Tax Cuts Past and Future
Almost 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.