What will Labour do with the $1.5 billion?

January 23rd, 2014 at 11:00 am by David Farrar

Patrick Smellie at Stuff reports:

Just about anyone who pays income tax earns more than $5000 a year, so every single taxpayer would have benefited from the move, largely offsetting ’s intention to raise the top income tax rate from 33 cents in the dollar to 39 cents anyway.

That is a good thing, not a bad thing, that all taxpayers would get a reduction in their tax. Every taxypayer would get $525. However with the top rate going up 6%, those who earn more than $8,750 over the top rate threshold would have ended up paying more.

But I always like to look at as a percentage of actual tax paid. The $5,000 tax free threshold would mean tax on $20,000 would reduce by 20.8%, tax on $50,000 by 6.5% and tax on $100,000 by 2.2%.

However, by giving itself a $1.5b kitty to play with, Labour has opened up a significant flank for election year attack by National. In effect, Labour is saying that rather than give you your tax money back by exempting fresh produce and the first $5000 of income, we’ll decide how to spend it for you.

Whatever it proposes had better look attractive to the swinging, middle-of-the-road voters that Labour needs to bring its way this year if it’s to have a hope of governing after the election.

I hope Labour does offer a different form of tax cuts. My worry is they will only offer tax increases, and pledge to take more money off families that are working and give it to families not working.

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23 Responses to “What will Labour do with the $1.5 billion?”

  1. jp_1983 (227 comments) says:

    Labour does offer a different form of tax cuts. My worry is they will only offer tax increases, and pledge to take more money off families that are working and give it to families not working.

    I wouldnt expect anything less from this lot.
    It is the Labour way..

    $60 p/w increase for those on Benefits…

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  2. Longknives (4,884 comments) says:

    “My worry is they will only offer tax increases, and pledge to take more money off families that are working and give it to families not working.”

    Isn’t this the fundamental Economic policy of the left? Punish those who work hard for a living and reward the lazy no-hopers…

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  3. alex Masterley (1,523 comments) says:

    What kitty?
    It isn’t actual money.
    I do wish people would realise that.

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  4. Alan (1,087 comments) says:

    In 2011 Labour proposed a top rate of 39% for incomes above $150k, I’m going to assume that this figure will be unchanged. There’s very few votes for Labour in this bracket. Even if it was implemented I doubt it’d raise all that much cash, I’ve structured my affairs to limit “income” to below this, I’d guess most people can.

    The GCT remaining is a given, I’m pretty ambivalent about it to be honest. I’m sure that the $1.5bn will be spent with a very narrow focus on child poverty issues.

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  5. NK (1,257 comments) says:

    It’s clear what Labour will do.

    It will offer different things to different people; speak out of both sides of their mouths’ and generally confuse everybody; and then call John Key names and start a hate and envy war.

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  6. nickb (3,696 comments) says:

    Raising the top tax rate for personal income tax is economic suicide, and doesn’t work. Look up the laffer curve, etc. My understanding was in NZ the tax take from our highest earners decreased and not increased when Labour raised the rate in 2000….putting aside the fact it will set off a whole new round of Penny/Hooper type shenanigans

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  7. wally (65 comments) says:

    Completely right Alan and nickb. Lawyers and accountants will be rubbing their hands at the prospect of all that work restructuring their rich prick clients’ affairs. Just like last time. No extra revenue will be raised.

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  8. Manolo (14,070 comments) says:

    39%? I reckon the profligate socialists will go 40+, say a minimum of 42%.

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  9. anonymouse (722 comments) says:

    Don’t fall into the trap that this money actually exists, Labour’s costings for the 2011 election were never independently costed, because they were not seen as getting anywhere near the treasury benches,

    From the current status quo, Labour have said they will increase income tax and introduce a CGT ( which will earning bugger all for the first 10 years) so in reality all they have to play around with is the extra money from an increase in the “rich pricks” tax rate, which will simply see a rush to accountants to and unlikely result in any major additional income.

    The $1.5 billion is simply money they has promised to spend, they are now likely to spend somewhere else,(still promised to spend) whether the money actually existed, or would just be added to borrowing remains a moot point.

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  10. Manolo (14,070 comments) says:

    Raising the top tax rate for personal income tax is economic suicide, and doesn’t work. Look up the laffer curve, etc.

    @nickb: What difference does it make? None.
    Silent T and his red/green hordes will put ideology before country. Tragic but true.

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  11. nickb (3,696 comments) says:

    Manolo – interesting that while DC will no doubt say that, one look at MP’s pecuniary interests register will show multiple trusts for each Labour MP. Alas, as Stuart Nash once said, they are “only for asset protection”….

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  12. SPC (5,775 comments) says:

    nickb, the top rate is higher in Oz and the UK and the USA and much of the EU – despite a higher VAT than our GST and CGT being commonplace. Given we pay income tax off our lower wages etc, I sometimes wonder how we manage to keep our debt down.

    The question is not whether a higher income tax top rate and CGT would deliver $1.5B (it won’t in the short term), but what room English has – given the stated intent to put surpluses into the Cullen Fund. That leaves the question to Labour, if they spend their higher tax revenues and more where would they finance money for the Cullen Fund – would they borrow it?

    It’s the intent to repay debt and place surpluses into the Cullen Fund that means that National cannot offer a higher tax free threshold or much else in tax reductions.

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  13. Than (499 comments) says:

    What anonymouse said.

    Given the multi-billion dollar shortfall in Labour’s spending plans last election, cancelling $1.5B of promises still leaves them well in the red. Cunliffe may be hoping people have forgotten this and just plans to offer $1.5B of new promises. If he does then Key needs to ask him to show us the money.

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  14. nickb (3,696 comments) says:

    Yes SPC but it kicks in at a fraction of the amount. Australia’s doesn’t kick in until $NZD180,000 or so equivalent and US is closer to half a mil NZ.

    National needs to find some way to get rid of the appalling WFF< the worst millstone around our economy.

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  15. KiwiGreg (3,259 comments) says:

    National have signaled tax cuts, probably not earlier than 2015. Look for them to legislate these prior to the election. This will put Labour in a quandary. I’m picking something like a tax free threshold, some erosion of WFF.

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  16. SPC (5,775 comments) says:

    The problem National has reducing WFF is the combination with higher mortgage rates for homeowners – the higher tax free threshold benefits the singles in flats saving (and facing the 20% deposit requirement), but not those with the home mortgage and the children.

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  17. virtualmark (1,540 comments) says:

    It’d be easy to allege Labour is going to look to redirect money to beneficiaries and the very low paid.

    But those people vote Labour/Greens anyway. Or perhaps Labour’s view is those people just don’t vote, and offering them more $$$ is a bribe to get them to come out and vote?

    My take is the swing voter, in a party vote sense, is in West Auckland or Christchurch, a worker, earning $40k-$80k pa, and worrying about making ends meet, how they’re going to pay off the mortgage, fund their kids education and fund their retirement. I suspect that voter won’t be too happy about having more of their tax dollars go to beneficiaries.

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  18. nickb (3,696 comments) says:

    My take is the swing voter, in a party vote sense, is in West Auckland or Christchurch, a worker, earning $40k-$80k pa, and worrying about making ends meet, how they’re going to pay off the mortgage, fund their kids education and fund their retirement. I suspect that voter won’t be too happy about having more of their tax dollars go to beneficiaries.

    But they’ll be just fine about receiving some themselves from people earning $100,000+, thank you. Hence why Labour committed economic treason with WFF and interest free student loans, to the extent that many people in this group pay no net tax now. These people will vote Labour if they get a few more carrots dangled their way. Surely DC will have a big bribe in the offing for these people.

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  19. SPC (5,775 comments) says:

    nickb, I don’t see anything large scale by either party, there are not the options that were available in 2005, or imagined there were in 2008 (both parties made promises in 2008 they could not keep).

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  20. nickb (3,696 comments) says:

    Did that stop Phil Goff in 2011? Multi-billion dollar holes in his calculations. And DC is pushing even further to the left.

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  21. Alan (1,087 comments) says:

    There’ll be no massive spending promises from either party. Labour knows it’s open to charges of reckless spending, Nationals reason for being in power is fiscal prudence.

    Labour would love English to offer tax cuts as it’d allow them to match it dollar for dollar with increased spending. It’d be a strategic error from National to do so, and frankly the public debt is too high and we need a decade of zero budgets to bring it back into line. We need to get used to government running surpluses and not asking for tax cuts.

    If we replay the 2005 election where we had higher targeted public spending vs tax cuts, we’ll get the same result.

    The truth is that both major parties run a fairly conventional economic policy, in policy terms they are probably the two closest parties. The minor differences are magnified for the purposes of identity politics.

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  22. OneTrack (3,233 comments) says:

    Alan – “The truth is that both major parties run a fairly conventional economic policy, in policy terms they are probably the two closest parties”

    Can we wait and see what Cunliffe comes out with on Monday (maybe he forgot it was Auckland Anniversary Day?) before we accept a statement like that?

    NZ Power (as an example) indicates that the Labour Party of 2014 is a long way left of where its been in the past and doesn’t indicate a “fairly conventional economic policy”. Old time Labour voters probably wouldn’t even recognise it.

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  23. Harriet (5,132 comments) says:

    “…..National needs to find some way to get rid of the appalling WFF< the worst millstone around our economy…."

    Reducing the amounts paid is the best way to do it………but Labour then goes to the election saying they won't. Labour will win that one.

    I suggest placing a $10k education grant per child on top of the WFF payments for parents to spend on their children's education as they see fit……and smashing the teachers union and Labour’s reckless education policies once and for all…..and then later with the higher educated and better paid workforce – start reducing all the WFF payments as more better paying jobs should become available nation wide. No one should then need WFF. But keep the education grant in place.

    This should also happen with student loans – all art degrees and 'studies' should be inelligable for student loans. The differance can then be used to finance something else. There is a lot of money being paid back under the student loans scheme and it should be directed via future student loans to education degrees where the country is best served – not to people who simply want to work as Labour/Greens party staffers for life and walk about the corridors of the public service.

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