Guest Post: ACT is wrong on tax indexation

Connor Molloy writes:

ACT claims to be the party of principle, but when it comes to indexing income tax brackets to inflation, it appears they have lost their way. After rightly criticising the National Party for their U-turn on abolishing Labour’s 39% top tax rate last month, ACT has now done a public U-turn of their own.

Last year, David Seymour supported Simon Bridges’s member’s bill to index tax brackets to inflation. Then, in August this year, Mr Seymour said that tax bracket indexation is “a good start” but that it didn’t go far enough. And now ACT has said they don’t support the policy at all. That’s quite a shift in the space of a year.

But Seymour and ACT have it wrong this time.

When inflation occurs, the prices of goods and services increase, which diminishes the purchasing power of each dollar we earn. This means that if you receive a pay rise in line with inflation, you are not actually earning more income in terms of what you can buy but you end up paying more tax.

Governments of all stripes have been happy to cash in on inflation when individuals’ tax bills increase as a result of being pushed into higher tax brackets or paying a higher proportion of their income at their top marginal rate. Without any consultation or justification, the government is able to receive automatic, unlegislated tax hikes by stealth. This is known as ‘tax bracket creep’ and it makes us all poorer.

ACT’s November newsletter argues against tax bracket indexation on the basis that focusing on taxes without reducing spending leads to more government debt, which is effectively just higher taxes in the future. We agree that tax relief should be funded by savings in government expenditure, but ACT misses the point.

Indexation is not a tax cut. Without indexation, governments get a free pass to increase spending because it is already paid for through bracket creep. Indexation does not reduce the total tax take, it simply doesn’t increase it.

ACT’s new found opposition to indexation stems from confusion because they wrongly conflate different policy issues that should be looked at separately – indexation, distribution of the tax burden, and government spending.

In a system that has indexation, there is nothing to prevent a party from implementing policies that shift the tax burden or cut spending.

ACT’s alternative budget addresses the latter two issues by proposing cuts to government spending, significant tax reductions and a simplification of income tax rates. We support the principle of their proposals but the problem of bracket creep will persist.

ACT argues that “[b]racket creep is not a problem in itself, it is a symptom of progressive taxation.” It’s true that if we all paid a single income tax rate, we would not need indexation. But ACT’s proposed tax system is not flat. Mr Seymour has abandoned his own  2019 tax policy of a single income tax rate. Mr Seymour’s 2022 policy is designed in a way that, over time, taxes would steadily increase year on year.

If ACT’s new tax proposal had been in place since 2017, someone earning $80,000 today would be paying $1050 more tax each year than someone on the same real income in 2017.

ACT could easily advocate for their newly proposed two-tier income tax regime to be implemented and then be indexed to inflation to ensure that the real tax rates remain constant unless changed by Parliament.

It is difficult to understand how ACT reached their current position on this policy when they accept that bracket creep is a tax increase by stealth. Each of their concerns arise from other factors that can be addressed through policies that are not incompatible with tax indexation.

If Seymour truly thought his proposed tax settings were the best for New Zealand, he would commit to indexing them. Otherwise he needs to show some courage and campaign for his 2019 flat tax proposal that would fix this issue completely.

Seymour is clearly positioning himself to play a major part in the next Government. But this U-turn is wrong both in terms of principle and in politics. He should rejoin the cause that even the Nats agree with us on: ‘No taxation without indexation!’

Connor Molloy is a Researcher for the Taxpayers’ Union.

Sir Ian Taylor on the Labour he used to know

Sir Ian Taylor writes:

I have been wondering for some time now what happened to the Labour Party that I have supported all my life.

I am 72, which means I was voting Labour before the current Prime Minister, Jacinda Ardern, was even born. …

When the Labour government became the first under MMP to win complete control of the House, I really believed that at last there was a party in power that would use that privilege to show the compassion, leadership, collaboration and transparency that was needed to address some of the major issues around the growing social and economic divide that was facing Aotearoa New Zealand.

Instead, transparency has disappeared, the economic and social divide has grown and the dangers of a party led by ingrained and inflexible ideologies have come to the fore.

Well worth reading the whole column as he details all the things the Government has got wrong, and remember this is from someone who has voted Labour all his life and celebrated their 2020 victory.

WCC now deciding which industries are worthy of housing

Business Desk reports:

A public-private sector partnership to deliver affordable housing in Wellington has extended its eligibility criteria. ….

Until recently, housing developed through the programme has been limited to public-sector workers with individual incomes below $95,000 (or under $150,000 for a household).

Last Thursday, the environment and infrastructure committee voted to extend the criteria to align with job creation industries identified in an economic wellbeing strategy. 

This included the hospitality and tourism industries.

I’d blogged previously on this crazy scheme where a policy analyst on $90,000 would qualify for this cheap housing, and a hairdresser on $55,000 would not.

Now it is good that they have extended the eligibility from solely the public sector, but they are still trying to pick winners like the USSR did. Why do they think a barman should qualify but not a hairdresser?

Why do they just having simple criteria based purely on income, not on whether or not they think you are in a deserving industry or not?

General Debate 29 December 2022

Chippie’s mega merger needs a half billion bailout

Stuff reports:

Te Pūkenga – the organisation that now runs the country’s polytechs – needs a further cash injection of almost half a billion dollars, according to figures seen by Stuff.

A yet-to-be-published business case from the Crown entity says its “preferred option” is for a further $422.6 million over four years from 2023, including $285.8m to integrate IT systems, $60m for ‘transformation programme management’ and $26.8m for ‘people change costs’.

The document also outlines an option where 487 full-time equivalent (FTE) staff will be made redundant by 2026, with 104 losing their jobs by the end of next year.

So the mega merger of polytechs was because they had a projected deficit of $50 million and this merger was meant to save money. But it turns out the merged entity needs $500 million from the long suffering taxpayers.

Guest Post: Sensible policy making up in smoke

A guest post by Connor Molloy:

No one denies that smoking is bad for you. 

Everyone has seen the disturbing images displayed in advertising campaigns or heard the wheezing cough spluttering from the lungs of a lifelong smoker. Those in my generation have vivid memories of Harold the Giraffe visiting schools to scare children with photos of blackened lungs. It worked; everyone knows that smoking is a bad idea.

Yet some people are still unable or unwilling to quit and so the Government is trying new smoking-reduction strategies. But their latest plans fail the litmus test of good law making. 

Even if you don’t smoke, there is good reason to be concerned about the latest piece of Smokefree legislation. Gone are the days where smoking laws only affect smokers.

The latest push in the war on tobacco creates an effective prohibition and will push law-abiding citizens towards gang-run tinny houses just for a full-bodied cigarette.

Right now, around 15% of smoked tobacco in New Zealand is from the black market. The three proposed changes to our smoking laws will be sure to see this figure reach at least the levels seen in Australia where one in five cigarettes is purchased on the black market. 

The first proposal will reduce the maximum level of nicotine in cigarettes by 95%. This is effective prohibition. If the level of nicotine is too low for an addicted smoker to get a hit, they will have to smoke many times the amount of tar (and tax) for the same hit or will resort to the black market where tobacco is full strength and tax free. 

We saw this during the alcohol prohibition in the US where, despite very low alcohol beverages being available, home-brewed and -smuggled spirits were commonplace as people simply did not want the low alcohol alternatives. 

The second proposal will slash the number of retailers from over 6,000 down to only 600. Just a fraction of the number of postcodes in the country leaving many communities without a tobacco retailer – except the local Mob. 

It is not clear that reducing the number of tobacco retailers will encourage smokers to quit. This proposal will introduce a further cost to smoking in terms of time and petrol, but if a smoker has persisted in their habit after a decade of excise tax hikes, it is difficult to believe this small additional cost will push them to quit. Instead, they will simply have even more incentive to become black market consumers.

Lastly, the Government wants to introduce a Smokefree generation where anyone born after 2009 will never be able to legally purchase cigarettes. Not only will this lead to absurd consequences where in the near future a 30-year-old will be slapped with a $50,000 fine for giving their 29-year-old friend a cigarette but we will end up with a complete prohibition for an entire generation. 

For these people, the only source of tobacco will be the ever-growing black market that will have been supercharged by the first two policies.

These black market retailers will not ask for ID and certainly won’t care about the levels of harmful chemicals present in their product.

What we will end up with is a situation where young people are targeted by suppliers from the unregulated black market leading to more people smoking more dangerous cigarettes and paying no tax – the ultimate own goal of unintended consequences. 

There’s no point in having policies that sound good if they only serve to make things worse. 

Every step of the way, non-smoking taxpayers will be footing the bill for the newly created costs of effective prohibition. 

Illicit trade of tobacco will become the new norm and the only way to access full strength tobacco products. We regularly see reports from customs of tobacco seizures at the borders and homegrown super-strength tobacco is not illegal. This law will be a cash cow for organised criminals who don’t pay a cent in tax.

Our police, customs and the courts will be even more thinly spread than they already are wasting money on enforcement and directing valuable resources away from more important things.

Proceeds from the black market will finance sophisticated organised crime operations that push more costs and misery onto hardworking taxpayers.

Tax-free tobacco purchased illegally means that the associated health costs will be borne by all taxpayers.

Minister Ayesha Verrall is already claiming victory, putting out press releases stating that the “Government’s plan to reduce smoking is working” with 56,000 people quitting over the past year. But her new policies have not even come into effect yet.

At every turn, the Government has made it more difficult for people to access the single most effective quitting tool we have – vaping. The safer cigarette.

After years of stagnation in smoking rates, we finally started to see a rapid reduction in smoking as vaping became a viable alternative to the cancer sticks.

People are quitting smoking in spite of the government’s policies, not because of them. 

We know from Public Health England that vaping is around 95% less harmful than smoking and yet the government’s efforts to reduce smoking are actively harmed by the way they restrict and stigmatise vaping. 

The current restrictions on the vape flavours that can be sold at dairies along with restrictions on nicotine levels significantly increase the barriers for smokers to make the switch. 

What’s even more ridiculous is that it is illegal for a dairy worker even to suggest vaping to someone who is trying to purchase cigarettes. This government appears set on isolating an entire group of people from safer alternatives because they don’t like what those alternatives are for no explicable reason

Under the tobacco prohibition, smokers won’t even have the option to switch to vaping when the supplier is a gang member at their local tinny house – what’s more likely is that they get upsold onto even more addictive and harmful substances that are even more lucrative.

Rather than using a smoke and mirrors deception to convince people that making something illegal will make it disappear, Minister Verrall should recognise that the only pathway to a Smokefree country is one that prioritises safer alternatives over prohibition. 

Connor Molloy is a Researcher at the New Zealand Taxpayers’ Union. Disclaimer: 2.1% of the Taxpayers’ Union annual income is from membership dues and donations from private industry, which includes contributions from the nicotine, alcohol, sugar, and construction industries. We gratefully accept any legal donations from anyone wishing to support our work, but our policy positions cannot be influenced by donations. For more information on our mission and how we are funded, please visit: www.taxpayers.org.nz/our_mission

Bradman great at cricket and economics

Almost everyone knows that Don Bradman was the best batsman of all time, with a batting average that will probably never be beaten (99.94, 2nd place is 61.87).

But it turns out he was also great at economics and knew socialism didn’t work. After Fraser replaced Whitlam as Australian PM, Bradman wrote to him saying:

  • a passionate advocate of freedom from socialism
  • encouraged Fraser to remove as much regulation of capital as possible
  • warned against the dangers of inflation
  • decried the power of unions in Australia

I was already a Bradman lover, but now I can love him for both his cricket and his economics.

General Debate 28 December 2022

12/10 on the Golriz scale

We have a new record for CV embellishment, scoring a 12/10 on the Golriz scale.

George Santos just got elected to Congress as a gay, Jewish, college educated Goldman Sacks executive who owns 13 properties in New York.

It turns out he is straight, Catholic, a college dropout, never worked for Goldman Sacks and owns zero properties, living with his sister!

How do people think they won’t get caught out?

Govt decides to keeps it co-governance plans secret until after the election

Newsroom reports:

The Cabinet agreed on Monday that ministers wouldn’t receive any further reports on developing a draft plan in response to the United Nations Declaration on the Rights of Indigenous Peoples until 2024, Newsroom can reveal.

This doesn’t mean they do not plan to proceed, it just means they want to wait until after the election before they star up again.

We already know they are in favour of giving people on the general roll only 39% of the vote of people on the Maori roll.

We already know they are in favour of having unelected representatives on local Councils having the same vote as elected Councillors.

The only way to safeguard equality of suffrage in New Zealand, will be to vote the Government out.

The obsession continues

Eight years ago I blogged:

Former Radio NZ news manager Lynne Snowdon has lost her marathon employment dispute with the state broadcaster.

It’s insane that this case has dragged on for ten years. Hopefully this brings it to an end. I’ve followed the case for many years and had little doubt it would end this way. …

Snowdon let her grievance become an obsession. Off memory it all began as a dispute with then CEO Sharon Crosbie over the budget for the news division. If you don’t like the budget your boss gives you, then go find a new job – don’t turn it into a ten year dispute. If they really have spent $3.5 million on the fight, then that is even sadder, No one forced them to do so.

I blogged the above in 2014, 11 years after it all started in 2003. But I was too optimistic. The Supreme Court has just released a decision, dealing an recall application from Snowdon.

So 19 years on, the obsession continues. It’s beyond bizarre. Someone needs to do an intervention.

General Debate 27 December 2022

Uk restricting child tax credits to two children

The Daily Mail reports:

Tax credits to be limited to TWO children to cut bill that’s soared to £30billion

Meanwhile in New Zealand:

An “unrepentant, life-long member of the Mongrel Mob” who punched his pregnant partner unconscious has been handed a get-out-of-jail card – but it comes with a condition.

James Meha Te Ruruku Elkington, who has 16 children and now 13 family harm incidents next to his name since September 2020, must sign up to rehabilitation programmes aimed at getting his life back on track.

Soon to be 17 children, almost beyond doubt all supported by the taxpayer.

Consultants love Labour!

The Herald reports:

The Government has hired about 200 different consulting firms to work on its Auckland Light Rail project in the five years since 2017, costing over $50 million.

National’s transport spokesman Simeon Brown described the spend as a “gravy train”, noting that despite the volume of firms clipping the ticket, Aucklanders are a long way from having their hypothetical light rail tickets clipped themselves. Not an inch of the line has been built, despite an election promise from Labour leader Jacinda Ardern to have the first stage from Britomart to Mt Roskill built by now. …

Over 200 firms have billed $50 million, for a project which has only achieved a few score of press releases!

More Three Waters goodness

The Herald reports:

The Government introduced 130 pages of amendments to a piece of controversial Three Waters legislation, just hours after that bill was passed – and before it had even been given the royal assent by the Governor-General.

The Three Waters Entities Bill passed its third reading on the morning of December 8, ending its journey through Parliament, but just hours after it was passed, Local Government Minister Nanaia Mahuta introduced two new bills, one of which – The Water Services Legislation Bill – included 130 pages of amendments to the bill that had just passed.

National’s local government spokesman Simon Watts said this was poor law-making and smacked of mischievousness. He alleged the Government was fixing mistakes it made in the original bill, hours after it was passed, and that Mahuta chose to include fairly contentious parts of the There Waters legislation in the subsequent bill to avoid public scrutiny.

I can’t recall this ever having happened before – 130 pages of amendment to a bill that itself had just been passed hours earlier.

It’s either incompetence or malice.

General Debate 26 December 2022

Democracy wins in Fiji

Stiveni Rabuka was elected Prime Minister of Fiji by a 28 to 27 vote of Parliament. This is basically the first peaceful transfer of power since 1999.

Frank Bainimarama has a very mixed record, but you have to give him credit that he has accepted the election outcome, and history should judge him well at least for his 2013 constitution that transformed Fiji from a race based government that treated non indigenous Fijians as second class citizens, to a true democracy.

General Debate 25 December 2022

Merry Christmas

Government says ED waiting times won’t meet target until 2032

Stuff reports:

But National MP Dr Shane Reti, who is based in Whangārei, said official documents leaked to him showed the project would not meet Northland patients’ needs.

Neither stage of the project would meet the health target of 95% of ED patients being seen within six hours, according to the detailed business case presented to Te Whatu Ora board in August.

Little confirmed this in writing to Reti, saying the 95% target would not be met until about two years after the redevelopment was complete “as services at the hospital increase their staffing capacity”.

Te Whatu Ora confirmed the 95% target would be reached around May 2032

Under National almost all DHBs were achieving 95% of ED patients being seen within six hours.

Now under Labour, things have got so bad they say Whangarei won’t achieve that until 2032~

Is Road to Zero another Kiwibuild?

Newshub reports:

Government agencies are admitting having difficulty in their attempts to make roads safer, with officials last year advising ministers a target to reduce deaths and serious injuries by 40 percent over a decade was unrealistic.

The road toll has soared this year and is on par with 2018, the worst year for road deaths in recent memory.

Road to Zero is another triumph of spin over substance. Instead of putting up median barriers, they do press releases. They are building median barriers at 13% of the rate they promised.

The road toll was 318 when they launched their strategy. So far this year it is at 361.

General Debate 24 December 2022

Even a former Housing Minister can’t get Kainga Ora to do the right thing

Stuff reports:

Kāinga Ora has admitted it made mistakes and could have acted faster to solve problems with tenants described as “neighbours from hell”.

Up to a dozen people lived permanently at the Babich Hills address in West Auckland – a number that swelled to 20 at times – and they subjected local residents to a year of misery.

They occupied a six-bedroom property in Ranui, where the average asking price for a large house is $1.5 million, between July 2019 and October 2021.

They moved out after a garage fire made the home uninhabitable.

So they were never evicted, despite …

“There was constant fights at their house and around about 20 people living at the property from time to time,” an immediate neighbour – who RNZ has agreed not to identify – said.

“There were many cars turning up and it was starting to become a kind of a junk area, you know, with broken cars being parked on the kerb, rubbish lying on the street, parties breaking out onto the streets.

“Personally, I must have called noise control about 30 times.”

There were allegedly also violent threats.

“She came over with a garden spade and threatened my tenants. She came in the front, and then she went around the back and threw open the ranch slider door to the lounge where a four-year-old child was playing. She was absolutely drunk.

“So, she then came around and did some severe damage to the front door to the point that the door had to be entirely replaced.”

They spent $6000 replacing the door, and had CCTV installed and a fence built for a further $20,000 because they felt so intimidated.

Why should the poor neighbours suffer like this? The actions of King Ora over the last three years have meant that no one in their right mind wants to live near their houses now. The majority of tenants are absolutely fine, but if you end up next to one of the say 5% who are not, you know you are screwed as Kainga Ora will do nothing to make their tenants behave well.

The culture at Kainga Ora is so terrible, that I think a new Government will have to do more than simply replace the board. I think they have to seriously look at abolishing Kainga Ora and transferring the housing stock to a new provider or providers who will take their duties as a landlord seriously.

Coughlan and Cooke winners and losers

In a podcast Thomas Coughlan and Henry Cooke lay out who they think were the political winners and losers of 2022. Some extracts:

  • Worst Performing Political Party: Labour
  • Worst Performing MP: Gaurav Sharma
  • MPs to watch in 2023: Maori Party, Nicola Grigg, Arena Williams
  • MP of the Year: Christopher Luxon (runner ups Nicola Willis, David Seymour, Michael Wood)
  • Likely promotions: Deborah Russell, Barbara Edmonds, Rachel Brooking

General Debate 23 December 2022