The Reseve Bank has held the OCR unchanged at 2.5%. In the quarterly Monetary Policy Statement that accompanies each OCR announcement (see URL below), Governor Bollard has said (amongst many things): inflation predictions are around 2%, (however, there has been no modelling done for the proposed increase in GST and the cut in the top marginal tax rates for the 8% of Kiwis earning over $70K); GDP growth expected to be around 1% per quarter, or 4% per ann; and employment expected to drop by around one percentage point a year. This begs a couple of questions / points:
1. if economy is expected to grow at 4% per year, then surely Minister English can now afford to give state sector employees a decent pay increase this year – remember he said last year possible wage freezes for up to 5 years.
2. if inflation is expected to be around 2% per year (without having yet modelled the impact of GST increases or tax cuts for the top 8%) then this implies a further reduction in the purchasing power for those 70% of extra-ordinary hard working kiwis earning $40k or less.
3. Surely, with inflation forecast at 2%, and GDP growth forecast at 4% per year, the minimum wage has to increase more than the paltry 25c / hr given by the government last year. Mr English? Mr Key?
Come on now Mr English and Mr Key – you have signalled what you are going to do for the 8% of kiwis earning over $70k/ann – now tell us what you are going to do for the other 92% – apart from increasing costs through increasing GST…
http://www.rbnz.govt.nz/monpol/statements/
Ccan you point to where it’s been said that proposed tax changes haven’t been modelled for distributive impact? I’d have thought it would have been the first thing to have been done, and you can see the kind of work that is undertaken for the Tax Reform Working Group at http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/cover-note-to-tax-reform-scenarios.pdf
As to the rest of your post I’d have to say its strong on retoric and light on content. Perhaps if you think that 2% inflation “implies a further reduction in wealth for those 70% of extra-ordinary hard working kiwis earning $40k or less” can you explain why David Cunliffe is potentially arguing for higher inflation a few posts down.
I don’t think you are looking for that outcome, nor I’m sure does David, nor anyone else in NZ, but that’s the consequence to be drawn from your post.
In the end we should be looking for wealth for the many rather than the few (to coin a phrase).
BTW typed in a hurry, I don’t stutter, and I know about the missing apostrophe and the “h”.
not as simple as you suggest
1. State sector employees are often well overpaid – compared to their private sector friends – and until the Government Books are back in the black we are spending money we do not have (thanks to Cullen’s mis0-management of the economy)
2. The top income earners are already paying the lion’s share of the income tax received by the government (TWP siad about 75% income tax paid by top 10% of earners) – those earning under $40k especially with a family are probably paying very little tax if any as it is.
3. Minimum Wage – $15 per hours will result in additional unemployment as proven by the sharp increase in unemployment for youth because quite simply they are priced out of the market – their economic contribution compared to their wage simply does not make it worth while giving them a job. An unintended consequence of the Labour / Greenie abolition of youth rates – a failure.
@ simon – Alan Bollard refused to comment on a policy (GST increases and tax cuts) that hasn’t been ‘officially’ announced. The MPS doesn’t refer to the govt’s signalled tax policies at all, and the governor confirmed this in answer to specific questions on why GST increases and tax cuts weren’t mentioned in the MPS.
Inflation erodes purchasing power if it outstrips wage increases. Absolutely any govt should be governing for the many not the few, and we all know that increases in GST to pay for tax cuts to the top marginal tax rates will benefit very few but disadvantage a great many. How you drew your conclusions from my post is beyond me.
If the Govt can afford a 2% increase in line with the CPI for superannuation and beneficiaries, then they should be able to fund the same for state workers IMHO.
Stuart – when you say that government should govern for the many and not the few, does that in your view go as far as social policies where a huge majority may run counter to the wishes of Wellington’s liberal chatterassi?
Or is it confined to policies where Labour feels it might have the chance of capturing a bit of high ground and speaking for something approaching a majority of the public?
Stuart
The first point is that the Reserve Bank only ever operate within the terms of existing government policy (can you think of any other way you would prefer them to do it?) so no sense in trying to beat them up for that.
Putting that aside the issue you are missing is whether you only look at the static effects of taxation (i.e. who wins and loses on the night) or you look wider at the dynamic effects (what happens over time).
The optimum outcome for NZ from tax reform is a change that doesn’t disadvantage NZers with limited discretionary income/resources but that encourages productivity improvements, and through that faster economic growth, and through that a bigger cake.
Now the Tax Reform Working Group are suggesting that moving the tax base from income to consumption will encourage private savings (and hence investment and productivity growth) and also encourage high skill/wage people to stay and contribute to NZ’s growth.
I’m completely unclear about whether you agree with this analysis, and if so how you would propose NZ should go about doing it. You are simply running a populist line that you won’t increase GST, and making NZ richer can go to blazes.
I see Trevor is using the same approach of just looking at one side of a static analysis to beat up possible changes to taxing landlords (as an aside I never thought I’d see Trevor so firmly on the side of capital).
You should take him aside and ask him “If our current property tax regime is stopping all NZers from being better off, how are we in Labour proposing to change it so we can have wealth for the many rather than the few?”
Surely then National should look at the overall picture and cut taxes for everybody across the board. If you oppose (as I do) a couple of percent of taxation added, then you’ll be happy to join me in asking them to cut it for everybody
Win win!
“This begs a couple of questions / points:”
I know,
the battle is lost,
but still.
It raises the questions/points.
http://www.skepdic.com/begging.html