Tax Cuts Past and Future
May 11th, 2009 at 10:00 am by David FarrarAlmost everyone is expecting that the tax cuts planned for 2010 and 2011 will be delayed, if not cancelled, in the Budget later this month.
I thought it would be useful to have a look at the tax cuts we have already had, and those likely to be canned, and to weigh up their relative significance. I’m going to look at each element of the tax changes:
Labour’s October 2008 package
This package has an annual “cost” (ie reduced revenue to the Crown) of around $1.826 billion. Note that Labour did not reduce any spending to compensate – in fact they increased it in their last budget by $4,5 billion. Labour did three things:
Bottom tax rate drops from 15% to 12.5% and threshold increases from $9,500 to $14,000.
Annual cost – $1.448 billion
Tax reduction on $30k – $620
Tax reduction on $50k – $620
Tax reduction on $100k – $620
Threshold for 21% rate increases from $38,000 to $40,000.
Annual cost – $0.211 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $240
Tax reduction on $100k – $240
Threshold for 33% rate increases from $60,000 to $70,000.
Annual cost – $0.167 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $0
Tax reduction on $100k – $600
Total October 2008 changes
Annual cost – $1.826 billion
Tax reduction on $30k – $620
Tax reduction on $50k – $860
Tax reduction on $100k – $1,460
Worth remembering when Labour goes on about borrowing to fund tax cuts for the wealthy eh!
National’s April 2009 package
This package has an annual “cost” (ie reduced revenue to the Crown) of around $1.292 billion. Also note National reduced other costs such as KiwiSaver by $1.429 billion – so the tax cuts were fiscally neutral.
National did three things:
Independent Earner Rebate for non WFF recipients earning between $24k and $48k
Annual cost – $0.500 billion
Tax reduction on $30k – $520 (if not WFF)
Tax reduction on $50k – $0
Tax reduction on $100k – $0
Threshold for 21% rate increases from $40,000 to $48,000.
Annual cost – $0.686 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $960
Tax reduction on $100k – $960
Top tax rate drops from 39% to 38%.
Annual cost – $0.106 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $0
Tax reduction on $100k – $300
Total April 2009 changes
Annual cost – $1.826 billion
Tax reduction on $30k – $520 (of not WFF)
Tax reduction on $50k – $960
Tax reduction on $100k – $1,260
So someone on $100k got $200 more of a tax reduction from Labour than National! Those on $50K got $100 more from National than Labour and those on $30K (if not on WFF) got $100 more from Labour than National.
So remember this again when Labour campaigns about tax cuts for the rich.
Now what are we missing out on:
Labour’s April 2010 tax cuts
These were replaced by National, but useful to look at what they would have been.
Threshold for 12.5% rate increases from $14,000 to $17,500.
Annual cost – $0.560 billion
Tax reduction on $30k – $300
Tax reduction on $50k – $300
Tax reduction on $100k – $300
Threshold for 33% tax rate increases from $70,000 to $75,000.
Annual cost – $0.061 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $0
Tax reduction on $100k – $300
Total Labour April 2010 changes
Annual cost – $0.621 billion
Tax reduction on $30k – $300
Tax reduction on $50k – $300
Tax reduction on $100k – $600
Amazed the media keep repeating Labour’s spin about their tax cuts.
Labour’s April 2011 tax cuts
These were also replaced by National, but again useful to look at what they would have been.
Threshold for 12.5% rate increases from $17,500 to $20,000.
Annual cost – $0.359 billion
Tax reduction on $30k – $210
Tax reduction on $50k – $210
Tax reduction on $100k – $210
Threshold for 21% rate increases from $40,000 to $42,500.
Annual cost – $0.240 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $300
Tax reduction on $100k – $300
Threshold for 33% tax rate increases from $75,000 to $80,000.
Annual cost – $0.051 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $0
Tax reduction on $100k – $300
Total Labour April 2011 changes
Annual cost – $0.650 billion
Tax reduction on $30k – $210
Tax reduction on $50k – $510
Tax reduction on $100k – $810
National’s April 2010 tax cuts
These are the ones likely to canned in the Budget.
Independent Earner Rebate for non WFF recipients earning between $24k and $48k increase from $10 week to $15 a week
Annual cost – $0.241 billion
Tax reduction on $30k – $260 (if not WFF)
Tax reduction on $50k – $0
Tax reduction on $100k – $0
Threshold for 21% rate increases from $48,000 to $50,000.
Annual cost – $0.137 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $240
Tax reduction on $100k – $240
Top tax rate reduces from 38% to 37%.
Annual cost – $0.105 billion
Tax reduction on $30k – $0
Tax reduction on $50k – $0
Tax reduction on $100k – $300
Total National April 2010 changes
Annual cost – $0.483 billion
Tax reduction on $30k – $260
Tax reduction on $50k – $240
Tax reduction on $100k – $540
National’s April 2011 tax cuts
These are also likely to canned in the Budget.
21% tax rate decreases from 21% to 20%.
Annual cost – $0.525 billion
Tax reduction on $30k – $160
Tax reduction on $50k – $360
Tax reduction on $100k – $360
So what do all these numbers mean? First let us look at total fiscal costs on an annualised basis
Total Fiscal Cost
- National’s total package – $4.126 billion a year
- Labour’s total package – $3,097 billion a year
- Tax cuts delivered to date – $3.118 billion
So under National tax cuts greater than Labour were promising over three years have already been delivered. And furthermore, by reducing KiwiSaver etc by $1.429b, National has reduced the impact on the books to around half what Labour’s tax cuts would have been.
What are we missing out on with the cancelled tax cuts? Another $1b a year – a fair bit – but only one quarter of the total package.
Total tax cuts for different income earners
Someone on $30,000 (not getting WFF)
- National’s total package – $1,560 a year
- Labour’s total package – $1,130 a year
- Tax cuts delivered to date – $1,140 a year
So someone on $30,000 (not getting WFF) has already got in tax cuts more than they would have got from Labour’s total package – but miss out on a further $420 a year.
Someone on $50,000
- National’s total package – $2,420 a year
- Labour’s total package – $1,670 a year
- Tax cuts delivered to date – $1,820 a year
So someone on $50,000 has already got in tax cuts more than they would have got from Labour’s total package – but miss out on a further $600 a year.
Someone on $100,000
- National’s total package – $3,620 a year
- Labour’s total package – $2,870 a year
- Tax cuts delivered to date – 2,720 a year
Interestingly it is only the so called rich pricks on $100k who have recieved less to date in tax cuts than they would have from Labour’s total package.
So remember these facts, when you hear myths:
- National has not borrowed for tax cuts. National’s additional April 2009 tax cuts of $1.292 billion a year was offset by $1.429 billion of expenditure reductions.
- Future tax cuts were promised by both Labour and National, and were both around $1b – $1.271 Lab and $1.010 Nat.
- Labour’s future tax cuts were worth $1,410 for someone on $100k and National’s future tax cuts $900 for someone on $100k.
- By having an additional round of tax cuts in April 2010 (when the economy most needs it as a stimulus), National has delivered in six months greater tax cuts than Labour were going to deliver over three years.
May 11th, 2009 at 10:27 am
Wow, really great tables Mr. Farrar. Must have taken some tenacity of purpose to think through all of that.
Maybe next time though it might be possible to describe the tax cuts as something other than a “cost”. “Reduction in receipts” maybe? “Costs” is I think falling into the trap of leftist language.
..and if I could add one other point to those enumerated above, it should not be forgotten that tax cuts are always a stimulus to the economy, and should always be seen as such.
Only prosperous economies can afford excessive tax, and only for the short space of time before that excessive tax reduces their prosperity.
Then, when the prosperity dies, as it always will, there is the problem of what to do about the purposes that excessive tax was put to. If often involves the unavoidable retrenchment of government employees.
Vote:May 11th, 2009 at 11:14 am
Very interesting sales pitch mr F, but you are utterly and completely missing the point, in fact, you are pointing out why it is pretty stupid to ‘can’ the tax cuts now. The point is that National promised and campaigned on these tax cuts. So they either made promises they weren’t going to keep (i.e. being disingenuous), or incompetently making them (because they were making assupmtions they could not reliably make). There is a third scenario, and that is that they don’t have the mettle or the backbone to make the appropriate choices: if revenue is down, and you have promised tax cuts, then the only thing to sensibly do is reduce expenses. That is the fundamental issue on which National campaigned, and they are now not sticking by it. Conclusion: we are simply getting more of the same labour lies, but with a different face ‘explaining it’. If Mr Key wants to maintain his integrity and believability he should make the tough decisions and stay true to his word, after all, the costs of it are not too dramatic if your calculations are correct (another 30% roughly). We still have a families commission, a child’s commison and a daily barrage of nonsensical adds to tell us all how to live our lives, “can” that and there’s more than the billion that’s needed to fund these further tax cuts.
[DPF: The deficit has blown out $11 billion from what National were told in the PREFU. National's response looks to be both eliminating some low quality spending programmes, suspending Super Fund contributions and also delaying the tax cuts. I think that is balanced. If you disagree you should vote for ACT]
Vote:May 11th, 2009 at 11:20 am
DPF – Are you going to tell us about the people who earn under $48k and who actually do get WFF? There are quite a lot of those people, and they appear to be missing from your otherwise very thorough analysis. Why could that be?
[DPF: Actually not that many of them. Only 20% of families get WFF. And they have had massive welfare from Labour already, so yes under National they get less of of a tax cut. Interestingly some public polls have shown those on WFF would rather have less welfare in exchange for greater tax cuts.
My analysis is not of every single income earner such as the part timer who earns $12K a year. I think the $30K, $50k and $100k levels are ones people can relate to. Most of us have worked for around $30K, most people in FT employ now earn $50K and $100k is an aspirational salary for many people]
Vote:May 11th, 2009 at 11:27 am
Maybe he thinks most of us are Labour supporters? Which
Vote:iswas probably true.May 11th, 2009 at 11:28 am
Umm, let me think about this Rob, people who are low earners and get WFF – are these people who pay zero or negative tax?
Let me guess, they should be getting paid more to have children?
Perhaps if they were actually paying tax in the first place they might receive a tax cut.
Vote:May 11th, 2009 at 11:52 am
Excellent analysis David.
Vote:My interpretation is thus, if the cost of National keeping its word with the voters is just a billion, it is a price worth paying.
If the accounts are many billions in deficit, then a billion won’t make much difference.
We also have to see the stimulus affects of lower taxataion.
I hear in the US that Obama’s tax rises are already hitting revenue.
May 11th, 2009 at 12:27 pm
Redbaiter, I agree about what you are saying, but with describing tax cuts as a cost, think of it as “opportunity cost”. Leftist don’t understand that concept very well, but it does explain that everything the government does, has a cost. Very good analysis David.
Vote:May 11th, 2009 at 12:44 pm
[DPF: The deficit has blown out $11 billion from what National were told in the PREFU. National's response looks to be both eliminating some low quality spending programmes, suspending Super Fund contributions and also delaying the tax cuts. I think that is balanced. If you disagree you should vote for ACT]
It’s not about ‘disagreeing’ or ‘voting for Act’ at all, you are smudging the issue. Let’s look at what you are saying: “deficit has blown out from what National was told”. So we have a bunch of civil servants here that create these financial statements prior to the election, only to find that there suddenly is an incredible margin of error, or that they had been complicit in some Labour scheme of hiding these ‘landmines’. In the first instance all of these happy morons should have been fired a couple of months ago for incompetence, in the second instance they should have been fired some months ago for involvement in criminal negligence. Either way, they should not be within reaching distance from the levers of influence, let alone their work and further ramblings should continued to be used at all. No such thing has happened and therefore we must look to their bosses, i.e. Key/English, who cannot currently manage anything more coherent than ‘wait until the budget’. I have a very clear recollection of both Key and English saying that the tax cuts were sustainable and would be met by cutting government expenditure. So if the budget turns out worse, for whatever reason, the answer is cutting expenditure, not reneging on your promises.
[DPF: One can criticise Treasury for their forecasts, but to not recognise the world is in the worst recession for 70 years is stupid - almost as stupid as pretending you don't need to change tax and spending plans to respond to it]
Vote:May 11th, 2009 at 1:28 pm
DPF: I can’t believe how out of touch you are here. Honestly, I thought you were more in touch that this. Let’s take your factual claims in order:
1. “Only 20% of families get WFF.” Not according to MSD, who say that 378,000 families received WFF in the 06/07 year. That is not 20%, and the number has likely gone up since then. See their report here: http://www.msd.govt.nz/about-msd-and-our-work/publications-resources/evaluation/receipt-working-for-families/index.html
2. “My analysis is not of every single income earner” Well that is certainly true. It was also my point.
3. “Most of us have worked for around $30K,” If by “us,” you mean “readers of this blog”, you are probably right. Less true for “New Zealanders”. In fact the median income for adult New Zealanders in 2008 was under $30k (source: Stats NZ, from their figures for all of Parliament’s electorate profiles for the last election)
4. “most people in FT employ now earn $50K” Wrong. If you earned 50k in 2008 that puts you in the top 20% of adult incomes in New Zealand. Source as above.
5. “and $100k is an aspirational salary for many people” First, this may or may not be true, depending on how you define “many.” Second, and more importantly, real policymaking is about how policy affects people’s actual incomes, not fantasy incomes. And only 4% of people earn over $100k. Source as above.
So your analysis looks at only people earning the median income who have no kids, those earning at the 80th percentile, and those earning at the 96th percentile. Hardly a representative sample, no?
Quick additional points:
I seem to remember you criticizing Labour for **not** blowing the surplus in earlier years, but not a budget that came down in May 2008 (well before the global nature of the economic crisis became apparent) you’re criticizing it for exactly the opposite reason. Make up your mind.
I also seem to remember you insisting that people use percent of income figures, not nominal dollar figures, for examining tax cuts. Now that you have used nominal figures to make fun of Labour’s policy in your post here, I’m sure you won’t mind when others do the same to National.
You say “almost as stupid as pretending you don’t need to change tax and spending plans to respond to it”, yet when Labour signaled they would rethink their package in the waning days of the campaign, you and others decried it as an evil rouse so that Labour could cancel tax cuts. Again, make your mind.
[DPF: Rob I know you knwo the difference between those in FT employment and all income which includes the 16 year old who works for three hours a week after school, or the spouse who works five hours a week while theri partner works fulltime. I believe aiming at FT wage earners is best
You are right that I have used absolute figures to poke the mickey at Labour's claims - it is called hoisting them by their own petard
Cullen's problem with earlier budgets is that he only increased spending to get rid of surpluses. And this is a large reason why Labour got thrown out of office]
Vote:May 11th, 2009 at 2:08 pm
DPF:
Your claim about $50k is only true only if 40% or fewer of adult New Zealanders are in full time employment. I do not think that is the case.
I’m glad we agree that hoisting people by their own petard is OK – you guys hoisted a whole lot of petards over the past few years…
And you’re dead wrong about spending being the reason Labour was kicked out – you and I both know the survey evidence says the population was generally happy with the services their government bought for their tax dollars. We did make many mistakes I hasten to add (before you go and make your “denial” speech again), and were punished by voters for them. But spending on public services was not one of those mistakes. The best evidence for my view on this one is the extent to which your party fell over themselves to say the same things as Labour on public services in 2008.
[DPF: Once again you show Labour's weakness - that it is spending or tax cuts. As hundreds of Govts around the world have shown, you can be moderate and do both. And if you think Cullen's unoopularity was not a factor and his stance on tax cuts not a factor, boy are you deluded. But hey stay deluded and enjoy opposition. You see I at least know what of my preferred policies are unpopular (ie privatisation)]
Vote:May 11th, 2009 at 2:09 pm
[DPF: One can criticise Treasury for their forecasts, but to not recognise the world is in the worst recession for 70 years is stupid - almost as stupid as pretending you don't need to change tax and spending plans to respond to it]
Wrong on two counts: First, the recession was well in swing (particularly for NZ), and completely predicted by the election, hence adding to the incompetence of those producing the numbers, and possibly to the incompetence or misrepresentation of those ‘relying’ on them. Second, there is nothing inherently stupid at sticking to a strategy, even when the going gets tough. That strategy was clearly promoted as taking economic decision power (i.e. spending) back to the people, and away from the government. Your second point (“almost as stupid…..”) proves only one thing: deep down inside you actually do see tax as a ‘cost’, and not as the legitimate amount that a government may extract from its citizens. You may yet prove to be a socialist in drag.
Vote:National won the election on the promise that it would extract less, and it set parameters for that promise. Now it has to adjust its expenses to what that promise entails. The recession isn’t helping and neither are the PREFU problems, but that is simply part of the job. If the boys can’t stand that heat they should get out of the kitchen.
May 11th, 2009 at 3:01 pm
Go ahead David – ignore all the moves your party made to sound like Labour on public services (who could think why they did that?). Ignore the survey evidence consistently showing people prefer services to tax cuts. Hell, you even collect some of it, right?! Ignore all that and keep repeating your lines. Maybe they will come true one day.
And here’s a hint – when you start resorting to hyperbole about “hundreds of governments all over the world,” it shows your stuffed on the evidence. And I’m well aware of the things Labour did that were unpopular – EFA, smacking, Winston stuff to name but three. But I’m not going to throw the baby out with the bathwater as you would have me do.
[DPF: Please don't change Labour. Please think it was only smacking Please think the public don't want a balance of extra spending and tax cuts. Please never ever change]
Vote:May 11th, 2009 at 3:47 pm
DPF
Yes indeed, “hundreds of governments all over the world,” sounds so much like “They did it too”. Rob’s a great defender of “they did it too” so how dare you use his lines.
Vote:May 11th, 2009 at 3:55 pm
And welcome back to one-line burt. I should say I am very impressed that you managed to turn this particular one into a “they did it too” argument.Verbally very nimble!
Vote:May 11th, 2009 at 4:06 pm
DPF: It goes from bad to worse for you today:
1. “Please think it was only smacking”
Ah, but I never said it was only smacking, or indeed that is was only smacking, the EFA, and Winston (the “but three” I listed). I just don’t feel like sharing my own diagnosis of Labour’s loss in the comments section of Kiwiblog. Who could think why?
2. “Please think the public don’t want a balance of extra spending and tax cuts.”
Hey, wow, check out what Labour proposed, and I supported them in proposing. in 2008. Ohmigod – it was a balance of extra spending and tax cuts. Who would have thought? And in 2005 it was a balance of extra spending and tax credits. Holy crap!
[DPF: Rob by 2008 it was too little too late. By 2008 it was like asking the battered wife to give the husband one more chance - and they didn't. Delivering them two weeks before an election after nine years of waiting was just too much. Not that tax was the biggest issue - but Labour got punished in the polls every budget for around three years when they failed to deliver]
Vote:May 11th, 2009 at 4:17 pm
Rob Salmond
Were you the same person who defended no tax cuts for 9 years to now tell us how great Labour were for planning bigger tax cuts for high earners than National ?
Vote:May 11th, 2009 at 4:20 pm
I find it funny to hear so many people saying National can’t be trusted if they break their pre-election promise for another round of tax cuts. I found myself becoming increasingly bitter toward Labour (who I voted for until 2005) for the ‘rich prick’ tax. When first it was introduced (the 39% rate at $60k) I was under the impression that it would be adjusted to only ever affect the top 5% of income earners. That didn’t happen once in 9 years. I think any real comparison about tax cuts (whether they’re benefitting the ‘rich’ more than the ‘poor’) needs to be put in pre-1999 context.
I possibly would prefer services to tax cuts, but only if we were getting value for money. I got an email from friend working in govt that included this:
>I made the mistake of saving $500,000 on a project but I’ve been told it needs to be spent by the end of June or we lose it.
From what I understand, if you work in government and save money on a project you’re told off rather than commended, because then they have to find a way to spend the money somewhere else or next year’s budget will be cut.
In effect this person could have saved us (the tax payer) $1Million: $500k from this project plus $500k off next years budget. In reality the department will be pulling out the stops to spend the $500k by the end of June.
The government doesn’t need more tax revenue, they need to cull out the career civil servants who have an ingrained culture of waste.
Vote:May 11th, 2009 at 4:27 pm
While I understand the need to curb the government deficit by delaying tax cuts I’m hoping that it will be a deferral – not a cancellation. The same sound thinking that promoted reductions in income tax during the boom times is still sensible over the long term. A gradual move towards slowing the growth of government spending, curbing borrowing and reducing income tax rates towards lower and flatter rates is still a very good recipe for higher and sustained economic growth over the long term. If we’re going to catch up and overtake other OECD countries then we simply have to adopt the best policy framework we can. Increased focus on productivity and customer service – especially towards tourists wouldn’t go amiss either.
Vote:May 11th, 2009 at 5:19 pm
DPF: I’m not sure what your point is. If it is that Labour lost the 2008 election, then I agree with you 100%. But you yourself admit that tax was not the biggest issue. Further, your claim that “Labour got punished in the polls every budget for around three years when they failed to deliver” is (like many today) not supported by the evidence. Look at the trends here:
http://en.wikipedia.org/wiki/Opinion_polling_for_the_New_Zealand_general_election,_2008
In May 2006, the Budget appears to have had no impact on the polling trend.
In May 2007, the Budget coincided with Labour’s support stabilising – and even rising a little – after an earlier slide
In May 2008, the Budget coincided with the mid point of Labour’s last big slide, after which support rebounded.
Again the evidence betrays you.
burt – I’m not sure if I’m exactly the guy you portray. Certainly I’m the guy who thought Labour’s package delivering more to the people who needed it the most (income between 10k and 30k, and between 30k and 50k with kids) was a good idea. And I wasn’t quite so keen on National giving more to people who earn over $120k than Labour would have provided.
Vote:May 11th, 2009 at 5:21 pm
Too much information!! Keep it brief, punchy and cogent!
Vote:May 11th, 2009 at 5:28 pm
I agree Akaroa – DPF’s post was far too long.
Vote:May 11th, 2009 at 5:36 pm
Redbaiter I would disagree with “costs” of tax cuts being the language of the left. It is merely the language of the accountants that work for the Government. To an accountant anything that gets you money is income or revenue. Anything that causes the amount of money you have to decrease is a cost or expense. Or we could talk about debits and credits. If we give different names just because the government is involved, isn’t that propaganda?
Vote:May 11th, 2009 at 6:04 pm
oxymoron
The view that tax cuts are a cost, is because people seem to think that it is the government giving them money back. Now that may be the case with WFF, but for income tax it is not the government giving you your money back. Rather they are not taking it in the first place. So this then means there is less income/revenue.
I do not think you will find accountants in the private sector saying that a reduction in income/revenue is a ‘cost’.
Vote:May 11th, 2009 at 6:18 pm
This is purely anecdotal evidence, but I know only 2 families on WFF, and both hate getting it and would rather not pay the tax in the first place. The horror stories they tell me about dealing with the IRD (or whoever administers it) are a classic case of dealing with a government bureaucracy.
Vote:May 11th, 2009 at 6:36 pm
I was rather stunned by Rob’s figures of 378,000 families claiming WFF. This is absolutely horrendous and is a stunning indictment of the failure of the labour government.
My figures are based on 2006, so slightly out of date.
There are approximately 1.2m families in NZ. Of these 468,000 are couples with no children. So with my understanding of WFF that leaves 732,000 families possibly entitled to WFF. If 378,000 are claiming then over 50% of families are entitled to WFF.
What a horrendous admission of failure.
As some of these families are not working, does this mean they are not entitled to WFF, if so then the figure is even worse.
Vote:May 12th, 2009 at 8:40 am
workingman, what that means is that a large proportion of families with kids got an income tax refund via WFF. It’s classic redistributive socialist economics, but NZ’s IRD is noted for its efficiency in other areas so I’d surprised if the WFF redistribution was particularly expensive to deliver. All the families receiving WFF were working families: there’s no evidence to suggest that it incentivised the having of children. So it could be argued that people who needed a tax cut most were given one. Of course it violates the perspective of many market fundamentalists, but the debate really focuses on asking whether giving families, who logically need it, more money, is a good thing, without people foaming at the mouth about it incentivising horrid dirty masses into having welfare babies.
Vote:May 12th, 2009 at 8:44 am
*the debate should really focus
Vote:May 12th, 2009 at 2:07 pm
Workingman said:”I was rather stunned by Rob’s figures of 378,000 families claiming WFF. This is absolutely horrendous and is a stunning indictment of the failure of the labour government.”
Workingman don’t be surprised, I was working for Work and Income at the time it was rolled out. I was disgusted that during the training we were told that we were to get as many clients onto WFF as quickly as possible as it was one of Labours key strategies for winning the 2005 election. One of the things which I’ve never seen discussed how much additional cost this program caused. I know in my office (a smallish rural area) at least we had to hire a WFF focussed staff membe, a new car for their exclusive use (which ended up also being taken home each night and on weekends for personal use) etc.
Vote:May 12th, 2009 at 2:25 pm
Hayek,
I can see that is classic socialist redistribution. I do have to disagree though with your comment about it not being expensive to deliver. How can a payment system that requires all recipients to prepare a return, so over 380,000 pieces of paper (or maybe done on web) be efficient. Why not stop the families paying the income tax in the first place?
The IRD/MSD report shows that 45% of families were over/under paid WFF before their assessment was reviewed. So nearly a 50% failure rate. The system is so complex to handle that as a result of the 2008 budget changes the IRD agreed to write of over payments of up to $100 per family.
The IRD were given $180m to administer WFF. I am not sure if this was a one off cost or an annual cost.
Vote:May 12th, 2009 at 2:28 pm
Mr Nobody NZ
I did not even think about the WINZ costs of WFF.
In addition to the costs to administer, there is a very real lack of incentive to earn more when you receive WFF. The marginal tax rates are in the region of 55%, and I complain that I pay 38% tax, how much more would I complain if I was paying 55% of any extra income.
Vote:May 12th, 2009 at 3:04 pm
A root problem of these redistributive schemes is advocates do so without considering other economic effects.
The NZ economy was suffering worsening macro-economic imbalances over time. Consumption of imported goods was far outstripping our ability to earn forex- as various segments of the export sector imploded. Household debt rose. Our current account worsened to levels not seen since the 1980s.
Labour came into power promising to treat high-income earners as their enemy and delivered on that. I had some consultancy work going on in Asia, but once my tax went up (thankyou 39c), costs went up when ACC was ‘re-nationalised’ and returns went down as the dollar rose. People earning half my income still had roughly the same household income, as Labour topped up their spending from mine.
I gave up on the consultancy- upskilling with learning new languages, developing networks etc- had no real rate of return. It was a better deal for my lower-skilled wife to get a low-wage job than for me to do anything extra at a higher-wage (or consultancy-rate).
You can imagine the hilarity in our household when Helen extolled NZer’s to engage more with business in Asia. Why- it’s damned hard work, I’m away from my family- and the return has been slashed. How dumb do you think I was?
You can’t sustain improvements in labour productivity when you design a tax-and-welfare system to kill the payoff on that investment by workers. When it pays a household to substitute low-productivity work at a lower wage than go for high-wage returns, you have a serious problem.
(Fwiw, I’m doing more work in Asia again).
Vote:May 13th, 2009 at 12:29 pm
If you do the calculation (on the website) you will see that it is possible to get WFF on a combined income of $160,000
That leaves A LOT of families the ability to claim
^i^
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