Herald against tax cuts

May 22nd, 2014 at 10:00 am by David Farrar

The Herald editorial yesterday:

Six weeks ago, the Prime Minister was in no mood to offer encouragement to those who thought might be in the offing. The Budget would have no plans for such a move, he told the North Harbour Club, while seeking also to dampen expectations of anything significant in the future. It was exactly the right thing to say. Now, however, John Key is singing a different tune. He is talking about as a choice, and they are sufficiently in his mind to to have warranted a mention in last week’s Budget.

It stated: “Operating allowances from Budget 2015 will be $1.5 billion a year, growing at 2 per cent for budgets thereafter. This is a moderate increase that will provide the Government with options around investment in public services and modest tax reductions.” In effect, the growing economy is providing the Government with a bit more freedom. But this does not mean that, for the next term of government at least, they should be at the top of the priority list. Of far greater importance is the need to get debt back to under 20 per cent of gross domestic product.

The Government can do both, and it should do both.

As the editorial notes, any tax cuts would come out of the $1.5 billion operating allowance. So the surplus projections already take into account any tax cuts. It is basically a choice of whether the $1.5 billion goes just on extra spending, or a mixture of extra spending and tax cuts.

People say they want higher after tax incomes. The Government can not directly set incomes. That is between employers and employees. But they can set tax rates. The one sure way to boost after tax incomes for hard working New Zealanders is to give them a tax cut.

There is little to indicate that most people feel they are owed tax cuts. New Zealanders are aware that, while the country has emerged from the global recession in relatively good shape, there are more important priorities.

I disagree. Extra spending benefits the small group of NZers that it goes on. Tax cuts can benefit all working New Zealanders.

The surplus projections take into account the $1.5 billion operating allowances. Now a balanced Government might say let’s spent half on extra spending and half on tax cuts. That would not impact the projected surplus at all.

After three years, that would be $2.25 billion of annual tax cuts and $2.25 billion of annual extra spending. Here’s what you could do with $2.25 billion of tax cuts based on Treasury estimates.

  • Reduce the bottom tax rate (up to $14,000 income) from 10.5% to 4%
  • Reduce the 2nd bottom tax rate ($14k to $48k) from 17.5% to 13%
  • Reduce the third rate ($48k to $70k) from 30% to 26% and the second rates from 17.5% to 14%
  • Increase the upper threshold for the bottom rate of 10.5% from $14,000 to $29,000
  • Increase the upper threshold for the second rate of 17.5% from $48,000 to 67,000
  • Have the bottom 10.5% rate apply to $22,000 (from $14,000), the second rate of 17.5% apply to $56,000 (from $48,000) and the third rate of $30% apply to $78,000 (from $70,000)

The Herald is effectively saying that 100% of the operating allowance should go on extra spending. That should be just as unacceptable as having 100% of the operating allowance going on tax cuts.  What I want is political parties to deliver both extra spending and tax cuts.

The debate should be about what the mixture is, but not about whether there should be a mixture. ACT might say it should be 80% tax cuts and 20% spending. Labour might say 75% spending and 25% tax cuts. National might be 50/50. But I have no time for those who say there should be no tax cuts at all, once they are clearly affordable.

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23 Responses to “Herald against tax cuts”

  1. burt (8,241 comments) says:

    The Herald cannot be against tax cuts – the mega-brain Dr Cullen told us that only journalists wanted tax cuts and the rest of the population knew that $60K should be deemed rich forever.

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  2. Adolf Fiinkensein (2,889 comments) says:

    It doesn’t matter what this gummint advocates, the Herald will be against it.

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  3. Redbaiter (8,558 comments) says:

    The progs at the Herald are just socialist churners, who will never acknowledge that the actual cost of churning, that slices probably 50% or more from the value of every dollar, is a major brake on our economy.

    Every time a dollar is taken from the productive sector, and channeled through government, and back to the unproductive sector, it comes out the other end less than half of what its real value should be.

    That is the simple fallacy in tax and spend policies.

    Economies work best without the socialist middle men. It’s just common sense.

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  4. s.russell (1,621 comments) says:

    Bill English said not long ago that the new normal was spending increases of a billion a year. So I suspect that the unstated intent is to stick to that and use the rest of the $1.5 billion operating allowance for tax cuts ie $500m a year.

    For my 2c, the top option would be to lift the thresholds to counteract the effect of inflation pushing people into higher tax brackets (tax rises by stealth). Arguably this would not be cutting tax at all, but merely holding the line. That should be the START of a tax reduction programme.

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  5. flipper (3,991 comments) says:

    Well put David.

    I quite agree, and quick phone around my wider family concurs in full.

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  6. Ed Snack (1,851 comments) says:

    But David, if you, say, cut the bottom tax rate as suggested, then THE RICH PRICKS WILL GET MORE MONEY ! How dare the government give away its hard earned money to people who already have too much ? Instead the top rate should be raised to 105% on incomes over $160K plus a bank transfer tax enacted; that’ll show those rich bastards what we think of them ! (/sarcasm)

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  7. dime (9,869 comments) says:

    it blows my mind how little tax cuts actually add up to.

    doesnt the government spend 70 billion a year?

    cut their income by 700 mill a year though and the left go apeshit.

    i know its not smart politically, but with that stat dpf put forward the other day – the top 6% of people now pay 38% of income tax! in 2008 it was 33%. the cuts should come at the top.

    Dime is fundamentally opposed to reducing the number of net tax payers. In the long term it just breeds more people addicted to the states tit.

    Force people to have some pride and contribute.

    “wah wah wah they still pay GST” – Dime doesnt care. Our tax system seems to get unfairer no matter who is in.

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  8. flipper (3,991 comments) says:

    Redbaiter (6,550 comments) says:

    May 22nd, 2014 at 10:49 am

    The progs at the Herald
    ****

    A good point.

    The Treasury and IRD agree that for every dollar ($) raised by way of taxation, the Government spends about 23% of each dollar collecting and distributing those dollars.

    If the Government decides to use OUR money in a project the net available sum reduces to about 49 cents in each tax dollar.
    The same applies to borrowing where government admin/policy advice costs amount to a massive surcharge.

    Lesson? Smaller Government is better.

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  9. rangitoto (241 comments) says:

    Change the thresholds so that they are indexed to wage & salary inflation.

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  10. thePeoplesFlag (242 comments) says:

    “…I quite agree, and quick phone around my wider family concurs in full…”

    I’d never previously considered the possibility that the Spuckler family might have worthwhile opinions, but I guess you never know.

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  11. Harriet (4,857 comments) says:

    Helen increased the size of government by 47% in 9yrs – how big has been the reduction in the last years under National?

    That’s an easy sell.

    dime won’t be satisfied until the cost of government is reduced by 47% – as he’s paying for it all! :cool:

    He the commie thinks that everyone else should too. :cool:

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  12. Manolo (13,590 comments) says:

    how big has been the reduction in the last years under National?

    Very little or none. Not without reason today’s National Party is also known as Labour Lite.

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  13. Redbaiter (8,558 comments) says:

    Its worse than that. English’s budget reveals some of the biggest spending ever with $1 billion increase over last year and trending steadily upwards towards $100 billion in 2016.

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  14. prosper (157 comments) says:

    Not only are many people opposed to tax cuts they want to introduce capital gains tax. We already pay too much tax without adding more. Good help our children.

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  15. Viking2 (11,420 comments) says:

    You voted for em!

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  16. Redbaiter (8,558 comments) says:

    Chart showing NZ govt revenue & expenditure to 2016.

    Not enough just to squabble over which crowd of commies should manage the one party state, socialism must be stopped.

    https://twitter.com/Redbaiternz/status/469275391379525632

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  17. lastmanstanding (1,287 comments) says:

    First thing an honest Gumint would do is index tax rates to either inflation or wage/salary increases. Fiscal creep is a con but then so are all the pollies.

    Next is zero tax for first $20K of income also index linked.

    Third cut middle class welfare. WTF a person on $100K plus gets welfare because they are breeders!!!!!!

    Fourth. Cut the top rate company rate trust rate to 25% and then to 20% after 3 years. Alignment will stop gaming the system and the incomes of tax lawyers and accountants.

    Fact is 12% of the citizens pay 76% of the total tax take. I repeat 12% pay 76% of the tax.

    Am I holding my breath NO. Why ALL pollies are tax and spend arseholes.

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  18. tvb (4,366 comments) says:

    There is room to index up the thresholds and I suspect that is about as far as the Government can go.

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  19. ross411 (778 comments) says:

    Income tax isn’t enough.

    We should be taxed twice, perhaps on every dollar we spend. And when we spend, for instance on fuel at some place we might call a service station, we should be taxed to support various things with the service tax also applied to those taxes. Is that triple taxation?

    Then there’s the municipality tax we pay to support the lawns on our verges not being mown, and classical music orchestras which the council members likely give themselves free tickets to. Maybe we could service tax this municipality tax which we pay out of what’s left after our income tax? Is this triple taxation?

    Tax cuts? Never going to happen. It’s all uphill from here.

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  20. emmess (1,427 comments) says:

    Herald against tax cuts

    Taxpayers against the Herald

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  21. OneTrack (3,027 comments) says:

    What does the Herald think about Labour’s tax policy? What do they think about the Greens tax policy?

    Increase in personal tax rates. Check.
    Increase in company tax rates. Check.
    Big increase in ETS tax rates. Check.
    Capital gains tax. Check.

    Across the board massive increase in taxation. High five. What could go wrong?

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  22. bka (135 comments) says:

    So the operating allowance grows at 2% a year, starting at 1.5 billion. In year 4 the operating allowance is about 1.6 billion. And you are able to give 2.25 billion in tax cuts annually! You saved up over three years, remember?

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  23. Scott1 (530 comments) says:

    “The Herald is effectively saying that 100% of the operating allowance should go on extra spending. ”

    Aren’t they saying that 100% should go to debt reduction?

    ie ” Of far greater importance is the need to get debt back to under 20 per cent of gross domestic product.”

    If you are saying debt reduction is extra spending, then going to the bank and borrowing a billion dollars is extra income…

    The model where we just look at our surplus and wonder what to do with it, is the lolly scramble mentality.

    Instead it should be a more wholistic approach to what are the best decisions for the country. I tend to favour paying off debt (like the herald I presume) but if it proved that tax cuts provided more benefit than debt reduction then I’d favour 100% (and probably more) going to tax cuts.

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