New maths

July 18th, 2011 at 3:27 pm by David Farrar

In a desperate attempt to justify whacking the “rich” with higher taxes, Rob Salmond comes up with a new form of maths – when a figure is negative you count it as zero, rather than include it in the calculation.

According to Rob if you had assets and liabilities of (for example):

  1. Term Deposit – $200,000
  2. Shares – $100,000
  3. Loan – $50,000

Then your term deposit is only 67% of your net assets ($200,000/$300,000) rather than 75% 80% ($200,000/$250,000).

Hilarious. And desperate.

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51 Responses to “New maths”

  1. thepolecat (63 comments) says:

    Sounds like the same logic that pollsters use when they don’t count in undecided voters.

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  2. Nick R (507 comments) says:

    Pot, kettle, black. Just read Salmond’s post. He says much the same about DPF. From which one concludes – never trust a blogger on the stats. Except maybe Keith Ng.

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  3. leftyliberal (651 comments) says:

    Heh, math fail when describing math fail. I think you were after 80% :)

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  4. williamsheridan (63 comments) says:

    Hmmmm….. after reading that I find myself for the first time ever agreeing with Trevor Mallard…. getting dragged down into the detail is boring.
    However…. what seems to me to be getting overlooked in such esoteric arguments as Mr Salmonds are that the “rich pricks” being targetted are the people who generally are creating wealth and jobs in the economy. So they invest in a business (perhaps even a rental property investment one!), create jobs or perhaps resources like housing for people, pay tax on their earnings (perhaps more than most of the people in NZ), perhaps even create huge foreign earnings by selling the assets they create to an overseas company (aka Trademe), reinvest in another business….. and get hit hard in the eyes of Labour because they are rich pricks who are not playing “fair”.

    Well I reckon Kiwis have an increasing appreciation of what’s really “fair” and dumping on people who create wealth is not seen as fair – I reckon the latest poll shows that with only a marginally small group still wanting to piss on the poppies.

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  5. themono (129 comments) says:

    It’s more the arbitrary grouping which I think he is bringing out as the issue. By your logic, if you divided it into three equally arbitrary groups instead of two, the numbers would be:

    $150,000+ pays 70.7% of net tax.
    $50,000 – $149,999 pays 83.8% of net tax.
    $0 – $49,999 pays minus 54.5% of net tax.

    Because you split it arbitrarily into “$150,000+” and “below $150,000″, he’s quite right that you’re netting out within that group, rather than sharing the burden pro-rata between the various brackets.

    You would be equally correct to say “people who earn between $50,000 and $149,999 pay 83.8% of net tax”.

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  6. lastmanstanding (1,297 comments) says:

    IMHO the point thats being missed is that the vast majority of citizens are taxed out. Even those who are net non payers are taxed out.

    And its not just in NZ Its across the western world. Citizens are tired of being taxed and seeing most of that tax wasted or spent on things or people they dont believe it should be spent on.

    They see Gumints as taken a dollar off them wasting 90 cents in admin and other costs and then giving the remaining 10 cents to losers.

    Citizens dont see they are getting any value for their taxes and its a monopoly business.

    In other areas they have choice and competition so if they dont think they are getting value they simply go to another provider.

    Well with Gumints what they see is tweedle dee and tweedle dum same old same old lies and bribery.

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  7. thepolecat (63 comments) says:

    Its all irrelevant. The left just need to get 200,000 unregistered voters to vote and they will claw it back. Mallard is right the more borign it gets the less different swing voters are going to see between Labour and National. This is 2002 all over again IMHO. Cunliffe will be wise to bide his time endure the next 4 months.

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  8. williamsheridan (63 comments) says:

    @lastmanstanding… like your opening observation. …. don’t agree that people see no choice in governments…. the choice is becoming more obvious.

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  9. YesWeDid (1,048 comments) says:

    Actually I think Rob makes some fair points about how the numbers were calculated and what percentage of tax upper income earners should be paying. I don’t think any new math is required.

    However if you want 20K/25K => 75% then some new math is definitely required!

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  10. swan (665 comments) says:

    Ha,

    Farrar has got completely owned on this one. Cant believe I didnt spot this when he posted originally. Extremely deceptive. Obviously the implication is that 70.7% is out of 100%.

    If Farrar had said that every household earning over 50,000 paid 154.5% of net tax people would have said, quite rightly, WTF are you on about?

    In Farrars loose analogy above, your shares and term deposit make up 120% of your net assets. This is frankly a meaningless statement.

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  11. TEO (33 comments) says:

    WINZ have a nasty habit of ’rounding up’ business losses to zero. Couldn’t convince them my wife’s income was subsidising my business, for the purposes of calculating combined taxable income.

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  12. Rob Salmond (246 comments) says:

    DPF
    1. Thanks for sending a lot more traffic to my post in which I call you an idiot.
    2. I note that you went to all the trouble of responding my post, but didn’t actually manage to rebut any of its specific points. Not a good sign.
    3. According to **your** maths in the above scenario, the loan would discount the net value of one asset by the full $50k, but not discount the net value of the other asset at all. There is no good reason to do it that way.
    4. You know you are having a bad day when you can’t even add things up right in your rebuttal post about adding things up right. 200/250 = .8!
    5. Another good sign that you are wrong when you are David Farrar: even the Kiwiblog comments section is against you.
    6. I’ll happily engage with you on the substance, but so far you have not said anything substantial. Over to you.

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  13. CJPhoto (221 comments) says:

    I agree with both arguements. Depneds on whether you are working out gross or net. the fact remains, if the top 10% leave NZ, then there goes 70% of net tax revenue

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  14. RightNow (6,994 comments) says:

    Hard to believe how thick some people are, but let’s have a go at explaining a concept they seem to have missed.

    Take three figures, lets use -10, 40 and 50 for the sake of this tutorial.

    40 = 80% of 50.
    -10 = -20% of 50

    With me so far?

    Now let’s assume that net tax is 50. If a group of taxpayers collectively pay 40, then they are paying 80% of net tax.
    Let me know if you disagree with this? I can explain it in simpler terms if you need me to.

    Let’s assume another group get some form of tax transfers (WFF or whatever) such that collectively they receive 10 (which we express as paying -10). They are therefore paying -20% of net tax. Any disagreement?

    Now let’s assume we have two groups that each pay 40, and three groups that each receive 10, and for simplicity those groups constitute the entire taxpayers group. Add up their figures as:
    40+40-10-10-10=50
    See that the sum, 50? That is for our purposes the total net tax.
    Now see that the first group paying 40 is actually paying 80% of net tax? And that the second group paying 40 is ALSO actually paying 80% of net tax?

    Let me know if anyone has trouble with this. I’m used to tutoring a 6 year old but I can dumb it down further if you need.

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  15. YesWeDid (1,048 comments) says:

    Really the ‘math’ issue here is combining both positive and negative numbers in a percentage calculation.

    It is easy to prove how meaningless this is but given the lack of substance to DPF argument I can’t be bothered.

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  16. m@tt (629 comments) says:

    Thanks for the link I hadn’t seen Rob’s post until now and I know quite a few people who’ll be getting a link to it in the very near future.

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  17. campit (467 comments) says:

    … or a more simple example. In Taxlandia there are three people that pay or receive tax in a given year:

    * Andy receives $50
    * Bruce pays $20
    * Cheryl pays $80

    Together, Bruce and Cheryl contribute 100% of the tax – Cheryl 80%, Bruce 20%.

    Discuss. Include your workings for extra marks.

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  18. swan (665 comments) says:

    RightNow,

    Thanks for that, but we all understand the little magic trick Farrar/English have done, thanks to Salmond.

    “Now see that the first group paying 40 is actually paying 80% of net tax? And that the second group paying 40 is ALSO actually paying 80% of net tax?”

    If you want to believe that is a meaningful statement, I am happy for you.

    If, in my line of work, I saw this sort of communication fail in a report going out to a client I would stop reviewing it on the spot and throw it back to whoever wrote it (or find someone else to redo it).

    Put it another way: Please show these percentages in a pie chart..

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  19. RightNow (6,994 comments) says:

    swan, you’d be fired for being incompetent in my world.

    Put it another way, in your world what percentage of net tax is 40, if net tax is 50?

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  20. swan (665 comments) says:

    “Depneds on whether you are working out gross or net. the fact remains, if the top 10% leave NZ, then there goes 70% of net tax revenue”

    But thats not such a problem because, fortuitously, we are left with 84.5% of net tax revenue!! So not a big loss

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  21. Murray (8,847 comments) says:

    Here’s sopem maths for you.

    What does 79% – 2% equal?

    Thats right, Flt Lt Phil Goff flying Air Labour into the freaken ground. Keep thrashing that “hate success” line lefties, love your work.

    Muppets.

    Rightnow, htf did he GET a job in the first place? Tighen up your recuitment proceddures chap.

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  22. PaulL (5,981 comments) says:

    I’m no big fan of the way that DPF originally presented it. But then again, successive governments have persisted in treating benefits as being “tax credits” and the like – such as WFF. And when you do that, you end up with people paying negative tax, and therefore a mess like this.

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  23. RightNow (6,994 comments) says:

    Well Murray, swan was a long term unemployed black transgender lesbian muslim refugee with 7 artificial limbs when we hired her. It just looked so PC to tick all the equal employment boxes with one new hire, AND the government was paying us a fortune for the first 6 months.

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  24. side show bob (3,660 comments) says:

    It’s not call new math it’s called woo math. Woo confuses the math with magic which is very apt for these gagglers.

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  25. Inventory2 (10,342 comments) says:

    Rob Salmond demonstrates the need for National Standards in numeracy and literacy…

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  26. PaulL (5,981 comments) says:

    Swan – also not a big fan of the “if x% of NZers left” story. But, if they did leave, NZ would in fact have a hole in net tax equal to 80% of net tax. Similarly, if the middle cohort left, we’d also have a hole in net tax equal to 80% of net tax. And if that bottom cohort left, we’d have 160% of net tax, because all the people with “negative tax” at the bottom would be gone. It does all add up and is logically consistent.

    However, the statement that the top group are paying 80% of net tax leads one to conclude that almost nobody else contributes to tax take. So, somewhat as Rob has done I gather, I’d be tempted to exclude all those who have negative tax, and then report what %age of tax each of the remaining cohorts pay.

    Another point worthy of note is that this whole calculation is based on the reported income for tax purposes. Of course, it is widely believed that many very wealthy people in NZ have relatively low income for tax purposes. This is one of the hazards of taxing income when what you really wanted to tax was wealth. And a capital gains tax is a very good way to rectify that – if someone has $10M worth of assets that return no taxable income, they are tax free. Whereas someone with near nil equity in their mortgage and $150K of salary is getting taxed out the wazoo. Whilst I’d like it if nobody paid any taxes, that isn’t happening any time soon, and I reckon what we have is a little unfair.

    So, kind of like DPF has said a few times, I’m in favour of a capital gains tax to broaden the tax system, as long as it’s well designed, and as long as we give tax cuts to offset it. Neither of which Labour will do.

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  27. RightNow (6,994 comments) says:

    ssb – woo math… I’d consider it to be math as understood by woo girls.
    http://www.urbandictionary.com/define.php?term=woo-girl

    woo girl might well describe many Labour ideologues, a lot of ‘WOO’ but little substance.

    Goff: “Hey guys, we’re going to campaign on axing GST off fresh fruit and vegetables, and ride around the country in a big red bus with “AXE THE TAX” written on the side.”
    Supporters: “WOO WOO”

    Goff: “Hey guys, we’re going to campaign on a new CGT which will sound good to you but we don’t want to get into detail with the voters because we’ll bore them”
    Supporters: “WOO WOO”

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  28. Adolf Fiinkensein (2,903 comments) says:

    Of course DPF is right.

    Everybody knows Labour voters and their supporting journalistic hangers on can’t count beyond 27.

    27 is the end of their numerical universe.

    That is, until next week, when the world contracts to just 25 —— or 23 —– or 19?

    WOO WOO WOO WOO

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  29. Falafulu Fisi (2,179 comments) says:

    Has Rob Salmond ever worked in a productive job in his lifetime or is he one of those that leeche from the public tits as their only way to earn a living?

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  30. Dean Papa (784 comments) says:

    “Now let’s assume we have two groups that each pay 40, and three groups that each receive 10, and for simplicity those groups constitute the entire taxpayers group. Add up their figures as:
    40+40-10-10-10=50
    See that the sum, 50? That is for our purposes the total net tax.
    Now see that the first group paying 40 is actually paying 80% of net tax? And that the second group paying 40 is ALSO actually paying 80% of net tax?”

    No, that’s wrong. Percentage is the wrong statistic to be using in his case. For example, if I am the govt and I tax you $1 and then give 50c of it away to a needy individual (for simplicity my population is 2) then my net tax collected is 50c. By your reasoning you have contributed 200% of this total????

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  31. Adolf Fiinkensein (2,903 comments) says:

    How can you take any notice of a man who starts off with a blooper like this?

    I went over to the Salmnd Farm and this was his first para under the heading ‘addition.’

    In Bill English’s table, he calculates how much tax is paid by households in an income bracket, how much those same families receive in cash welfare transfers (but not any other form of private benefits), and adds them together to get a net figure.

    To calculate ‘net tax’ you subtract one from the other, rather than add them together and the table did exactly that. 8091 less 333 equals 7758.

    What an absolute brain dead loon.

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  32. RightNow (6,994 comments) says:

    Dean Papa – you got it, I am indeed contributing 200% of net tax in that situation provided the giving of the 50c is within the definition of a tax transfer. The other person is therefore contributing -100% of net tax.
    I think what you’re objecting to is the use of ‘net tax’ allowing negative amounts (or tax transfers) to be considered in the equations. Much like swan wanting to discount the analysis because pie charts are inappropriate for showing negative percentages.

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  33. AG (1,827 comments) says:

    Adolf,

    In your math world, what happens when you add a negative?

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  34. straya (80 comments) says:

    Actually, I thought the graphs in Rob’s post wonderfully illustrated the disproportionate share of tax paid by those households earning >$150K. You should steal his graphs!

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  35. Adolf Fiinkensein (2,903 comments) says:

    AG

    You get confused, which is what has happened to your friend Mr Salmond.

    I suggest you trot off and find the algebraic equation which proves beyond doubt that one equals two. This was done by adding a negative and then multiplying the result by zero.

    In the real world, as the good doctor once said, bums are for pooing and negatives are for subtracting.

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  36. expat (4,050 comments) says:

    Yeah, but R0b is a c*ck.

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  37. Steve (4,563 comments) says:

    @ side show bob and Right Now
    As an engineer I can tell you what a ‘woo’ is. Got a ‘woo’ in it means it is bent and fucked.
    Needs straightening real quick otherwise biff it

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  38. AG (1,827 comments) says:

    Adolf.

    wtf are you on about?

    Tax transfers are being treated in this debate as negative numbers (see RightNow’s comment at 4:26 above: “Let’s assume another group get some form of tax transfers (WFF or whatever) such that collectively they receive 10 (which we express as paying -10)”) So to find “net tax”, you add this negative figure to the positive one (tax paid). Your attempting to say Rob screwed up simply reveals you don’t know what you are talking about.

    (In fact, that makes RightNow’s comment a bit wrong … he should have phrased it 40+40+(-10)+(-10)+(-10) … not that this changes his claim any.)

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  39. expat (4,050 comments) says:

    The amount of “in this instance” or “for the purposes of this debate” shows just how shit and ill thought out the Labour CGT policy is.

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  40. side show bob (3,660 comments) says:

    Rightnow 5.11 :-)

    Steve, woo means bent or fucked, I rest my case.

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  41. hj (7,023 comments) says:

    Just to change the subject I remember hearing about labours Black Budget and that it was “the right thing to do” but govts learnt that you don’t do that or you will be out on your ear. So here we have DPF celebrating success when he ought to know that we have imbalance in the economy and (in this case) “whacking the rich” is taxing unearned income from (especially) real estate. I guess I’m saying DPF is on the Dark side right now (sold his soul to the devil). Act also have sold out to Satan having embraced AGW denialism. I recall a photo of Don Brash with Phill Jones (aka Satan) at a Richmastery slathering.

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  42. RightNow (6,994 comments) says:

    hj, I have some pics from the last vrwc ritual sacrifice and tupperware party. do you want to join the mailing list?

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  43. Dean Papa (784 comments) says:

    “… or a more simple example. In Taxlandia there are three people that pay or receive tax in a given year:

    * Andy receives $50
    * Bruce pays $20
    * Cheryl pays $80

    Together, Bruce and Cheryl contribute 100% of the tax – Cheryl 80%, Bruce 20%.

    Discuss. Include your workings for extra marks.”

    Agree with that calculation, and further,

    net tax collected is 100-50=50

    of which Bruce contributes 40%, Cheryl 160%, and Andy -100%

    at least according to the logic being propounded in here.

    It’s a nonsense of course. Interesting in theory, but not particularly enlightening in real life.

    I don’t particularly follow the tedium of politics closely, but I’m fairly sure this exercise in number massaging arose as a response to Labour’s proposed tax policy. The aim being, presumably, to demonstrate that those in the higher income brackets do indeed pay their fair share, in fact considerable more than their fair share of tax.

    Hence, the big conclusion, with much fanfare, derived from Mr Farrar’s analysis of a particular spreadsheet of interest, that

    “10% of households have an income of $150,000 or greater. And those 10% fund 71% of net taxation”

    The obvious implication being, at least for those not familiar with the concept of negative percentage calculations, that those in the $150,000+ income bracket are paying far more than their fair share. In fact, by a factor of seven it would appear, without giving too much further thought to the statement. Of course, there is the natural assumption that the top 10% should, in a fair world, be expected to fund only 10% of tax. Wrong of course. Even with a flat tax rate the top 10% of households would contribute more than 10% of tax.

    So what proportion of tax would be a fair share for the top 10% of household to pay? It would depend on the total income of those top 10% households, would it not? Obviously a billionaire is going to pay more tax by a large factor in comparison to someone earning 50,000, even with a flat rate. But we’d not consider that to be unfair?

    So the main flaw in the analysis, as I see it, is that no attempt is made to establish what a fair share of tax should be for the top 10% of households. Without such a marker, the statement that the top 10% households pay 71% of taxation is meaningless (in the context of trying to prove that the top households are paying more than their fair share). And of course there’s also the dodgy maths needed to get that figure of 71% in the first place!!

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  44. mikenmild (11,247 comments) says:

    Good summary Dean.

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  45. RightNow (6,994 comments) says:

    Dean, if you return to DPF’s original post, ( http://www.kiwiblog.co.nz/2011/07/net_taxpayers.html)
    you’ll see the table includes the column ‘Gross Tax Paid’. It was never hidden, perhaps it was just missed by some people who were eager to find fault.
    Anyway, the fact that DPF went into more analysis by identifying who then gets tax transfers seems to be what is really upsetting a lot of people. Too much light on the subject perhaps?

    As to your main point in your last comment, what do you think is fair? Should it be a percentage of income for the top 10% or are you actually suggesting they should collectively pay a percentage of total gross tax? The two are not the same.

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  46. PaulL (5,981 comments) says:

    In fact, to go further, on that same table that DPF already provided, it clearly states that the top 10% of households pay 37% of gross tax.

    So, Labour’s contention seems to be that those people need to pay more than 37% of gross tax. So Dean, is it your contention that 37% of gross tax from the top 10% is too little? Surely those proposing the change are the ones that need to establish what a fair amount is – care to comment?

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  47. Dean Papa (784 comments) says:

    RightNow, are you claiming there is nothing wrong with DPF’s analysis? If you are then I disagree.

    I see the column for ‘Gross tax paid’, and also the column for the corresponding percentage. My point was that the fact that the top 10% might pay 37% of tax is, in the context of the discussion, irrelevant unless we have something to gauge it by as far as what would be a fair share. I don’t know what would be fair, I suppose that would be a “politico-statistical” issue. From a pure stats perspective, maybe something corresponding to a flat tax? But obviously, those in the top 10% do pay more than 10% of total tax, that’s a given. My issue is with the methodology. I’m not particularly interested in what conclusions might be reached as long as they are supported by the analysis. The statement that the top 10% of households fund 71% of net tax is, IMO, worthless. I’ll admit the calculations to get to that 71% seemed rather novel to me, I’ve not seen that sort of logic before. A percentage, at least in the real world, is a fraction of a whole. Perhaps it’s a common practice in accounting or economics?

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  48. RightNow (6,994 comments) says:

    Dean, yes I’m saying there’s nothing technically wrong with DPF’s analysis. He defined what was included and what was left out.

    The gross transfers includes Working for families, Accom Supplement, other benefits etc. It does not include NZ Super though. I suspect if you included that it would be even more dramatic.

    I think what you really want to argue is the level of tax applied to each income band, particularly that high earners should pay more than they currently do. It creates a merry go round where in 2011 we say the top 10% should be paying 40% of gross tax, then in 2015 that isn’t enough so we repeat the exercise and decide they should pay 45% of gross tax etc etc.
    Incidentally there’s no practical way to set tax rates to ensure the top x% pay y% of gross tax. Just like we can’t say the entire pool for benefits is 10% of gross tax take.

    What I’d prefer is that if government spending exceeds (say) 25% of GDP then we call an early election.

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  49. Dean Papa (784 comments) says:

    No, I have no interest in arguing whether high earners should pay more tax, my interest was merely as a critique of DPF’s methodology, the result of which is the conclusion that the top 10% of households fund 71% of net tax. My point is so what? Are we meant to go wow, 71%, that’s really high! Those poor folk really are over taxed aren’t they! As I said, this figure needs to be quoted relative to what a fair share of tax should be for the top 10%, given that they will account for well over 10% of the wealth anyway. My other issue was with the maths, specifically how the figure of 71% was derived. Now if you can point me to a reference, or some literature were such calculations are employed then I’ll happily agree to being mistaken on this. But at present, the maths looks dodgy. For example,

    40+(-20)+(-10)+(-10)=0

    So what percentage is 40 of the net result 0?
    What about for -10?

    That might seem an extreme example, but it’s the kind of maths being employed to get that figure of 71%.

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  50. PaulL (5,981 comments) says:

    Dean, seems you’re going around in circles. You think DPF should have quoted in relation to “fair tax”. You have no idea yourself what fair would be, but seem to think DPF should. What if he thinks fair is about 25%, and 29% is what they’re paying. So their tax should be cut? Would you then ask how he came to assessment of fair? In short, what exactly would DPF need to do for you to agree this was a reasonable analysis? Given you refuse to do that same thing yourself, is it fair to criticise DPF for not doing it?

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  51. swan (665 comments) says:

    Dean Papa,

    I like your example. It is actually quite conceivable that tax and government expenditures could be structured so there is no ‘net tax’ as defined here. If we had a private health and education system, with ‘transfers’ to low income families to help them pay, and if we had a low income tax and relatively high GST (eg. 20-25%) we could easily have a situation where ‘net tax’ is zero, (or even negative). In this situation government, defence, and the police force would be essentially funded by GST and other non-income taxes.

    In the case of zero net tax, by Farrars calculations, any individual(!) who pays more tax than they receive in transfers will be paying, not just far more than ‘their share’ of net tax, not even just 100% of net tax, they will in fact be paying an *infinite* percentage of ‘net tax’ (anything divided by zero is infinity). We should all bow down before such a wonderful Galtian, and yet in this situation they are so numerous!

    Now what about the case where net tax is negative? In that situation not only is GST paying for all governmnet services, some of it is also being used as a transfer to low income people. Well in this case it turns out those at the higher end of tax scale in fact end up paying negative net tax (positive divided by negative), and those at the bottom who are paying (no doubt ‘disproportionately high’) positive net tax (negative divided by negative). Who would have thought – those at the top bludging off the state like that! And those on the dole contributing so much!

    Yes indeed, DPF’s maths is so accurate and meaningful, and Salmonds so flawed and desperate.

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