2008 at 5:45 pm
This is already being called ‘the block of cheese budget’.
May 22nd, 2008 at 8:37 pm
So the 19.5% band has now been replaced with a 21% band?
Well, he will argue that the overall taxation is lower for these people, but the marginal taxation (ie the thing that incentivises – or dis-incentivises people to work harder and earn more), goes UP.
With the WFF increasing as well, I wonder what the marginal tax rates are likely to be.
May 23rd, 2008 at 9:33 am
FYI,
NZIER has a substantial calculator up now on its main page, discussion here:
http://tvhe.wordpress.com/2008/05/23/new-zealand-budget-2008-tax-cut-calculator-2/