The importance of tax cuts

August 27th, 2010 at 9:00 am by David Farrar

Bill English’s office has put out a comparison of real (CPI adjusted) net (after tax) wage growth for a full-time worker on the average (mean) wage.

The Australian data only goes back to 1994, so the first time period compared is Sep 1994 to Sep 1999 – the final quarter before Labour took office.

During those five years the real net income for a FT worker on the average wage rose 13.2% in and 6.2% in .

Then over the next nine years from September 1999 to September 2008, the increase in New Zealand was 3.0% and in Australia it was 19.3%. Yep six times greater in Australia. They had high , low and . We had no , higher inflation and lower wage increases.

From Since September 2008, to June 2010, the increase in New Zealand has been 8.7% vs 4.8% in Australia.

If one translates this to average annual increases, then the comparison would be:

  • Sep 94 – Sep 99 – 2.6% NZ vs 1.2% Aust
  • Sep 99 – Sep 08 – 0.3% NZ vs 2.1% Aust
  • Sep 08 – Jun 10 – 5.0% NZ vs 2.7% Aust

Now the time periods used are slightly cheery picked, in that the latest period includes both the April 2009 tax cuts and the October 2008 tax cuts – so they do not correspond exactly to Government terms. But on the other hand Labour did the Oct 2008 tax cuts most grudgingly, because of the election, and probably would ave cancelled them if they had retained office.

The stat that stands out to me is that during those nine years from Sep 99 to Sep 08, the average after tax income only grew 0.3% a year. Fiscal drag mean someone on the average wage paid more and more tax as their salary increased.

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16 Responses to “The importance of tax cuts”

  1. krazykiwi (8,040 comments) says:

    someone on the average wage paid more and more tax as their salary increased

    Socialism DPF. Everything I produce belongs to the state. If I produce more, then that increase belongs to the state too.

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  2. burt (7,426 comments) says:

    OMG, no way; are you serious…. When people get to keep more of their hard earned income the economy grows and when the govt decides that it needs to take more and more off us so they can spend it poorly the economy stagnates… who would have guessed.

    Bloody hell, next thing you will be telling us is that state run monopolies are just as self serving and inefficient as corp monopolies…

    Where will this end…..

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  3. burt (7,426 comments) says:

    Oh DPF you are just picking the numbers to match your position. If you took the PM’s salary in 1999 and compared that to 2008 you would see that wage increases were more like 90% in NZ. The big fat cat nasty CEO’s who don’t give a shit about workers got something like 9% every year between 1999-2008 just like the good hard working PM that represented the working people.

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  4. Don the Kiwi (1,814 comments) says:

    burt.

    Your slip is showing.

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  5. Pete George (23,804 comments) says:

    “Now the time periods used are slightly cheery picked”

    Happy times?

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  6. CJD (333 comments) says:

    Burt-all the Lefty nutjobs don’t seem to realise that without “The big fat cat nasty CEO’s” to create jobs in the first place there would be no potential for wage increases for anyone. But of course Labour and even better the extreme intelingence in the Workers Party would creat more and more meaningless government jobs and simply tax everyone else to pay for them. Face the facts center-right governement/thinking creates new wealth and socialist governemts come in and redistribute the existing pie. Of course once the pie runs out popularity wanes and sensible center-right goverments are voted back in again and the cycle repeats.

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  7. CJD (333 comments) says:

    P.S. Pete George-thanks for the touch of humour!

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  8. RightNow (7,014 comments) says:

    From memory public sector employees had significant salary growth during the Clark regime. I wouldn’t be surprised if in the private sector there was no net growth during that time.

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  9. Falafulu Fisi (2,141 comments) says:

    Here are some macro-economic research (peer review/working) papers that law-makers must read, because they’re informative. Go on Bill English & David Cunliffe, read the followings:

    “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks”
    http://emlab.berkeley.edu/users/dromer/papers/RomerandRomerAERJune2010.pdf

    “Do tax cuts starve the beast? The effect of tax changes”
    http://emlab.berkeley.edu/users/dromer/papers/Romer_BPEA_Reprint.pdf

    David Cunliffe has been criticizing National (mostly at RedAlert) for its tax policies since Labour became the opposition on a continual basis but I find that his reasons are not supported by facts. That’s the main problem when people wish that the external world reality must conform to their already made up twisted ideologies in their heads. It should be the other way round and policies should be based on that (i.e., fact-based and not ideology-based). What’s contain in the heads of people must accord with what the external world reality revealed (i.e., facts). Mystics believe that what’s in their heads can change external reality, such as they can just easily materialize (paranormal) objects out of thin air. David Cunliffe’s way of thinking is akin to a materialization proponent.

    I suspect that the reason Mr Cunliffe thinks that way is that he doesn’t read much economic research publications except perhaps from reading online opinions of certain economists such as Prof. Olivier Blanchard from IMF, because online opinions is not the same thing as peer review research publications.

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  10. krazykiwi (8,040 comments) says:

    @RightNow – you might like this article from 2007.

    Extracts:

    The “core public service” is expanding at four times the rate of the public health and education sectors, a Government survey shows. The annual survey, released by State Services Commissioner Mark Prebble, shows the number of core public servants grew from 42,047 last year to 44,335 in the year to June 30 – an increase of 5 per cent.

    But when taken from 2002, it shows the number of “core” public servants – 75 per cent of them paper pushers – has risen by 35 per cent, compared with just an 8 per cent rise over the period in the number of public health and education workers. The “core” public service covers staff at ministries, departments and prisons, but not schools, hospitals and research institutes.

    [::]

    However, the biggest percentage rise was the State Services Commission itself which grew by 20 per cent – from 180 to 215 staff. Overall, 23 departments increased staff, three stayed the same, while five shed staff. They were Land Information New Zealand, the Education Review Office, Statistics New Zealand and the National Library.

    The survey found the median core public service salary at the end of June was $48,343, up almost 5 per cent on last year’s figure of $45,900. The average salary moved up from $53,948 to $56,619 – about $10,000 higher than for the general population.

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  11. GMDI (70 comments) says:

    Hey Falafulu, Blanchard is the prescribed text for most first and second year economics students. says it all really, cunliffe never got it that there is more to be learned than what is taught at first year uni.

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  12. burt (7,426 comments) says:

    GMDI

    It’s worse than that, Labour never learned that since socialism has failed every time it has been tried in numerous countries that it might just fail again. Still – policies of envy and promises of more welfare do win votes….

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  13. malcolm (1,952 comments) says:

    The importance of tax cuts

    Cool. Any chance of getting some, Bill? I mean real tax-cuts; not that imitation revenue-neutral (PAYE down, GST up) crap.

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  14. stephen (3,981 comments) says:

    It would be good to know to what income brackets all of these tax cuts went to. Complicates things a fair bit of course but that’s life.

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  15. SBY (121 comments) says:

    “Lies, damned lies, and statistics”.

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  16. John Ansell (832 comments) says:

    Is someone able to work out to what extent National has closed or widened the Tasman Wage Gap (ie starting from when they were elected)?

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