Clark compares two different things

March 18th, 2012 at 11:15 am by David Farrar

New Labour MP blogs:

The Government has continued to spout the line that its tax ’switch’ in 2010 was ‘broadly revenue neutral’.

This is an outrageous claim.  It was nowhere near revenue neutral.

According to the IRD’s 2011 Briefing to the Incoming Minister (BIM), Government tax-take dropped from 35.1% of GDP to 31% of GDP during National’s first term.  In a time of high borrowing, and a projected $12 Billion deficit, a drop in the tax base of more than 10% is plain irresponsible. Falling revenue means we don’t have the funds to support our schools and hospitals.  Either that, or we have to borrow to fund them.  This ain’t good.

The ‘broadly revenue neutral’ claim has been relegated to the status of a bad joke by the honesty of the Government’s own tax officials.  In their 2011 BIM, officials made clear that only about 1.5% could be blamed on the Global Financial Crisis.  About 2.5 percentage points of its 4% revenue drop can be directly explained by Government policy changes (ie the 2010 tax package).

This is not a good start for a former Treasury official. He is comparing two different things. He is comparing the impact of the tax changes in 2008, 2009 and 2010, and using them to come to a conclusion about the 2010 tax changes only.

This would get you failed first years stats at even Waikato University.

What Clark leaves out of the equation was that Labour itself instituted some of the tax changes, which led to tax dropping as a percentage of GDP. It’s nice of him to give National all the credit for them, but it is not quite the case.

What the true comparison should be is whether the totality of National’s tax changes dropped tax revenue by more or less than what would have happened if Labour’s 2008 had been fully implemented. And the answer is that over around four to five years, National’s changes look to have slightly less impact on tax revenue. This is because of course National cancelled their planned for 1 April 2010 and 1 April 2011.

One can dispute the impact of tax changes, as it is not an exact science. It is impossible to know for sure how much revenue one would have got if a tax change had not occurred. But what one can not do is use the results of tax changes in 2008, 2009 and 2010, to come to a conclusion about the 2010 changes only. It is quite dishonest.

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18 Responses to “Clark compares two different things”

  1. Right_Wing_Dad (62 comments) says:

    What is this, beat up Waikato University week? Cactus had a classic line on Friday when she said Unitec was “the place 17 year olds and adult students go when they aren’t smart enough to get into even Waikato University”.

    Keep it up!

    [DPF: More beat up Waikato Decade :-)]

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  2. burt (8,297 comments) says:

    What Clark leaves out of the equation was that Labour itself instituted some of the tax changes, which led to tax dropping as a percentage of GDP.

    It’s different when Labour do it…. Or is this subtle Labour code to say that Cullen would have cancelled his election sweetening tax cuts ?

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  3. Pete George (23,676 comments) says:

    With his background it can’t be lack of knowledge, David (Clark) seems to have not quite adjusted from the campaign trail to being an objective spokesperson on Revenue. He learnt the ‘old Labour’ recitation method, he has to relearn wider economic theory and practice, and learn Key/Shearer/Dunne pragmatic politics.

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  4. Adolf Fiinkensein (2,913 comments) says:

    Lies? Deceit? Misrepresentation?

    What the hell do you expect?

    It’s Labour.

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  5. Mr Elbow (30 comments) says:

    “This is not a good start for a former Treasury official.”

    Actually, Mr Farrar, it’s about spot on for a former Treasury official.

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  6. thor42 (971 comments) says:

    Heh….. BUSTED! Well done, DPF!

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  7. tvb (4,487 comments) says:

    The government should be looking at the revenue side of the Crown balance sheet. Letting expenditure do ALL the work on the deficit is wrong and stupid.

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  8. burt (8,297 comments) says:

    tvb

    It’s the sense of entitlement, they can’t help but see tax cuts as an expense rather than as a reduction in revenue.

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  9. Johnboy (16,980 comments) says:

    “What is this, beat up Waikato University week?”

    Do Waikato geology students still spend the first semester down at the riverbank digging for neolithic taniwha settlements? :)

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  10. Pongo (374 comments) says:

    And of course coming up at the end of the month is the first year there is no depreciation to claim, for me it means 6 k I can’t get back from the taxman. Of course the flip side is rents have been put up to compensate which means tenants will claim more accommodation supplement.
    Fuckin hopeless situation where the taxpayer subsidizes inept local and national government distortions. Free zoning and abolish accommodation supplement and leave it to the mArket. Hell no too easy for Nats to leave distortions that cost them a fortune because they can always can half a dozen back office beauracrats and pretend they are running the country.
    I miss Maggie Thatcher, she would have nailed it pissed off half the population and got re elected again and again.

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  11. Pete George (23,676 comments) says:

    We had Maggie Thatcher even less than we had the Queen here.

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  12. Johnboy (16,980 comments) says:

    I’ve been corrected.

    It’s Waikato HISTORY students that get to dig along the riverbank! :)

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  13. Anthony (798 comments) says:

    The GDP part is irrelevant anyway to the argument as the change was meant to be neutral in that the extra GST would raise enough to cover the money lost from the drop in income tax. With earning and spending down both taxes of course have dropped at least in relative terms. Does Clark think that the tax take would have held up had National not made the changes it did – if so he is a complete idiot!

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  14. Inky_the_Red (761 comments) says:

    Great headline. Do you think that Clark the first person to compare 2 different things?

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  15. eszett (2,426 comments) says:

    Still, wouldn’t the government have to consider the 2008 and 2009 changes before implementing the 2010 changes?
    Even you don’t seem to dispute that 2010 changes were not revenue neutral as claimed by the government, just the degree by which they were revenue negative.

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  16. Pete George (23,676 comments) says:

    Clark responds:

    Farrar has basically argued that: 1/ the tax-changes in 2010 were not the only ones that contributed to this picture. And 2/ that the Labour Party might have run tax policy to similar effect if they had been in government.

    Responding to point 1/ – while the 2010 tax changes were not the only ones National has overseen, the fact that the 2010 changes were heralded as the biggest shake-up of the tax system in 25 years, highlights their significant influence.

    And citing other changes made under the watch of the same National Government earlier in its term is hardly a convincing defence.

    On point 2/ it is simply not relevant to speculate about what may or may not have happened had another party been in Government.

    Sooner or later, National has to stand up and be accountable for the decisions it has made.

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  17. RRM (10,001 comments) says:

    What an outrageous claim to make about scholarship standards at Waikato University. :-(

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  18. KevinH (1,234 comments) says:

    Clarks analysis for the decline in tax revenue is incorrect, Treasury Media Releases paint an altogether different picture:

    http://www.treasury.govt.nz/publications/media-speeches/media/06mar12f

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