A possible tax cuts package
March 15th, 2010 at 1:34 pm by David FarrarGrahame Armstrong in the SST writes:
THE GOVERNMENT is putting the finishing touches to its package of tax cuts and is now confident that low and middle income earners will have more money in their pockets – even after paying a higher GST.
The Sunday Star-Times understands the government has settled on lowering the tax rate for those earning between $14,000 to $48,000 – which represents the bulk of wage earners – from 21% to 19%.
The May budget is also expected to lower the tax rate for those earning up to $14,000 from 12.5% to 10%.
The Star-Times also understands the government will, in one hit, lower the top rate for those earning more than $70,000 from 38% to 33%, rather than doing it gradually.
So that would give up three tax brackets – 10% for low income earners, 19% for middle income earners and 33% for higher income earners.
What would be the reduction in income tax for people at various income levels:
- $26,000 – 13.8% or $590
- $30,000 – 13.1% or $670
- $40,000 – 12.1% or $870
- $48,000 – 11.6% or $1,030
- $70,000 – 6.4% or $1,030
- $100,000 – 9.2% or 2,530
- $150,000 – 10.8% or $5,030
That is pretty well targeted. Those on the minimum wage get the largest percentage increase, and everyone earning under $50,000 a year gets a double figure percentage drop in the tax they pay. And in fact, with WFF, many of these people are net tax recipients anyway, not net tax payers.
What would be the fiscal cost?
- Dropping the 38% rich prick rate to 33% – $500 million a year
- Dropping the 21% to 19% – $780 million a year
- Dropping the bottom tax rate from 12.5% to 10% – $820 million a year
So total foregone revenue is $2.1 billion.
Now how much extra GST might people pay. Let us assume that on average people spend 90% of their after tax income, and that the GST increase of 2.5% will lead to an average price increase of 2.0% (as estimated by Stats NZ). What is the impact at each income level:
- $26k – $391 more GST and $590 less income tax = $199 better
- $30k -$448 more GST and$670 less income tax = $222 better
- $40k -$590 more GST and $870 less income tax = $280 better
- $48k -$704 more GST and $1,030 less income tax = $326 better
- $70k – $969 more GST and $1,030 less income tax = $61 better
- $100k – $1,304 more GST and 2,530 less income tax = $1,226 better
- $150k – $1,862 more GST and $5,030 less income tax = $3,168 better
So it does indeed look like no one would be worse off (even if you assume 100% of after tax income is spent).
Obviously those at the top tax brackets do best in an absolute sense, but they are also the ones most likely to be property investors, and may in fact end up worse off overall. Also worth remembering two that half of the 100 wealthiest people in NZ do not actually pay the 38% tax rate, so will not in fact benefit from its reductions – they will just not need to operate through their family trust.
I have no idea if this is the package the Government will go with, but it looks pretty workable, and affordable. Most of all, it is not meant to be about just the redistribution of any changes, but the large benefits to the economy of increasing the incentives to work, save and invest and reducing the incentive to borrow and spend – plus the shifting of incentive for investment income from property to other areas.
March 15th, 2010 at 1:51 pm
Good to see they are proposing to do it through altering the tax rates rather than using stupid WFF. Much more efficient.
Agree overall quite well done, guess the ones who dont do that well are the income earners on $70k who dont receive working for the families, i.e. allot of generation Y in professional jobs. But yeah overall quite fair.
Vote:March 15th, 2010 at 1:54 pm
A good start. But without indexing the tax brackets with inflation, this government wants to keep playing NZer’s for fools with the now-you-see-it-now-you-don’t shell game of tax cuts.
Vote:March 15th, 2010 at 1:56 pm
Love it… lets do it… Vote National in again next election.
Vote:March 15th, 2010 at 2:03 pm
I think this looks good, I hope there is some reasoned comment on the whole package now rather than on single aspects.
And it’s quite likely many people on lower incomes will have a smaller proportion of their income paying GST due to rent and mortgages, so will benefit more.
The 70k bracket get the least gain if a lot of their expenditure includes GST, but they benefited most from the bracket change last year.
Vote:March 15th, 2010 at 2:03 pm
Are you also assuming that no-one pays rent or puts money toward a mortgage? Because it really seems like you are.
[DPF: No - the 2% figure from Stats NZ takes account of expenditure that does not include GST]
Vote:March 15th, 2010 at 2:06 pm
What Graeme said – your GST-rated expenditure (and hence extra GST) should be much lower.
Vote:March 15th, 2010 at 2:07 pm
woo hoooo not wanting to sound like a total asshole.. but Dime earns a mighty salary (hard to believe i know).
about time i got something back!
im gonna spend it all on alcohol and hookers
Vote:March 15th, 2010 at 2:12 pm
Overall, good.
But, some comments:
1. If it is revenue neutral (or at least doesn’t decrease tax take), and some people are better off, then someone must be worse off. I assume therefore that something is wrong in your analysis
2. People with more income generally spend a lower % of that income, and save more. That is why GST is claimed to be a regressive tax. Your analysis should show that
3. This package would be more palatable, and more exciting, if they just removed the bottom tax bracket entirely – no tax return, no tax, if you’re earning less than $14,000. That would completely screw Labour, as the people at the bottom would get a 100% tax reduction. A figure like that makes it hard to scare monger.
[DPF: GST tax base includes tourists etc, and small non registered organisations. Also as it is harder to avoid, the two sums will not always equal]
Vote:March 15th, 2010 at 2:15 pm
Wouldn’t it be funny if Labour in NZ did what Labor in Australia almost did (under Mark Latham) – and go to an election trying to block tax cuts.
Political Suicide, anyone?
Vote:March 15th, 2010 at 2:15 pm
DPF, I think you know what you’re omitting here. To remind you:
1. There are plenty of people who earn less than $26k, all of whom are missing from your analysis. 52% of New Zealanders 16 and over, to be exact. And no, they are not all kids with paper rounds. Or superannuitants. Or beneficiaries.
2. A person’s exposure to GST is not constant across differing income brackets, as you have assumed here. See the TWG publication on this.
3. You neglected to figure out the percentage increase in income for people net of the GST changes. That is the figure that counts. To help you out:
3a. Even with your numbers on GST exposure, a person on $150k gets 15 times more benefit than someone on $26k, despite the fact that the difference in incomes is only six times.
3b. If you use realistic numbers for GST exposure, the $150k person’s net tax cut is well over 30 times that of a person on $26k.
30 times difference in tax cuts on a six times difference in salary. Still want to sell it as “well targeted?”
But you didn’t need me to tell you that stuff. You’re a smart guy. You already know all that. Enjoy your spinning.
[DPF: 1 As you well know those on benefits and super are being compensated directly, not through the tax system. Almost all the others will be a household where someone is earning the minimum wage]
2. Of course proportion spent is not constant. That is why I used an assumption. Incidentally over a life time it does tend to be fairly proportional I understand. The 90% figure still shows that in that extreme example lower income people are better off.
3 People who pay more tax almost always get more money from income tax cuts. Around 40% of NZers actually pay no net tax at all. Also you ignore that many of those people earning $150K will either not be paying the 38% rate or will be penalised by the closing of depreciation on property etc.
You also miss the biggest point of all. These tax changes are not intended to be redistributive – it is about better incentives to earn and invest. As even your figures will show, no one poor will be worse off. A 2.5% reduction in the bottom tax rate will always more than cover a 2.5% increase in GST for low income earners.
You should be pleased National is (if correct) dedicating such a high proportion to reducing income tax on the lower incomes, and are not dropping the 33% tax rate. The 38% envy rate was an ideological blip anyway from Cullen and National reversing it is hardly a big thing]
Vote:March 15th, 2010 at 2:16 pm
That could be the majority that DPF has left out. His lowest level of analysis is $26,000 pa. The median income in New Zealand is $23,000.
[DPF: The median income is a stupid useless figure which includes 15 year olds living at home, 95 year olds in rest homes, people on benefits, spouses of millionaires etc. The better focus is on household income and there are few households where at least one person does not earn the minimum wage. If they do not, then beyond doubt they are not tax payers, and are net beneficiaries.]
Vote:March 15th, 2010 at 2:17 pm
do you pay gst on hookers dime? and spending on alcohol is the same as paying tax. you just have an awesome time doing it.
Vote:March 15th, 2010 at 2:37 pm
I am mostly in agreement with this.
However I suspect that the $48k-$70k bracket is where we most need to be giving a boost to encourage people to earn more – this is the region just above the median income. But this package does least for this group. I would also be concerned about marginal tax rates. According to the Treasury’s Key Facts for Taxpayers, the 33% rate coult be cut to 30% for only about $300m. I would like to see that happen too.
Re the GST, I think savings are irrelevant, because the purpose of saving is to spend later. So you still pay GST on what you save, just later on. On the other hand most Kiwis spend at least 20% (and for low income earners often much more) on rent or a mortgage. You don’t pay GST on either. (Note too that you will not pay the extra 2.5% on the 12.5% we already pay so prices of GST-affected stuff should only rise about 2.2%). Taking accommodation out, the cost of the GST rise will be for most people no more than 1.8%.
Note to Rob Salmond:
Someone on $14,000 would gain $350 from the income tax cuts. Even if 100% of this was spend on GST-applied goods and services they would be about $45 better off.
Note to Graeme Edgeler:
Vote:The reason so many people can be better off is that GST is a much broader tax. For example, overseas tourists pay it and so do P-dealers. Neither gets the income tax cuts. There are also all those people who avoid income tax by clever property deals etc. (Eg the granny who earns $700k pa from rental properties and does not pay income tax). They are the ones who will pay. Few of those people are worth crying over methinks.
March 15th, 2010 at 2:45 pm
Yeah, fuck that National Party for giving the working classes a tax cut, eh Rob.
I think the idea is Tax Cuts for Tax Payers, not beneficiaries.
Vote:March 15th, 2010 at 2:45 pm
s. russell and expat – Have a happy time trumpeting that $0.87 a week tax cut for the folk on $14,000. I am sure they will be overjoyed. How many blocks of cheese or sticks of gum is that?
[DPF: These tax cuts are not meant to be redistributive - they are about a more efficient tax system. Once government spending is reduced as a % of GDP, then we can look at across the board tax cuts to leave people with more money]
Vote:March 15th, 2010 at 2:51 pm
Rob Salmond
Why is it that people who think tax systems should be progressive and have no issue with tax increases disproportionately hitting high earners always cry like babies when tax cuts have the opposit effect? Do you want a progressive tax system or do you not ?
Vote:March 15th, 2010 at 2:52 pm
Cap the reduction to those earning less than 150K, why are we giving those guys a $5K handout in our budgetary situation.
Vote:es
Might want to add in the effects of ETS, ACC, Power price increases on the average kiwi
PS have you included these higher figures in your GST calculation?
March 15th, 2010 at 2:53 pm
So there we have it from Rob. Labour the beneficiaries party. National the working classes party.
Vote:March 15th, 2010 at 2:56 pm
Having just looked at a post on The Standard that points out the vast majority – including all of those earning in the area missing from DPF’s analysis, would be better off, I’m more than happy to concede the point.
Vote:March 15th, 2010 at 3:01 pm
burt – I’ll answer your substantive question using DPF’s examples. A person on $26k pays about $4900 in taxes right now, whereas a person on $150k pays about $48,000. The difference is a factor of 9.7. But the difference in net tax cut, when you do the numbers right, is a factor of over 30. The effect of this package, therefore, is to make our system substantially less progressive, which I do not like. I do not think there is any inconsistency here.
Vote:March 15th, 2010 at 3:01 pm
Who was talking about spinning?
It looks like some people won’t be happy unless everyone gets exactly the same amount no matter how much (or little) work they do.
If “rich” people get more nett pay, and tax is restructured to encourage saving and investment, that can result in more jobs, more employment, so more of those now on $14,000 can be earning $28,000 for themselves rather than draining the public purse.
Vote:March 15th, 2010 at 3:01 pm
GMDI – i dont usually ask a hooker if shes GST registered. i should start
“s. russell and expat – Have a happy time trumpeting that $0.87 a week tax cut for the folk on $14,000. I am sure they will be overjoyed. How many blocks of cheese or sticks of gum is that?”
why bother? they arent voting national anyway.
ya cant get a big tax cut when ya pay fuck all tax dude.
half of them are probably getting working for families anyway.
Vote:March 15th, 2010 at 3:03 pm
@DPF: It’s not possible for everyone to benefit. Either some taxpayers end up paying more, or all taxpayers end up paying the same (in which case, why bother?), or the government ends up with less money.
I know most people here would be happy with the last option, but the government has been telling us the package will be “fiscally neutral”.
So since you’ve concluded that many groups will save money, why don’t you finish your analysis and figure out who loses out?
Vote:March 15th, 2010 at 3:09 pm
Rob Salmond
So you don’t care that the high earner is still paying over 9x as much tax as the low earner, just that they are paying less under the new rates. Perhaps you could suggest a way using progressive tax systems that the tax reduction could be the same for all tax payers. If you can use an example where one person earns $10,000/year compared to someone earning $150,000/year I’ll consider you are not just some fruit loop that loves the policies of envy and loves driving high earners from NZ because you like recessions like Labour created.
Vote:March 15th, 2010 at 3:21 pm
Rob Salmond
People who don’t understand that static tax thresholds create fiscal drag fail to understand the basics of tax. See the problem is this Rob, by 2008 75% of high school teachers were classified as rich by Cullen’s rich threshold. The problem for Cullen was that increasing the $60K threshold to say $80K gave big tax cuts to what he called rich pricks.
But; Do you think in 1999 that Cullen planned for teachers to be paying the top tax rate before he changed it or do you think his ideology just got in the way of reality because like you he would rather not let big tax payers get a bigger tax cut than small tax payers ?
Vote:March 15th, 2010 at 3:42 pm
Isn’t this is just bringing income tax back to levels from before labour got into power? (can’t recall the exact tax rates back then).
But, to kick us in the head they raise GST.
I reckon the top rate should have come down further.
They should be concentrating on government costs, so that the tax cuts should reduce total government tax receipts, rather than being neutral.
I still do damn well out of these cuts, but, jeez, you’d turn white at the amount of tax i’d had to pay since I got back to New Zealand. It is unjust and there has been little return for the huge taxes that I have paid.
Vote:March 15th, 2010 at 3:48 pm
[DPF: 1 As you well know those on benefits and super are being compensated directly, not through the tax system. Almost all the others will be a household where someone is earning the minimum wage]
That’s rubbish DPF, some are working part time on a wage that is not the minimum wage but are not earning 26K. Some are not even earning 15K.
Vote:March 15th, 2010 at 3:48 pm
I simply cannot understand how people who think tax systems should be progressive seem to think we can continue making them more and more progressive and that somehow how they are now is just right and cannot be changed.
What is it with these people? What is wrong with their brain? How can it not be obvious that even adjusting a progressive system to account for inflation without changing the tax rates (IE: Just shuffling the thresholds up a little bit) will deliver bigger tax cuts to bigger tax payers. Why is this so hard for some people to understand ?
A set amount of tax per person (a poll tax) is the only way to stop the effects of adjusting a progressive system such that it either disproportionately increases or decreases tax on high earners – Do people who like strongly progressive tax systems have rocks in their heads or do they just fail to acknowledge reality because it offends their ideology that we are all equal. Bloody muppets.
Vote:March 15th, 2010 at 3:49 pm
Replies to various people:
Expat – good to see you still aren’t afraid to invent people’s views. So very clever. Probably bed time for you.
Pete G says “It looks like some people won’t be happy unless everyone gets exactly the same amount no matter how much (or little) work they do.” That may be true for some people, but I am not one of them. And form the rest of your comment it is good to see that trickle down is alive and well here at Kiwiblog. You may want to go and see how well the US economy grew under Ronnie “trickle down” Reagan as opposed to Jimmy “I got stuck with a world oil shock on my watch” Carter. Hint: the difference is less than 0.05% per year.
Dime makes some claims that are flat wrong. Included among them: 1. None of the working classes voted for National; 2. “Half” the working classes get WFF. Wrong and wrong.
burt – I’ll ignore your puerile ranting about my “fruit loops” and “loving recessions” etc and concentrate on your substantive question. Here is the example you seek. If you wanted to reduce the size of government but increase everyone’s after tax income by about the same percentage amount, you could leave GST alone and have income tax rates of, say, 10.5/19/31/37 with cutpoints of 0/14k/40k/70k. Everyone’s after tax income would go up by 2%, compared to election 2008. Using your desired examples, a person on $10k would be about $4/wk better off and a person on $150k would be about $59/wk better off. Not that hard. If you wanted to do it with a baseline of “tax paid” rather than “gross income” you could do that, too. And in answer to your second question, you can solve that fairly easily using dynamic cutoff points. In fact, you could even write the need for rough percentage equivalence in tax changes into the algorithm for the dynamic bands. Again, not that hard.
Vote:March 15th, 2010 at 3:53 pm
The rest you’ll just squander
Vote:March 15th, 2010 at 3:56 pm
Comparing the effects on the low waged with the highest paid is odious.
The reality is this tax package would increase the net benefits of the low paid compared to a tax cut for the better off.
The moment we start comparing net beneficiaries with net tax payers we subvert the argument to one of transferring net wealth to the non productive sector.. and we further lock in low productivity. The near 50% of net beneficiaries we have are *not* tax payers.. they are successful investors.. they pay $1-4000 to the Govt and receive back 20-200-400-1000% back on their investment *guaranteed* and tax free every year.
JC
Vote:March 15th, 2010 at 4:02 pm
In your example Rob a high earner got almost 15x as much of a tax cut as lower earner, so you failed to produce an example where the progressive nature of the current system wasn’t reduced. Dynamic cut off points – personal taxation rates ??? Are you serious?
I can see the next suggestion, personal consumption tax rates. Every person could be required to use a state provided debit card for all purchases that tracks how much they spend and adjusts consumption tax accordingly. Perfect…
The hoops you try and jump thru to save yourself acknowledging that small tax payers will never get as big a tax cut as large tax payers when taxes are being reduced overall.
Vote:March 15th, 2010 at 4:09 pm
I understand that the figure of $23,000 I was using did not include 15 year-olds. I may have been misled. At any rate, Rob provided a figure of 52% of those aged 16+ were earning less than $26,000, in the preceding paragraph. I’m happy to go with that.
It is interesting that you haven’t calculated the effect on those not earning a full-time wage: uni students etc.
Vote:March 15th, 2010 at 4:10 pm
Dime makes some claims that are flat wrong. Included among them: 1. None of the working classes voted for National;
Umm no, he is actually right – he is talking about beneficiaries. And walking to the ATM to collect your benefit does not count as work.
Vote:March 15th, 2010 at 4:14 pm
Replies to various other people:
DPF: 1. Says these tax cuts are not meant to be redistributive. Nice try. They are, in fact, redistributive because they redistribute part of the burden of funding government activity from the rich to the poor. They just redistribute freedom from funding the government up the income scale, not down. 2. Defends his self serving assumption about GST exposure on the grounds that is it an assumption. It remains, nonetheless, both self-serving and incorrect. Run the numbers again with a more accurate assumption to see what I mean. 3. Suggests that the 39% rate was an isolated “ideological blip from Michael Cullen” even though top earners pay over 40% (inclusive of federal and local income taxes, and payroll taxes) in every other OECD nation except Luxembourg, where it is… 39%. Never let the facts stand in the way, DPF…
burt – 1st comment: Great rant! Devoid of all substance to be sure, but very colourful. 2nd comment: In my example the difference in tax cut was proportionate to the difference in income. So the level of progressivity remains about the same. In National’s “possible package” that does not happen. That is the difference. And then you returned to more inane ranting that I will, again, ignore.
JC says “The reality is this tax package would increase the net benefits of the low paid compared to a tax cut for the better off.” I’d like to see the numbers that support that claim…
Bevan – See Graeme E’s comment above. Your caricature of our community is silly.
Vote:March 15th, 2010 at 4:14 pm
Let us assume that on average people spend 90% of their after tax income
Vote:Let us assume that those earning 40k or under spend 100% of their after tax income and their costs due to increase in GST will increase more than the $4 per week saved by the net of GST increase v tax cut. Because that sounds way more accurate.
March 15th, 2010 at 4:15 pm
I’m on a moderate income, mid 20′s, secure job, supporting a family, close to central Wellington. Times are starting to get tough surprisingly, and there is very little left over to save for our own home – to the point where we have pretty much abandoned all hope of obtaining it (raising our family is more important).
Some might already know, I’m not really a big fan of National (or Labour) – but this looks pretty good. Someone more intelligent than me is going to have to explain to me why there’s the potential for my landlord to increase my rent due to lack of tax breaks etc. But on the whole, seems to fill some of the hole left by my increased ACC levies. I eagerly await to see its implementation.
Vote:March 15th, 2010 at 4:18 pm
One thing I do worry about however, National promised tax cuts not so long ago, delivered, then the next day decided that they couldn’t actually afford them and took them away again.
Vote:March 15th, 2010 at 4:26 pm
It’s “redistribution” when people get to keep the money they’ve earned? I think I’m going to print that out and carry it around with me just in case I ever need reminding why I hate lefties so much.
Vote:March 15th, 2010 at 4:35 pm
Rob
It has become apparent that you think the shape of the progressive curve is just right and must never be changed. It also seems apparent that the shape pre the 2008 tax cuts introduced by Labour was wrong because it was just perfect heading into the 2008 election.
Gosh, I’m amazed – a Labour supporter who demands status quo unless Labour changes it. Thank Christ we biffed your team from power in 2008!
Oh and run your changes through a full calculation and compare the actual percentage of tax paid changes between the two examples. You might find that lowering the tax by 2% at each of the thresholds hasn’t actually got the effect you want others to think it has.
Vote:March 15th, 2010 at 4:36 pm
“burden of funding government activity” – remind us again who saddled us with this great big fucking burden of government “inactivity”?
Vote:March 15th, 2010 at 4:37 pm
Nefarious
Labour. They put us into negative growth before the global crisis by discouraging productivity with welfare. But that’s another story.
Vote:March 15th, 2010 at 4:39 pm
reL: 4:14 comment – make that $5 a week sorry.. did try to change it but couldn’t…
Vote:March 15th, 2010 at 4:46 pm
Rob,
You’re a smart guy. Why are you so anti tax cuts?
The people who PAY tax get TAX CUTs.
Te Gummint has already said they’ll sort out some kind of redistribution of wealth via WFF or something for those on really low (ie non-working) incomes.
As far as you know they may even scrub tax on the first 5k for these people.
The only conclusion I can draw is that you’d rather see people go begging back to Te Gummint for welfare handouts.
Therefore, as you are more red than a beetroot with sunburn, my comments about Labour being the beneficiaries party has some truth.
Didn’t see Labour give any tax back in the decade they were holding the purse strings.
Enjoy your evening, whatever you are doing. Like fighting the class struggle.
Vote:March 15th, 2010 at 4:47 pm
Something needs to be done about the growing trend of the lower-middle classes being a net drain on the economy.
Surely phasing out WFF and cutting taxes more heavily on say sub- $50,000 incomes would lead to economic growth, and hopefully give people in this earnings bracket some greater self reliance, instead of looking to the State for a handout even when on relatively good incomes
Vote:March 15th, 2010 at 4:52 pm
The most unfair tax cut ever was working for families, which gave some people 100% tax cuts and others NOTHING.
Vote:March 15th, 2010 at 4:54 pm
vibenna
You missed the brief; It was OK to pick winners and loosers in the economy when you have a party logo that is red. Parties with blue logo’s are not allowed to unravel unfair changes because they are not unfair when done by the red team. Keep up….
Vote:March 15th, 2010 at 4:57 pm
burt reckons “It has become apparent that you [me] think the shape of the progressive curve is just right and must never be changed.” All I have done is oppose the particular change that the SST thinks is about to happen. I have said nothing about the status quo or what I would do if I got to choose. Which makes his claims, again, false. And he reckons I have my numbers wrong. I think they are right, in terms of % change in tax paid. If he has better numbers I’ll be happy to reconsider.
And expat says he (he?) is incapable of understanding how a smart person could possibly oppose this tax package. Newsflash for expat – smart people do not all have the same political ideology. And anybody who reckons that there is only one “smartest political ideology” to be found has a pretty OTT opinion of their own intellect, IMHO.
As it happens (and also in answer to burt) I do not oppose all tax cuts. Not at all. I look around the OECD and notice that almost all of them have a bottom rate lower than ours, and almost all of them have a top rate higher than ours. So I would be very happy to cut the bottom rate, much lower than 10%, and cut back on current WFF entitlements as well, so long as we increased both the threshold and rate of the top rate and introduce tax credits for dependents. That is what most of the other rich countries do.
Vote:March 15th, 2010 at 5:01 pm
If “the poor” pay no more then how does that place more of the burden on them? A high proportion of “the poor” already have taxes I and others pay redistributed to them as benefits.
Tax restructuring is not supposed to be like lotto where everyone wins the same prize.
Vote:March 15th, 2010 at 5:07 pm
Rob Rob Rob…
It’s all about wealth distribution for you isn’t it?
Fuck the evil bastards who actually create wealth… Shame shame and more shame
Just a question, when was the last time average or slightly above average wage earners got anything other than increased expenses, taxes and were told what blood suckers they were to boot?
Although I note that group is rather poorly done by yet again compared to others… what’s new?
Vote:March 15th, 2010 at 5:07 pm
I always thought the 2% figure was achieved by basic arithmetic.
i.e. currently we pay 112.5% of the price of stuff. If GST increases, we will instead pay 115% of that price. 115/112.5 is about 1.02 — a 2% increase.
[DPF: That comes to 2.22%, and because some stuff does not have GST, Stats NZ says CPI impact will probably be 2.0%]
Vote:March 15th, 2010 at 5:16 pm
Rob,
“I’d like to see the numbers that support that claim…”
The Tax Working Group has the graph. Roughly half our households are net beneficiaries of the tax system.
The moment its implied that a family which pays $1000 in tax and receives $10,000 back should receive the same tax decrease as the family that pays net $10,000, or any similar argument.. is the moment we enter Loony Tunes territory because the comparison is inapt.
JC
Vote:March 15th, 2010 at 5:16 pm
Lance reckons: “It’s all about wealth distribution for you isn’t it? Fuck the evil bastards who actually create wealth… Shame shame and more shame” In answer: 1. No. Since you ask, for me it is all about maximizing the joint utility of the entire community. It is a version of Bentham’s utilitarianism, not Marxism. If we could figure out a flat tax based on lost utility, I would be for it. 2. In a Bentham-type setup there is a massive and positive role for wealth-creators. I rejoice in what wealth creators do, and am very comfortable with a community in which the wealth creators enjoy much higher standards of living than most others. I do, nonetheless, oppose this package, which offers New Zealand’s wealth creators a better tax deal than the wealth creators in any other OECD country.
Vote:March 15th, 2010 at 5:16 pm
When Cullen introduced the rich-prick tax he stated it would only affect the top 5% of earners (and that benchmark in 1999 was apparently at $60k). Labour never adjusted the threshold which is (one reason) why Cullen should never be trusted.
Vote:What is the 5% threshold now? I’m picking about $90k.
I actually think the idea behind the tax was sound, setting a higher rate for the top 5%. I’d be in favour of keeping the top tax rate somewhere near 38%, but setting the threshold at the top 5% mark, changing it year on year.
Then other rates can afford to be lower, but perhaps also change the thresholds year on year.
March 15th, 2010 at 5:19 pm
JC – I don’t need to be convinced of your claim that heaps of NZ households are net beneficiaries. I didn’t ask for that. I asked for numbers supporting your other claim that: “The reality is this tax package would increase the net benefits of the low paid compared to a tax cut for the better off.”
Vote:March 15th, 2010 at 5:21 pm
OK Rob, I understand, your tax cuts for the beneficiaries argument gets aired again.
Nice one.
Besides that, you agree with the Nats then that the tax burden on the working classes should be reduced.
I do agree with you on that.
Vote:March 15th, 2010 at 5:23 pm
Rob:
1. Many countries have higher headline rates for top income earners. But most reputable studies show that very few people pay that tax rate. In NZ, the deal was that we closed lots of loopholes, and lowered the headline rate. Since that time, some on the left have been trying to increase the headline rate again. Logically we should also reintroduce the loopholes so we can be similar to other countries?
2. I agree with you, a tax cut plan that substantially reduces the tax for those lower paid, and leaves the top tax rates alone, would be fine with me. Or increases the threshold for the top rates, without changing the headline rate. I know that some who voted National wouldn’t live with that, but simply put it is good politics, and it isn’t like those people have anyone else to vote for than National. I’d rather have a government that gives small tax cuts targeted to the lower paid, than a government that would never ever give any tax cuts at all, which is what we’ll get if National over reach.
3. You have a lower opinion of DPF than I do. I agree his analysis was over simplified, but I think that was for reasons of time rather than because he actually ran 5 different analysis (probably using parliamentary resources, right?) and then published the one that was the best spin. I understand that a part-time blogger only has so much time, and I am thankful that he publishes any numbers at all so we can have this discussion, rather than what the media often do that sheds no light at all on it, and has no forum for people to talk about the different assumptions that could be used.
Vote:March 15th, 2010 at 5:30 pm
The aim is to improve after tax income for everyone.
However, in many households the mortgage is the biggest drain on gross income.
So it is useful to look at income after tax and after mortgage and rental to compare comparative income wealth in different jurisdictions.
In Auckland, Melbourne and Sydney (and the cities of California and Florida etc) Smart Growth and MULs mean that the typical median income household spends 50% of their income on the mortgage for their median house mortgage. ie median multiples of 5 to 6 or severely unaffordable housing.
However in lightly regulated states such as Texas and Georgia the median income household spends only 15 – 16% of its income on their median house. Affordable housing – mm of 3.0 or less.
the
Now that makes a difference in disposable income and guess which families are better able to invest in the productive sector, savings funds and their children’s education.
Reducing mortgages by more than half would leave far more dollars in low income pockets than any tax cuts.
We know what to do and how to do it but for some reason Governments are missing the big picture.
Vote:March 15th, 2010 at 5:36 pm
OK expat, I understand, your “invent Rob’s argument” strategy gets aired again. Nice one.
Paul – 1. I am interested to see the reputable cross-national studies showing that most high income earners do not pay the high income rate. Where should I start? 2. DPF will tell you that we still have all those loopholes in NZ even now (he noted that half the highest income earners do not pay the top rate today), and I would note that we haven’t heard anything much about closing them. 3. I have a high opinion of DPF’s abilities and appreciate his willingness to put his views there for us to discuss. I just wish he would start the discussion with a scenario that is realistic, rather than with an unrealistic scenario that just happens to overstate his case. Makes for a better discussion, don’t you think?
Owen – You may also consider another difference between Auck, Syd, Mel, CA, and FL on the one hand vs TX and GA on the other, which might explain lower mortgages. That factor has nothing to do with regulation, it is differences in the availability of buildable land.
Vote:March 15th, 2010 at 5:41 pm
That is it for me for today. I enjoy debating these issues with you all, and I guess I have to tolerate the name-calling from some of you that goes along with it. Enjoy the rest of your day.
Vote:March 15th, 2010 at 5:42 pm
“That factor has nothing to do with regulation, it is differences in the availability of buildable land.”
You think Australia is short of buildable land?
Vote:March 15th, 2010 at 5:47 pm
I hate to say it, but these tax rates sound a little fanatical. Increasing GST will not improve the tax take by anywhere near this amount. I can only assume there will be other areas where the government will increase revenue as I cannot see them reducing spending.
However, I dare say that a $2billion reduction in spending is not that spectacular in comparison to total government spending yet it would make a huge difference to income tax.
Vote:March 15th, 2010 at 5:58 pm
@Rob Salmond, you say “top earners pay over 40% (inclusive of federal and local income taxes, and payroll taxes) in every other OECD nation except Luxembourg”. Citation needed please.
I confess to not being familiar with OECD tax rates, but a quick google search led me to this site which doesn’t seem to bear that out:
http://www.oecd.org/document/60/0,3343,en_2649_34533_1942460_1_1_1_1,00.html#pir
Happy to be corrected, but a quick scan of the data seems to show NZ taxes are higher than many OECD countries.
Vote:March 15th, 2010 at 6:10 pm
Many of you have overlooked a basic fact.
Vote:Reducing the top rate back to 33% will substantially reduce those investments in rather silly tax deductible items like stallion prospects et al. It will also reduce the attractiveness of residential housing as a tax structured investment.
I found sullen Cullen’s decision in 2000 to increase the top tax rate to 39% to be ridiculous. It prompted so many stupid tax structured investment decisions; okay, not as many as Piggy’s 66% rate did 27 years ago, but still a large number. My psychologist mate suggested that 35% might be the trigger point whereby people consider tax structured investments. None of us will know for certain.
What chance the 33 1/3% rebate on donations get reduced to, say, 19%?
But I would dearly love a flat tax rate with some help for the indigent and Philu, or is he one of them?
March 15th, 2010 at 6:19 pm
rightnow
If Cullen had a tax policy rather than a tax method then yes he would have raised the top threshold each year to reflect the policy intent. The problem Cullen had was that he based his party marketing on the policies of envy and to lift the top threshold would have given tax cuts to rich pricks year on year. See Cullen was so bound by his ideology and his position that taxation is about plucking the goose with the least amount of hissing that fairness didn’t enter into the equation.
It is easy to denigrate a rich prick who wants a tax cut and make them look greedy – which is exactly what Cullen played on.
Rob Salmond is equally myopic, see he thinks that just lowering the rate at each threshold maintains the progressive nature of the tax system when in reality it make it more progressive. Lefties seem to think the tax system is a one way trip with progressiveness, it’s OK when it is getting more progressive but the world ends when it is less progressive. Once again fairness has no place in the equation except when that is required to win an election.
If we lowered all rates keeping the thresholds the same as Rob suggested earlier up thread then low income earners would get circa 10% reduction in actual tax paid tax and high earners would get circa 5% reduction in actual tax paid tax – but sadly Rob appears to either want to ignore that little fact and pretend he knows what he is talking about or he just fails to understand how progressive taxation works eventhough he claims to have a fair solution.
Lefties eh, it’s just too much to expect them to understand that their ideology has never worked.
Vote:March 15th, 2010 at 6:28 pm
queenstfarmer
NZ tax thresholds are also ridiculously low. Cullen in 1999 made a great statement that at 39% the proposed top wealth tax was quite low compared to the US which at that time was 49%. Cullen just didn’t mention that at that time the US top rate kicked in at $400,000 USD (Circa 10x the $60K NZD threshold he said was rich).
It’s this kind of dishonesty (lies of omission) that let Cullen get away with the rort of over taxing what are really middle earners so he could spend on targeted groups to make sure Labour got re-elected. Socialism always fails, just socialists are too dim to remember from one failure to the next that it was their ideology that stuffed the economy. 2008 was pretty much a re-run of 1990 yet dim-bulbs lefties still think redistribution and welfare are the way forward.
Vote:March 15th, 2010 at 6:53 pm
Rob Salmond expouses
“That is what most of the other rich countries do”
We gave up being a rich country a long time ago.
Better to compare ourselves to other fool’s paradises, living off the back of borrowed money and supporting large government.
Vote:March 15th, 2010 at 7:33 pm
Sheesh, why not just make the three rates 9%, 19% and 29%, and drop company tax to 29% to match? Getting under that psychological 30% barrier would work wonders.
Vote:March 15th, 2010 at 7:45 pm
Looks good tome, I’ll get an extra packet of chewing gum a week!
Vote:March 15th, 2010 at 9:30 pm
As all the moaning starts on how the lower paid are getting ripped off and the big earners are getting all the rewards of lowering taxes this little story is a good read…
How Taxes Work
Bar Stool Economics, something to which we ALL can relate!
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. They could all just pay $10 since they all drank beer or if they paid their bill the way we pay our taxes, it would go something like this:
Vote:The first four men (the poorest of the 10) would pay nothing. The fifth would pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18. The tenth man (the richest) would pay $59. So, that’s what they decided to do.
The ten men drank in the bar every day and seemed OK with the arrangement until one day, the owner threw them a curve. ‘Since you are all such good and faithful customers,’ he said, ‘I’m going to reduce the cost of your daily beer bill by $20. Drinks for the ten now cost just $80.’
The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still drink for free.
But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’
They realised if they divided the $20 savings by six they could each reduce the amount they were paying by $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill the same way Tax Savings are dispersed, and he proceeded to work out the amounts each should pay.
And so, the fifth man, like the first four, now paid nothing (100% savings)
- so 5 men are drinking for free. The sixth now paid only $2 instead of $3 (33% savings). The seventh now pay $5 instead of $7 (28% savings). The eighth now paid $9 instead of $12 (25% savings). The ninth now paid $14 instead of $18 (22% savings). The tenth (the wealthiest) now paid $49 instead of $59 (16% savings).
Each of the six was better off than before.. And the first four continued to drink for free, now along with the 5th too. But once outside the restaurant, the men began to compare their total dollar savings. ‘I only got a dollar out of the $20′ declared the sixth man. He pointed to the tenth man: ‘but he got $10!’ ‘Yeah, that’s right,’ exclaimed the fifth man.
‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’ ‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’
‘Wait a minute,’ yelled the first four men in unison. ‘$20 was given back and we didn’t get anything at all. This system exploits the poor!’ The nine men surrounded the tenth and beat him up.
The next night, the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
March 15th, 2010 at 10:31 pm
IN figuring out who would win and who would lose and how progressive the suggested changes would or would not be there is a large elephant being missed: the proposed change to property investment depreciation rules.
The tax working party thought this might raise over a billion dollars in revenue, which answers part of the quaestion about how the numbers stack up – the GST rise would not in itself provide enough cash to fund the suggested income tax cuts AND compensate superannuitants etc.
But a second key point is that a whole lot of the high income earners who appear to do very well out of the suggested income tax changes will actually be hit hard by the property depreciation change – many will be worse off.
The trouble with all the calculation is that everyone’s circumstances are different both in terms of what they spend money on and where the money comes from.
Vote:March 15th, 2010 at 10:48 pm
I’m OK if we’re saying that low income earners are better off, high income earners with property are worse off, high income earners without property better off. In other words, those who were getting unrealistic tax breaks at the moment, will lose them. Fine by me.
Vote:March 15th, 2010 at 11:22 pm
Sorry – am I missing something. If the rates are 10% up to $14k, 19% for $14k to $48k; and 33% for 70k and over – then what about the rate for the $48k to $70k bracket? Can anyone help?
[DPF: That stays at 33%]
Vote:March 15th, 2010 at 11:37 pm
RightNow (648) Says:
March 15th, 2010 at 5:16 pm
as part of the top 5% we hope you NEVER get on the govt benches
Flat tax 25%
GST 15%
no tax up to beneficiary rate.
limited time benefit.
No WFF.
Govt reduces spending and cuts its cloth to income, like people do.
Vote:March 16th, 2010 at 9:10 am
According to Key Facts for Taxpayers it costs about 500 million to reduce the top rate to 33%. The entire package (from memory) has been said to be between 3 and 4 billion of which about 2 billion comes from the GST increase, so changes to taxation around property more than pay for the drop ion the top rate.
Vote:How the overall package impacts on poorer people therefore depends on how much of the changes around property get passed on in rent increases. This can’t happen if there is a perfect market for rentals – what makes for a perfect market is that people can easily find somewhere else to live and the costs of shifting are low. Perhaps the government should also be looking to see if there are ways to rejig existing housing assistance policies to make it easier for people to vote with their feet if the rent goes up.
March 16th, 2010 at 9:26 pm
bka
I think you are onto something there. Good long term tenants usually end up with rent below market because they pay their rent on time, don’t have a high maintenance cost and sometimes they even do much of the day to day maintenance as if the house was their own asking only to be reimbursed for costs. Rental increases for these people are likely to be negligible as landlords adjusting to net income changes wouldn’t want to risk loosing a good tenant.
Providing assistance for some people to move more easily, rather than to enable them to pay more, would just make it easier for them to trash a house and ship out. The unintended consequences of making a sector of the market more mobile than previously would change the market, what further mitigation would then be regulated to counter the new form of intervention’s negative effects?
Vote:March 17th, 2010 at 12:04 am
it seems most professionals are the worst grp with any sort of tax cut.
at 70k a year i’d say it’s about 30~50% lower than OZ (depends on your trade), u get the smallest share of the tax cut pie, u get no benefit or any sort, and u still can’t afford the house on the beach side of the main road.
the 70k to 100k group should see some greater reduction.
Vote: