The true numbers for Labour’s plans

July 17th, 2011 at 3:07 pm by David Farrar

Cost of Labour’s Promises

Steven Joyce has put ’s numbers through the Treasury calculator (found at http://www.treasury.govt.nz/government/fiscalstrategy/model) and found that it is far worse than even Labour were revealing.

Labour’s own numbers revealed that their plans would lead to greater deficits and debt for the next six to seven years. They desperately did not want people to know this, so left this document off their website.

But their own numbers were inflated, such as as imaginary $300m a year from reduced tax avoidance (despite them wanting to have an 11c gap between the top tax rate and the company rate). They also failed to take account of interest costs, and over-estimated revenue from some of their measures. The numbers on the itself were largely accurate, but on the rest of their package were crap.

So what does it mean? It means Labour’s package will result in less tax revenue until 2024! And then when you take account of the interest on the extra borrowing, it will result in an extra $15b of borrowing between now and 2025.

But it does not end there. This assumes that Labour will keep to National’s spending track. That they will not pledge one cent extra in spending than National. That there won’t be one cent extra for early childhood education etc.

So the $15b of extra debt is just on the revenue side. Wait until they release their spending plans and see that number increase exponentially.

The problem is not Labour’s CGT per se. The problem is that their promise to remove income tax on the first $5,000 of income is unaffordable. It has no fiscal credibility and can only be funded by increased borrowing.

Tags: , ,

30 Responses to “The true numbers for Labour’s plans”

  1. 3-coil (1,184 comments) says:

    Are Labour’s economic whiz-kids ignorant or just plain dishonest?

    Edit: Or both?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. dime (8,789 comments) says:

    you mean they are “borrowing for tax cuts”? lmao

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. alwyn (359 comments) says:

    You must be kidding David.
    Goff, Cunliffe and Mallard all say that is fully worked out and is a wonderful scheme.
    How dare you try and infer that they could possibly have made a mistake or that they could, just possibly, be trying to mislead us.
    Wash out your mouth at once.
    Oh Hell. I don’t think I’m very good at being satirical.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. Other_Andy (2,079 comments) says:

    Labour covering things up?
    Labour not telling the truth?
    Who would have thought that?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. Viking2 (10,744 comments) says:

    Has anything changed in 12 years??
    Well not really.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. Nookin (2,891 comments) says:

    You must remember, David, that this is just the sort of minor detail that the expert panel will work on. Doh!.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. Jimbob (639 comments) says:

    The ETS numbers for agriculure are a joke. There will be no money from agriculture as the ETS will disappear when the second phase of the GFC hits, along with the predicted two decades of global cooling that is waiting for us.
    All you could say is that Labour is basing it’s revenue targets on thieving schemes.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. leftyliberal (633 comments) says:

    So Labour are introducing their CGT and then reducing income tax so that it’s effectively a fiscally neutral change, perhaps bringing in more revenue by 2020 or so. Seems like exactly the sort of thing DPF is usually promoting (eg land tax as long as income tax is lowered to compensate). Is it because they’re reducing income tax at the bottom end rather than the top end that has everyone complaining?

    Personally I don’t think they’ve gone far enough – get rid of the exemptions (GST exemptions and CGT exemptions) and cut down on the money-go-round of WFF by bumping the tax free limit up to something upwards of 30k. Move to it slowly so that it remains fiscally neutral.

    Unfortunately neither of the main parties have the balls to do something that’ll actually get this country back on an even keel. Even old whitey seems to be out of ideas.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. Manolo (12,643 comments) says:

    The problem is that their promise to remove income tax on the first $5,000 of income is unaffordable. It has no fiscal credibility..

    Nothing new in any of that. Goff, his minions and socialist cohorts lost all credibility many years ago.
    The bloody Labour Party should be confined to the scrapheap, to the dustbin of history.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. dog_eat_dog (682 comments) says:

    Does anyone want to bet this won’t make the news tonight? Or ever?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. Nick K (919 comments) says:

    Ironic that in the last few weeks the Greens and Labour have announced they will go into coalition as it is now crystal clear both parties do not have a clue about economics.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. Grizz (477 comments) says:

    Does anyone feel that thi stax policy is just a rearrangement of the tax collectors on the titanic and we are avoiding the elephant in the room. The problem with the government accounts is not the revenue, it is the spending. Unless this is reigned in we are always going to spend more than all government revenue. Labour will complain about selling assests offshore (a position that is exaggerated) by they are quite happy to idebt us more making us slaves to overseas bankers and moneymen. Weighing up this against a 50% foreign ownership in a few energy generators, I find this a far worse prospect.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. Rex Widerstrom (5,129 comments) says:

    Excuse my ignorance, but can any of the chortling economic whizzes here (clearly if you can chortle, it means you understand this and are therefore an economic whizz) explain to me:

    1. On what basis does Joyce claim NO revenue gains from anti-avoidance measures, ever? Does he really think every multinational corporation is paying its fair share of tax? Let alone large NZ companies and some individuals? And can I have some of what he’s on?

    2. How can Australia let me keep the first $6k I earn and the sky’s not falling? (well it wasn’t till Gillard wrote a suicide note in the form of an ETS, but that’s another story). Perhaps it’s because Australia taxes those on $150,000 and over $47,100 (plus 45 cents for every dollar above $150k) while in NZ the same earner would be taxed at 33 cents in the dollar… the same as someone earning half that.

    3. Given that NZ doesn’t have much in the way of minerals it can allow to be dug up and sold, can it afford not to match the R&D incentives given by countries like Australia, which is already starting to talk about its capacity for innovation once the mining boom ends?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. jaba (2,069 comments) says:

    Silent T wants multi millionaires to get the $10 a week tax break (the 1st $5k thing) to get their buy in .. his words. What did he do to get their buy in with raising the tax over $150k to 39 cents?
    also amused when Parker was asked about his leadership aspirations. He said at least twice he was very loyal to Phil Goff as if to remind people when Goff is given the arse at the end of November.
    and their CGT has been fully costed you know. Neither Silent T or Parker will go into details until the expert tax panel work out how to do it .. so I wonder how it can possibly be fully costed?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. jaba (2,069 comments) says:

    and also .. had a shit fight on facebook with 2-3 people last night who swear by all that labour is saying .. they were touchy feely towards the “low income, vulnerable etc” .. when I challenged what they said they went off on tangents without once answering my questions with facts. I asked one stupid person what she considered rich .. it seems if you can afford to go to the dentist, you are rich.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. dog_eat_dog (682 comments) says:

    Rex – Perhaps he’s assuming (correctly IMHO) that Labour’s switch will result in more loopholes than it closes.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. tvb (3,947 comments) says:

    This is probably the worst example of tax policy we have had for many many years. In order to make their policy politically saleable they have had to apply all sorts of exemptions. But in having those exemptions they will distort investment from other parts of the economy that will be hit by the tax. Farming stands out as the hardest hit. The reason why we do not have a capital gains tax in this country is because of the importance of farming to the New Zealand economy. Take investment away from farming then this country will suffer. Of course the Labour Party have put out some dodgy figures. The annoying part is Labour have already spent the money. The only way to make up the numbers is to increase taxes further. They will increase the CGT and they will lower the threashold for the top rate. As the detail on the badly designed tax become clearer the Labour Party have given an open shot to the Government going into the election.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. Viking2 (10,744 comments) says:

    Well Rex 47500 on 150k is 31.66% and given the tax deductions that you guys can claim and we can’t them I’d say you are well ahaead except if I’m correct you also have to pay 9% super to someone to waste or lose.

    Gillards suicide note along with the Unions is about to dump Aussie on its arse big time.
    From what I hear the miners are shutting down spending and its possible that some of the mines are going to close. ( That’s from someone well up in one of the companies.)

    I read the other night that the deal done in Victoria with unions working on state projects means that the companies have to charge out at $96.50 an hour for that staff. Staff who are being paid double time for all overtime and have a 5% wage increase every year for the next four years.
    How can Aussie do this and remain competitive, especially with its dollar going towards the sun?

    O’Farrel has rooted out a nest of state employees, some of whom have not had a designated job for up to 6+ years and are being paid up to $100k per year and this seems to be endemic in the Australian Public Service.
    http://www.news.com.au/national/public-service-bludgers-paid-10000-of-your-money-to-quit-their-jobs/story-e6frfkvr-1226096096380

    We may have had our tough times but i reckon Aussie have earned theirs and its going to affect us as well.
    There’s a mood now for change in Aussie but will anyone be tough enough to remove the unions privilege and thus the Labour Party. No one here has.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. jaba (2,069 comments) says:

    27% ,,,, oh nooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. dog_eat_dog (682 comments) says:

    Bwahahhahahaaahahahaha

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. Rex Widerstrom (5,129 comments) says:

    Viking2:

    From what I hear the miners are shutting down spending and its possible that some of the mines are going to close. ( That’s from someone well up in one of the companies.)

    Nah, no worries mate, Julia’s just pinched another $12 million out of our wallets to convince us we’re all stupid, she never lied and that a carbon tax is not going to cause unemployment to go from 4.9% to 5.75% as a result of not only mines but also many manufacturers shutting up shop. And that’s while retail is having its worst time in 20 years (including the GFC).

    Meanwhile, while Federal Labor is forcing some miners to close, State Labor is endangering Australia’s food security by selling prime farmland to mining companies.

    No doubt the unemployed and starving will all line up for jobs as “Green bureaucrats”, the numbers of which have risen by 20 percent since Labor won power.

    Still, it allows me to let off steam by laughing aloud when I read some poor frustrated Kiwiblogger saying “That’s it, I’ve had enough government incompetence, I’m off to Australia!!” :-/

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. catwoman (123 comments) says:

    Mallard telling porkies again! We will get bored with the detail! Not bloody likely Trevor. What you meant to say was – this policy will sound good in election year, but for Christ’s sake don’t release the detail that we are borrowing a bloody sight more than National would ever dream of. Sounds like we are hitting the rich pricks and looking after our own voters. But REALLY – we are looking after ourselves getting back into power – bugger the people who rent properties and bugger telling everyone that the country will be in the biggest amount of debt it has ever been in.

    Trevor – please join the rest of the Labour voters and piss off to Australia where Gillard will welcome you with open arms, initially…..

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. slijmbal (1,134 comments) says:

    Having worked in a couple of tax regimes where in theory they tax one more I would like to correct some misinterpretations. A higher top tax rate does not equate to higher taxes per se. They generally have stepped regimes whereby the tax rate increases in bands. They also seem to have exceptions for Africa. Holland in particular was impressive in the complexity of the tax rules whereby filling in one’s tax regimes became a national sport with every last cent wrung out of the system (the Dutch are tight fisted – it’s an accurate stereotype). I didn’t play the game to the same extent but can say I paid a higher %age of tax in NZ compared to NL. In both countries I would be classed a high earner and in theory Holland was a high tax regime – I hit the 60%+ band. Of course, I would be paid more for the same role in NL compared to NZ.

    The only true comparison is what %age of GDP is taken by the Government, Local Government etc NZ is a highly taxed regime by that measure (and got much worse under labour) and Ozz comes out less highly taxed than NZ and has done for many years. One of the contributors to its regular faster growth than us.

    On the CGT. It increases the tax take from the well off and it’s unlikely the truly wealthy will contribute a lot extra as there are so many ways to circumvent it. Not that I am sure we can tax the truly wealthy as they are by definition the most mobile and will move if we make it too onerous for them. Look up Hauser’s Law.

    One of the beauties of NZ’s tax regime is its simplicity. A simple broad CGT that takes in to account inflation and a corresponding reduction in income tax rates would folllow in the footsteps of that simplicity.

    Of course, Labour’s numbers do not stack up – they are desperate

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. questlove (241 comments) says:

    The problem is not Labour’s CGT per se.

    Not according to National. John Key wrote off the the idea of a CGT even before Labours policy had been announced.

    A CGT will kill us all!!!

    http://www.imperatorfish.com/2011/07/why-capital-gains-taxes-will-kill-us.html?spref=tw

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. Other_Andy (2,079 comments) says:

    @Slimeball
    There is no 60% band in the Netherlands.
    52% is the top rate for anything you earn over 54776.00 Euro.
    Somebody on around 85000 Euro will pay around 16% more in tax in the Netherlands than in NZ.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  26. mikenmild (8,904 comments) says:

    questlove

    Great link! Next we will hear that a CGT is also ‘political correctness gone mad’.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  27. Other_Andy (2,079 comments) says:

    @mikenmild
    CGT is political correctness gone mad.
    (Are you clairvoyant?)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  28. slijmbal (1,134 comments) says:

    @Other andy – the article was in the past tense – and I was talking about personal experience – I did hit a rate in the 60′s for my top tax band – I remember the pain of it distinctly – it has since changed but by the time one claimed all the various deductions the effective rate was a lot less – I also checked my take home pay versus salary and was surprised when I arrived that I actually paid less tax as a %age of income in NL than in NZ – the point I am making and that you reinforced is that everybody looks at the ‘rack rate’ of taxes and not the actual applied rates.

    I talk to people who still live over there and apparently the deduction train continues – a quick check of the dutch tax sites shows many still exist including tax breaks for student dependants, alimony, any children still living with you (up to the age of 30 from memory), study costs etc etc

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  29. wreck1080 (3,533 comments) says:

    Labour have the right idea for the wrong reasons and their implementation is very poor.

    Labours reason for a CGT is to redistribute income from rich to poor. However, the primary reason should be to balance the economy and the entire tax package should be revenue neutral.

    Also, the CGT should have no exceptions, and allow full expense deductions.

    I reckon a land tax would be better and this would also result in a massive income tax reduction.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  30. questlove (241 comments) says:

    “So what does it mean? It means Labour’s package will result in less tax revenue until 2024! And then when you take account of the interest on the extra borrowing, it will result in an extra $15b of borrowing between now and 2025.”

    That’s quite the exaggeration it seems.

    http://publicaddress.net/onpoint/easy-as-1-2-228-billion/

    Joyce got someone to download a publicly available spreadsheet and punch some numbers into it. That’s it. . .
    Unfortunately, Joyce used the wrong spreadsheets. . .
    Joyce adds interest for everything and adds on another $7.5b. That’s fine, except that most of those things which created the debt which accrued the interest are bullshit. . .
    There’s about $4-5b of legitimate gripes here. And it crystalises my view of Labour’s tax package: Using CGT to pay off debt is a rock solid policy core, but everything else about the package is haphazard, with a lot of question marks and not much rationale. . .
    National’s attacks (even though the “$15b new debt” figure is plain ridiculous) raise important questions. I still don’t know how committed Labour is to paying off debt; if forced to choose between paying off debt and tax cuts, what would a Labour government choose?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.