I’ve been thinking about the hype the government has created about their ‘tax switch’. True, by increased borrowing, they have shuffled a slightly larger amount than was expected, but it is still mainly a shuffle between taxing income and consumption which will have a limited effect on the shape of our economy.
National has done what they always do – increased the proportion of tax paid by low and middle income groups and disproportionately decreased the tax paid by the wealthy. They have left capital untaxed. The switch to GST from income tax for low and middle income groups is largely illusory. GST is effectively a tax on labour for these groups, given that they have to spend all or virtually all of their wages/salaries on GST’d goods and services.
For those with higher disposable incomes, the tax package make a significant change. They pay less. Their capital and intergenerational wealth transfers remain untaxed. Inflated asset values – now beyond the means of younger New Zealanders who have not inherited – will remain inflated. The intergenerational inequities on the economic as well as environmental front remain. Social mobility will continue to decline. Bernard Hickey’s analysis of this in recent months about this is spot on, and this budget does not do much to change it.
The tax bias driving excessive investment in property relative to the productive/ tradeable export sector remains. The constraint on claiming depreciation on buildings is a very timid step given the seriousness of the imbalance we now have. It hits commercial property as much as residential, and does not remove the more significant anomoly that allows a property investor to deduct from their other income losses from borrowing costs on their rental invesments, yet leaves them free to pocket capital gains (as an aside gains on property are seen as capital for tax purposes because the statutory definition of income assumes that income has a short-term temporal frequency, when in reality those who rent-out or farm property for a long term gain have a longer-term view of what amounts to their income).
Our lack of savings is only indirectly touched, and really only for those already better off.
As I said in my post earlier today (its worth reading the BERL budget analysis linked to that post), the current account deficit projected by this budget sees it climbing ever higher - up to 7%. So plainly the budget does not forsee a substantial increase in exports or savings.
So where is the roughly 3% pa growth going to come from? Well, as the BERL budget analysis shows, the assertion about a substantial increase in non-residential investment seems optimistic. If that growth does not come to pass at all, or comes from a return to current account deficit funded consumption and property investment, then we will be even more in the cart.
The ‘switch’ is not turning the tradeable sector on and the speculative sector off.
The ‘switch’ happening here is more akin to its other definition – a whip – being used to protect capital and the capital class by decreasing their share of tax paid and increasing the proportion paid by the less wealthy.
If this was going to fundamentally rebalance the economy, I might be able to see at least some justification. But the sad reality is this budget does little to rebalance the economy. Rather it does just what National always does. It ‘rebalances’ taxes, not the economy.
I reckon you should keep using the term “Tax Swindle”, better than “Tax Switch”. Get “Tax Swindle” to stick to the NACTs’ like “Smile and Wave” stuck to Key.
Agreed!
I can see “Tax Poker” game being a popular name , you go home with less than you started out with.
GWNZ, “Tax Poker” is not too bad, because we go home with a hole in our pockets, but the Casino takes it from us. Of course, the Casino is the NACT’s rich mates.
NZHerald online poll currently shows most voters so far approve of the Budget – so get voting!
Dorothy, I am not too concerned about the online poll. People are euphoric about the illusion of extra money from tax cuts. It’ll soon wear off and reality will sink in. There’ll be a hangover. One can also use another type of physical activity for an analogy, but I won’t.
Bread and circuses if I ever saw it. A Kath-and-Kim budget to the tangent of 180°.
I think a far more accurate term for ‘Rich Mates’ would be ‘Old Boys Network’. Not every rich guy is a prick, and not every prick is rich.
“National has done what they always do”
This is Ok if you expect voters to do some research on both political parties. But voters aged around 30 and younger probabaly have no idea what National “always do” as they lived the last 10 years under Labour and only know what Labour “always do”
At last the Smiling Snake is revealed: bleed the poor and give to the rich – the essential, abiding and sole raison d’etre of the National Party since its inception – comes into grotesque focus. They’ve literally borrowed from our kids to line their rich mates’ pockets.
Despite the best efforts of the usual gormless and self-serving tory media cheerleaders, it’s “ho-hum chewing-gum” to the crucial swing voter, and all downhill for NACT from here. When the supermarket and service cuts bite in the coming months, Labour needs to constantly remind them where their “north of fifty dollars a week” pledge has gone. Labour MPs could do worse than donating their own cuts to their local foodbanks.
“Tax Swindle” catchy memorable. Challenged and you get the chance to validate it. “Tax Switch” could mean good or bad.
Any detail on the proposed new planes for the Air Force, that were ‘floated’ recently.
The type of plane seems to be more aligned as a larger ‘private ‘ plane for Key to fly around NZ than what the Airforce would really need.
He can of course use the Airforce 757 to travel overseas, but Shipley used them ( 727s) internally to get back to Christchurch on a friday night
I reckon there has to be a balance between using money to make lives easier for the lower income group now, and using money to ‘grow the pie’ so there’s more for them in the future. In simplistic terms I think Labour has been more of a spoil the kids type of parent, and national is more of a tough love type of parent. Welfare is meant as a safety net, but if you make it too comfortable some will pitch tent on the net. I’m not saying I think everyone getting assistance is a bludger, but I think perhaps some have become demotivated.
Regardless of that, this budget is bland enough to not scare the electorate.
Can someone from Labour comment on whether I have got my calculations wrong? Is it possible to get multiple government allowances/assistance based on the original taxable income without the other forms of assistance being taken into account or am I mistaken? I know the example is unlikely to occur often but illustrates a point.
attention David Cunliffe, Stuart Nash, David Parker.
Two families are in exactly the same financial position except one family earns $39000 and the other $89000 but the earner has a student loan.
Single income household, partner not working. Live together with two children, one is 15 and attends school and one is 18 and attends university. Both children still live at home. Both families own a house with a mortgage which is $400 per fortnight. No other significant assets.
Income in the hand at $39000 = $58916 (including changes after budget) + get community services card. (-ve 51% tax)
Income in the hand at $89000 = $56357 (after budget) – no card for this high income earner. (+ve 37% tax)
Regarding Working for families” the most effective income-redistribution policy ever” – Stuart Nash
Calculations
39000
218 per week WFF = 11336
Student allowance for 18year old 130/week x 40 weeks = 5200
Accommodation supplement – $40 per week 2080
Tax -7000 before Budget = 57616
Tax -7000+1300 after Budget = 58916
81000 in same situation and 50K student loan
27 per week WFF
0 student allowance
0 accommodation supplement
Tax 23370 before budget = 59034
+3323 after budget = 62357
Student loan payments – 6000 per year
After budget and student loan income = 56357
@ Dorothy, the Nats must have their auto-voting machines running again. It’s not very clever technology, but very effective in capturing these on-line polls.
Gee thanx dorothy/jennifer nearly missed that one
Watch for the asset sales when this Bills plan fails, they will come but just faster
German Car makers and import agents for champagne will do very well out of this budget.
Where up for $20 a week, I expect to lose 85-95% of that to GST.
Then there is the unexpected; I was told I needd an Ultrasound; GP said there was no chance of getting that done publicly it costs $180 privately..now that is a tax increase.
-Of the 192 people surveyed, 42 per cent believed the Budget would be good for them, but 45 per cent felt it would have a negative impact.
Support was up on English’s first effort last year, when 15 per cent of those surveyed believed the Budget would do them good. Twice as many this year said it exceeded expectations.
English also seemed to win his party some political brownie points, with twice as many readers “more confident” in National’s ability to manage the economy compared with those polled after the 2009 -
Oh Boy! The old politics of envy. Still there aren’t they.
From Stuff.co.nz
Are you happy with the personal tax cuts outlined in the Budget?
Yes – it’s a good tax package
8057 votes, 56.6%
No – this Budget gets it wrong
1482 votes, 10.4%
The GST increase negates the tax cuts
4690 votes, 33.0%
Total 14229 votes
Richard Shaw – I think you are onto something! Check out this article where Bill English discusses partial asset sales:
http://www.stuff.co.nz/national/politics/3724950/Government-considering-state-asset-sales-English
I half expected him to talk about asset sales in yesterdays Budget – National talking about all our wonderful assets always makes me nervous!
@Rebecca – too right. TranzRail and Deane’s Telecom – never again!
It always bothers me when a Government says it has a mandate to do things. So if they discuss asset sales like Kiwibank before the next election and then gain office, this does not constitute a mandate to me but they do. eg: We have a mandate to introduce National Standards.Really?
@Richard “old politics of envy” NO its the politics of feeding and clothing your kids, paying your own doctors bills, hoping that your mother or father can afford not live in poverty at retirement. This is the politics of a decent and fair society; the market has never delivered that.
Trickle down economics is an absolute myth, point to an economy in the world where this works
Is wealth created in a vacuum?
@Recbecca I’m thinking Kiwi Bank.
@Rebecca so were you… lol
Richard – yes I feel like it is the same old politics of envy too and further, that a lot of the criticism lacks proper factual basis as it is based more on emotive language than facts & context e.g. the inflation argument.
Richard Shaw – I don’t have an issue with partial sales per se to the NZ public, but it is definitely a slippery slope as once it is sold it is sold and then of course it leaves the door wide open for foreign ownership etc.
And I think Bill English’s observation that New Zealanders would be quite keen to own shares in something like Kiwibank is flawed – seeing as it is a SOE, don’t we already own it?
Deepred – I am thinking Kiwirail will be considered in this ‘analysis’ at some point too…..
Kiwirail is definitely going to be up for sale, there’s no way NACT would put 750m into it over 4 years unless they were boosting it up for sale…
So will 50% of the top 100 earners in NZ be paying the full whack now??
scroll down
scroll down
I was joking
And they’ll probably sell it for less than $750m giving their rich mates another massive subsidy from the NZ tax payer.
The venerable Brian Gaynor, though <a href=http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10646653&pnum=0|generally positive of Budget 2010, concluded with this warning:
“This week’s Budget is an important step in that direction but if the tax cuts are spent, rather than saved, and if the savings are channelled into existing residential property, instead of the productive sector, then English’s second Budget will not have its desired outcomes.”
Ack, mangled hypercode.
The venerable Brian Gaynor, though generally positive of Budget 2010, concluded with this warning:
“This week’s Budget is an important step in that direction but if the tax cuts are spent, rather than saved, and if the savings are channelled into existing residential property, instead of the productive sector, then English’s second Budget will not have its desired outcomes.”
And to those who whine about the “politics of envy”, here’s another gem from Mr Gaynor. It was relevant then, and it’s still relevant now.
The Granny – Tall poppy status has to be earned