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Posts Tagged ‘Tax’

100% tax cuts ahead

Posted by David Clark on May 7th, 2012

Today’s crash of Inland Revenue’s website highlights a wider IT vulnerability that must be addressed – urgently.

The IRDs current tax collection system was designed in the early nineties. It was effective for many years.  But it has become increasingly obvious that patches applied over recent years are a failing stopgap.  New Zealand needs real progress on a replacement system.

The Government has already written off millions of dollars after a failed attempt to rebuild the student loans component of the IRD online collection system.  Since then no progress, only bad news.  Earlier this year, it was revealed that the Government estimates a necessary IT rebuild of IRD’s whole tax collection structure will cost up to $1.5 billion dollars.

New Zealand is not unique in having a tax system.  Adapting successful systems used elsewhere is the logical approach to replacing our ailing IT infrastructure.  This problem has been on the horizon for some time.  It beggars belief that the Government has not yet outlined a convincing plan or timeline for the development of overdue IT solutions. 

Voluntary compliance with a transparent tax system is critical to the efficient and effective functioning of our society. 

Businesses rely upon our tax collection system working properly when they put their GST returns in.  They don’t have time to waste reentering data when systems go down.  We cannot afford to risk the patience of those citizens who wish to comply with their civic duty.

And testing the patience of businesses is not all that is at stake here. Our hospitals and schools rely upon a trustworthy tax-collection system.  The IRD must not be allowed to fail.

The Minister of Revenue has not put forward a credible timeline for the project, and it is becoming clear that the government is sitting on its hands whilst New Zealanders face the consequences of an IT time bomb.

Not good enough Minister.

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Filed under: Tax
11 Comments

Addicted to Food

Posted by Iain Lees-Galloway on December 30th, 2011

Perhaps it’s just because Christmas overeating is still heavy on my mind (and other body parts) but I’ve noticed there seems to have been a lot of discussion about causes of and suggested solutions to obesity over the last few days.

Waikato University scientist, Dr Pawel Olszewski suggests sugar and fat may produce changes in the brain which resemble the effects of addictive drugs. This may have a profound impact on the way governments, health practitioners and communities plan to combat the impact of the growing incidence of obesity.

We must be careful, though, not to directly equate sugar and fat, which our bodies need, to nicotine, alcohol, THC, amphetamines etc which we can quite happily do without:

Dr Olszewski says that while the brain responds to tasty foods in ways that have a lot in common with its reaction to drugs, he stresses there is a clear distinction between the complex mix of substances found in foods and a single compound such as morphine or nicotine. For this reason he describes over-eating patterns as “addictive-like”.

“We don’t want to send the message that if you’re eating a sandwich, that you’re consuming a drug. However palatable, high-sugar foods very often increase activity of the same brain circuits that are involved in the creation of the addictive state.

“So we believe this addictive-like behaviour stems from the effect that nutrients, in particular sugar and to some extent fat, have on the same set of brain areas that drive addiction.”

Tony Falkenstein, chief executive of Just Water International, made the connection and took it to a seemingly logical conclusion by suggesting a sugar tax. (Which, of course, would benefit his company).
This drew a thoughtful rebuttal from Dr Jim McVeagh at MacDoctor:

Immediately one can see the absolute pointlessness of a sugar tax. Potatoes, white bread, rice and pasta become sugar in the body as fast as pure cane sugar and nearly as fast as glucose powder. Taxing sugar is like sticking your finger in the dyke when the tsunami alarm has just gone off. And taxing carbohydrates in general is just adding a tax to nearly all food.

I’m inclined to agree that taxing sugar is pointless and taxing fat just becomes ridiculously complex as you attempt to define ‘good’ and ‘bad’ fats.
As Jim McVeah says,

all that causes obesity is taking in more calories than you burn up.

So if an excise-type tax were to be used in an attempt to curb obesity, the only logical approach I can think of is for it to be based on calorie density. Extremely calorie dense foods tend to be those that we ought only to eat occasionally although I expect there will be exceptions. A similar  effect could be achieved by taking GST off  low-calorie density foods. Both approaches have flow-on consequences that would have to be thought through before suggesting that either is worth implementing.

Add to the mix research released from Ohio State University this week that shows the attachment between mothers and toddlers is linked with incidence of obesity and you quickly get the picture that obesity is not straight forward and solutions will be neither singular nor simple.

Obesity is a significant driver of the increasing cost of healthcare and therefore cannot be ignored. Developing prevention and treatment strategies is the responsibility of governments as much as it is the responsibility of parents, communities and individuals.

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Filed under: health
28 Comments

What does the ‘Buffett rule’ tell us

Posted by Raymond Huo on September 30th, 2011

Across the world, developed countries are implementing changes to their tax system (France and Italy have recently altered their top tax rate and the UK Government is under attack to reduce the tax paid by the wealthy (from 50%).

These changes are not ‘envy-tax’ but a way to ensure that tax-systems are fair. Many have seen these changes as wake-up calls for billionaires and millionaires to pay their fair share.

Barack Obama has just unveiled changes to the US tax system which aims its tax increases at the wealthy. These changes include the ‘Buffett rule’ which ensures that no households earning more than one million a year pays a lower average tax rate than ‘middle-class’ families do.

The reason it is called the ‘Buffett rule’ is because Warren Buffett has cited in the past that despite being a billionaire, he pays a lower average tax rate than his secretary.

Barack Obama was quoted in the September 24 issue of Economist Magazine as saying that tapping the rich to close the deficit “is not class warfare but math”.

What does the Buffett rule tell us? I think two words come to mind: Math and fairness.

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Filed under: economy
17 Comments

Carmel talks about the cost of living

Posted by Chris Hipkins on August 21st, 2011

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Filed under: #ownourfuture, Cost of Living, GST, Tax
11 Comments

More support for #ownourfuture

Posted by Chris Hipkins on July 17th, 2011

Support continues to roll in for Labour’s plan to own our future and make sure everyone contributes their fair share to the society that they live in, and some of it comes from some pretty unlikely places.

It’s not often that I agree with Deborah Coddington, but I do today.

…muggins like me who stick our savings in the bank have to pay resident withholding tax and can’t escape it. That’s why, in principle, a capital gains tax, as sold to me this week by Labour’s revenue spokesman Stuart Nash, is hard to argue against. If you earn a buck, you pay tax on it. Taxation should be fair…

While Coddington doesn’t agree with a progressive taxation system (ie. the more you earn, the more you contribute), she does take aim at those who have become excessively rich at the expense of others:

The more I see the fiercely wealthy, the more I dislike them. Are they born unpleasant or do riches change them because they’re accustomed to sycophants hanging on every whim? … they’re terrified of losing their money, and becoming grasping and predatory. They fear everyone is out to take it away so they must increase their pile … Rich isn’t a dirty word, but these guys’ refusal to accept they’ve done wrong gives everyone in business a bad name.

I admire people who have worked hard and made a good life for themselves and their families. But I’ve got no respect for those who make huge piles of cash by ripping innocent people off, then stash it away in family trusts and try to pretend they can’t even afford lawyers to defend themselves. They’re rip-off artists, plain and simple. Ambition and hard-work should be rewarded, greed should not.

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Filed under: #ownourfuture, Tax, economy
7 Comments

What others are saying

Posted by Chris Hipkins on July 16th, 2011

It’s been a good week for Labour. We’ve put forward a bold policy agenda that will protect our valuable state assets whilst also setting us on the path towards a brighter future. It’s ambitious and highlights the contrast between Labour’s visionary approach and National’s total lack of a plan.

John Armstrong’s column in the NZ Herald notes that Labour’s policy is driven by a desire to do the right thing and get the economy moving again, unlike National’s approach of trying not to scare the horses by doing nothing:

National concedes that Labour’s promotion of the tax was always going to get the tick of approval from some economists, think tanks and academics. National did not count on that endorsement being so strong. The endorsement has come from across the political spectrum, thereby making Goff’s push for the tax look less political and motivated more by what might be in the national interest.

Over on Stuff, Andrea Vance argues that Labour has taken the lead:

…Labour has seized the moment. There comes a tide in the affairs of politics and this time Goff, Cunliffe et al have caught it…pitched against an asset selloff, a CGT looks to many like the lesser of two evils…

On TV3’s The Nation Colin James says that Key and National have “miscued”:

They’ve attacked things that aren’t in it, and attacked things that are in it that they said aren’t in it, and John Key talked about it being a ‘dagger through the heart of the economy’ and I thought Russell Norman in Parliament was able to skewer him on that, he quoted the OECD, he quoted the Treasury, he quoted Australia, and I think National just miscued, it didn’t handle it nearly as well…

Earlier in the week, Rob Salmond posted an interesting piece on Pundit correcting some of Key’s mythical claims:

If John Key is determined to measure a person’s welcome in New Zealand only through tax rates, then the conclusion is clear. High income earners are more “welcome” here than in any of the country Mr Key aspires us to be like… The CGT discussion so far has been a bit surreal. Labour starts a debate about tax policy, traditionally a strong area for National and ACT. In response, National becomes a fact-free zone and ACT retreats into an internecine war over the appropriate degree of their race-baiting.

Blogger Idiot/Savant at No Right Turn, often critical of Labour for not being bold enough, nails it:

The numbers stack up. This is not a spendthrift plan to just keep on borrowing. Instead, its a cautious, sensible, fiscally conservative plan to balance the government’s books by closing a serious tax loophole. And we don’t have to sell anything to do it. Labour is now presenting a clear alternative to the government’s policies: either we can sell the family silver and see the profits go offshore, while trying to cut our way out of recession – or we can pay off our debts and support our government services by making the wealthy pay their fair share. Put like that, its really a no-brainer.

Meanwhile Fran O’Sullivan questions whether John Key has the gravitas to deal with the challenges we face:

All New Zealanders know Key has fulfilled his childhood dream by becoming Prime Minister of our small nation. But does he really have serious aspirations for his prime ministership? Or even New Zealand?

One gets the feeling that Key and his Ministers quite like their ministerial BMWs and have forgotten why they’re allowed to ride around in them. We certainly don’t hear them talking about being “ambitious for New Zealand” very much these days.

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Filed under: #ownourfuture, Tax, economy
18 Comments

Budget FAQ #6: Why the Deficit Hole?

Posted by David Cunliffe on May 19th, 2011

Our Labour team wanted to understand why every year under National the budget deficit has far exceeded the forecast when they took office. In the graph below, the black line is the projection of the deficit made in December 2008, at the height of the global financial crisis. But you can see the actual deficits have been much larger.

Debt Composition 2008-2011

Part of this is due to National’s tax cuts, even accepting the rosy predictions English made about the cost of his tax packages, they still cost a significant amount (green blocks). This year the deficit has been worsened by one-off events in the form of the Christchurch earthquake and the South Canterbury Finance bailout (brown and purple blocks). But there’s still a huge difference between the 2008 projections and what happened that isn’t accounted for by the one-offs or the borrowing for tax cuts. What’s behind that?

When we look at the GDP growth forecasts vs reality for the same period, the answer becomes clear. Every year, National has projected that a return to strong growth is just around the corner which will mean more tax take, lower benefit costs  – and a smaller deficit. But it hasn’t eventuated. Instead, the economy has stagnated under National and every year National has evened up having to slap billions more on the taxpayers’ bill to cover for this economic underperformance (blue block).

 No doubt today’s budget will also contain rosy growth projections. Will the reality end up being more deficit blowouts?

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Filed under: Budget, Global financial crisis, Tax, Uncategorized, Unemployment, debt, economy, finance
33 Comments

Budget FAQs #5: Growth Hockey Stick

Posted by David Cunliffe on May 19th, 2011

The New Zealand economy has failed to fire under National.  As a result successive rosy Treasury forecasts have been revised downwards.  The starkest example is between last year’s May Budget and December Half Year Update.  

  2010 GDP Track Revision

Implications: The  growth upturn “hockey stick” just keeps getting pushed out into the future.  The so-called GST tax switch had no discernable positive impact on growth.  And the same rosy forecasts will be embedded in today’s Budget.  On this track record Budget 2011 growth  projections will not be worth the paper they are written on.

When the 2009 growth projections are added the picture gets even more interesting.  As this graph shows the actual GDP growth track has been so bad that it is back down to the proections made by Treasury during the darkest days of the 2008/9 global financial crisis.  

   2009-2010 GDP Track

In other words, despite the international crisis having passed 18 months ago and NZ receiving record prices for our agricultrual commodities, our economy has performed so badly that it is back down to the track Treasury predicted during the darkest days of the crisis.   Quite simply, whatever the Govt has been doing is not working. 

In a future post we will decompose the relative impact on debt of this under-performance and otehr factors like earthquakes.

There is no coherent plan from National on how to manage debt reduction alongside needed investments in economic and export development, closing the savings gap, repairing the damage to middle New Zealand, and giving all Kiwis hope and confidence for the future.

Labour has an integrated economic strategy that will achive that withi a fully costed programme that will reduce net debt over a 10 year economic cycle.  You can see the direction we are heading in set out in a recent speech I gave to Business NZ  here.

For the wonks among you, here is the underlying data – all the Government’s own numbers.

  GDP per capita, 95/96 dollars    
 

Actual

Half Year Update 2009

Budget 2010

Half Year Update 2010

30/12/2008

7,805

      

30/03/2009

7,700

      

30/06/2009

7,683

7,683

    

30/09/2009

7,677

7,694

    

30/12/2009

7,716

7,721

7,716

  

30/03/2010

7,741

7,741

7,758

  

30/06/2010

7,734

7,768

7,802

7,734

30/09/2010

7,701

7,795

7,909

7,747

30/12/2010

7,694

7,830

7,883

7,799

30/03/2011

  

7,873

7,928

7,859

30/06/2011

  

7,916

7,973

7,904

30/09/2011

  

7,967

8,026

7,948

30/12/2011

  

8,027

8,088

8,010

30/03/2012

  

8,055

8,118

8,039

30/06/2012

  

8,091

8,156

8,085

 Sources: Budget relevant documents and Statistics NZ series

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Filed under: Budget, Cost of Living, Global financial crisis, Inflation, Investment, Tax, business, debt, economic, economy, finance, jobs, monetary policy
14 Comments

Budget FAQs #4: National’s Growth Gap

Posted by David Cunliffe on May 19th, 2011

GDP growth has been so poor that the National government’s predictions have continually been downsized.  The gap is huge – 505 underperformance in 2010 alone, achieving only 1.5% actual on 3.0% predicted.

This underperfromance is a key factor – alongside fiscally irresponsible and economically useless tax cuts – driving the awful budget deficit New Zealand now faces. 

in response to requests on my Facebook page, here are the underlying numbers.

Quarterly GDP growth

Q1 2010

Q2 2010

Q3 2010

2010 annual growth
Budget 2010 forecast (BEFU additional information, p 3)

0.8

0.8

1.6

3.0
Stats NZ actual

0.7

0.1

-0.2

1.5

 

Average annual percentage change, real wages

Year to Q1 2011
HYEFU 2010 forecast (HYEFU additional information), p 6

-0.9
Stats NZ data

-1.2

Source: Parliamentary Library

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Filed under: Budget, Investment, Tax, Uncategorized, debt, economic, economy, finance
4 Comments

Budget FAQs

Posted by David Cunliffe on May 11th, 2011

Some quick answers to a couple of good questions about debt and Kiwisaver from recent Facebook inquiries:

Q:  Has NZ’s debt really cimbed from $300 m per week to $380 m per week?  Why?

A:  The difference between $300 m and $380 m is the fact that NZDMO is in the market issuing more debt securities than it needs beacuse demand is good and prices low. In other words it is bringing forward next years borrowing, and that is all.  Of the $300m about half is rollover of exisitng debt.  So next year it can say it reduced the borrowing, beacuse it will have pre-borrowed some of what it needs already.

Q:  How much will the cuts to Kiwisaver Key announceed today save?  $40m a year ?

A:   Kiwisaver cost savings are unknown untill policy is made clear in the Budget.  The Member Tax Credit costs about $880 m per year.  Half that would be ($440m pa) would be  ”saved” to Govt if MTC halved to $10 per week.  But that ’saving’ but would have to be offset against lower private savings from weaker incentices.   That is a problem beacuse private debt is huge  – in fact 90% of NZ’s total international debt is private.   Govt debt is only 10% of the problem.

Q:  Is it true that Dr Cullen’s books in 2008 showed a fiscal surplus in 2008?

A:  Yes   Dr Cullen’s 2008 books showed a net debt (incl NZSF assets) to GDP ratio surplus of 7.6%   In other words we were in positive CREDIT, though the GFC meant a forecast net deficit up to around 2% of GDP.    Gross debt to GDP is ow 34%and climbing under National.  It is hard to believe that National still gripes and tries to shift blame.   Time they manned up and took some responisbility for their own choices – like $23 Billion of tax cuts over 4 years in Budgets 2009 and 2010.

Q:  Are our incomes catching up with Australia like National promised?

A: No, we are going backwards.  When National took office in 2008 the gap was about 30% of GDP per capita   It was 34.7% and growing last time I checked.

Bottom line – NZ’s problems are serious and need serious fixes, but don’t buy the panic line that it is only public debt that matters.   Responsible fiscal management, including reducing debt across the cycle, is essential- but it is not the ONLY thing that matters.  We have to grow jobs, exports and savings at the same time as reducing debt.  And we have to build a country that is fair, caring and ready to take on the world, not slide into two NZs – one for the haves and another for the have nots.

PS happy to take your budget questions – message me on http://www.facebook.com/david.cunliffe.labour.

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Filed under: Budget, Cost of Living, Tax, Uncategorized, debt, economic, economy, finance, inequality, saving
16 Comments

Economy Stuck in a Rut

Posted by David Cunliffe on March 24th, 2011

Near-zero gross domestic product (GDP) figures for the December 2010 quarter prove how badly the New Zealand economy is stuck in a rut.

Treasury and the Reserve Bank had both forecast zero growth for the quarter. I have taken the view that was about right and that minor variation either side would not change the story.

It doesn’t. Today’s 0.2% is within a shade of that, and is still subject to revision.

The big picture is that the economy is going nowhere because National has no plan.

A breakdown of the statistics is instructive – wholesale trade is down, retail is down, accommodation and restaurants are down, confirming the message that businesses in New Zealand towns and cities have been giving us — that for them 2010 was even worse than 2009.

Cost of living pressures were also clear.  Goods and services purchased by Kiwi households are almost flat even though prices rose 2.3 percent in the December quarter alone.  This shows Kiwi families are hard hit by the rising cost of living and are having to tighten their belts month by month.

There is no good news on the external side either. Imports rose faster than exports, and the fastest-rising export, raw logs, effectively represents exporting Kiwi processing jobs along with the timber.

Kiwi families and firms are borrowing more than ever before to stay afloat, and the Reserve Bank says this will continue until 2013.

Bill English is presiding over an old-fashioned slump, and clearly has no idea what to do about it.

Last week he wanted to put the whole cost of the earthquake on the country’s credit card, but Prime Minister John Key rolled him a few days later when announcing a zero budget this year.

Economics 101 says that savage budget cuts in the middle of a deep recession will only put more people out of work, undermine confidence, reduce demand and drive down tax flows.

 This isn’t a plan. It’s a recipe for continuing economic failure.

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Filed under: Tax, Uncategorized, business, debt, economic, economy, finance, wages
42 Comments

It’s the little things that count…

Posted by David Cunliffe on December 7th, 2010

Sometimes it’s the little things that tell a big story.

Parliament is sitting in the press-Xmas period under the shadow of urgency to pass a rush of “priority legislation”. 

Guess what one of the top priorities is?  Abolishing gift duty.

That’s right, at a time when Kiwi families are doing it bloody tough, when the recession is biting this year worse than last, when top earners have had two rounds of generous tax cuts, and when the government is confronted by evidence of large scale tax avoidance, their priority is abolishing gift duty.

Making it easier to transfer assets to the trusts or the kiddies (on lower tax rates) above the existing threshhold of $27k each per annum.

Surely not a prioirty in the Mana electorate, not a priority in New Lynn, nor quake-ravaged Christchurch.

Surely not an example of personal responsibility – where everone pays their fair share.

Surely not bringing relief to the squeezed middle. 

For National it is clearly a prioirty to bring yet further relief to the top. 

Sometimes it really is the little things that count.

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Filed under: Tax, economy, perks
42 Comments

Systemic Market Failure?

Posted by David Cunliffe on September 22nd, 2010

When this country is in recession and Kiwi families are doing it bloody tough, I cannot bear to stand by and see rich and powerful private interests – whom I will not name at this point and this post is not about SCF – rorting the rules and using their clubs and networks to finesse processes.

It makes Godzone look like “the coldest banana republic in the world”.

For goodness sake interests associated with the Natural Dairy Crafar farms bid (potentially with Nat links) reportedly gave $200,000 to the National Party while the Natural Dairy application was still before the OIO and while National has a ministerial policy review underway. 

National should IMMEDIATELY reject that bid – otherwise what is left to separate this from complete corruption?  Brown envelopes?  Is David Garrett really the only sick or crooked puppy on the Govt benches? 

Was it OK for the OIO-overseeing Minister of Finance to lease his (trust’s) house to the govt for a staggering ministerial rent, or accept hours of free TV for his “Plain English” ads?  Isn’t it time we Kiwis stood up and demanded that the tories do sweat the small stuff like the rest of us?  Isn’t it time John key held SOMEONE to account for SOMETHING rather than smile, wave and make excuses?

The Fendalton and Queen St methods are different from the Crafar one but they are even more dangerous and subversive: very polite circles of influence in the clubs and boardrooms - with massive flows of funds through anonymous trusts that violate the intent of the Electoral Finance Act.  Prestigious law firms and lobbyists.  This is up with the worst sort of influence peddling  I saw in Washington D.C. -  One dollar one vote:  permanent plutocracy unless we fight back.

Beyond political donations, look at the ability of the rich and powerful to get their way while the poor and middle struggle: $2 billion a year of tax avoidance through LAQCs and trusts that National in government has refused to touch.  Half the top 100 welathiest NZers are still not on the top tax rate!

This post is not about SCF, but researching that issue has opened my eyes to the complexity of the company and accounting structures in daily use around the markets.   One prominent international investment broker told me he tells his clients never to invest in NZ other than through an ASIC-regulated (Australian) vehicle, because our market is a wild west.

Well what is the point of getting our savings rate up (and asking hard working families to go without consumtion) if the investment vehicles we need to get the money to our struggling firms are being milked and siphoned by fees and sweet deals to the cronies in the markets?  Why would any sane Kiwi sweat 80 hours a week to build a real business here?  Where will our kids choose to live?

We are talking the need for a full scale root and branch reform.  For example, is the Trustee model not a fiction?  Issuers want tame trustees; trustees want clients.  How do you prevent a race to the bottom?  I will wager now the FMA Bill will not do the job.  We have BIG problems here folks. 

It might have been cool to point the finger at Labour when the champers was flowing during the bubble hype days; but corporate influence peddling is about as attractive as a bucket of sick in the middle of a recession.

There is a real risk of systemic market failure in the NZ financial markets.     They remind me of telecommunications markets in the 1990s – time for a big cleanup.

It is not right and not fair on the silent majority who play by the rules and who are getting absolutely screwed. 

It will only get worse until we have a Govt with the guts to stand up to it.   The smiling millionaire from Bankers Trust is hardly likely to do that!

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Filed under: Tax, Tax Working Group, Uncategorized, bank, business, civil liberties, democracy, economy, finance, inequality, journalism, national, perks, politics, privatisation
101 Comments

Exploding tax myths – Part 8 – Income splitting

Posted by Stuart Nash on July 4th, 2010

Myth – income tax splitting will allow New Zealand families to make choices around working versus bringing up children.

Reality.  Income splitting financially benefits the wealthy but very rarely the great majority who actually need assistance. 

Part of the supply-and-confidence agreement between Peter Dunne and the National party is National supporting tax legislation around income splitting.  I questioned English about the possibility of income splitting legislation when he appeared before the Finance and Expenditure select committee recently, and he pretty much ruled it out.  Not surprising, considering the cost is estimated by the IRD to be around $500m per ann. 

When I questioned Dunne at FEC a couple of weeks later, however, he cited the supply and confidence agreement.  Earlier press statements seem to suggest that Dunne is serious about pursuing this course of action. 

So, does income splitting actually help those who really need it: those who are torn between going back to work fulltime, working part-time and/or staying at home to look after children? (Dunne’s proposal is only applicable to families with dependant children). 

The simple answer is no.  Working for Families is in place to help struggling families.  Dunne suggests keeping both.  The median household income is about $60k and the median wage is around $32k.  Therefore, many households have both parents working full-time now and would not benefit from an income splitting regime.  Those families who genuinely do have a ‘choice’ around whether one or both parents work, tend to be those who earn the most – makes sense.  ‘Choice’ implies a level of economic freedom: necessity does not. 

How would income splitting benefit kiwis on different salaries?  Outlined below are three scenarios (assuming a two parent household with at least one dependant child): ann salary $40k, $100k, and $140k.  JK’s tax cut figure is $$ in the hand per week before GST, ETS, inflation etc.  IS = income splitting.  This is also a net figure from the IRD’s calculations in a 2009 paper.  The actual figures will have changed slightly under the new tax thresholds, but you get the point….

$40k – JK’s tax cut – $23/wk + IS $23/wk = $46/wk 

$100k – JK’s tax cut – $69/wk + IS $163/wk = $232/wk

$140k – JK’s tax cut – $108/wk + IS $200/wk = >$300/wk

So you see.  If income splitting is to go through (and I very much doubt it will – but we will watch with interest as Dunne and Key/English fight this one out), once again, those on the highest salaries will be the real benefactors.  Also remember that around 70% of Kiwis earn less than $40k.  Even English admits income splitting is not well targeted.  Would have to agree with him just this once Mr Dunne.

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Filed under: Tax
30 Comments

Budget 2010: UK Tory Style

Posted by David Cunliffe on June 23rd, 2010

It’s official and  it’s a shocker. Cameron’s first Budget puts VAT up to 20%. It cuts company tax cut from 28 % to 24%. Govt dept spending is cut by a staggering 25%. Capital gains tax is up from 18% to 28%.

A budget suplus in 3 years? – dreaming.  The social dislocation will be too awful to describe.

This is an uber-Tory Budget that relies on neoliberal economic ideology.

Given that Brown had already cut spending by GBP 72bn and this cuts another GBP 40bn it contains real risks of stagflation/deflation. If that spreads through a Europe bound together by linked currencies, it could  contribute to a double- dip recession that mayaffect us.

And of course we are now more vulnerable after Mssrs Key anad English borrowed more for unaffordable tax cuts.

For now, here is David Milliband’s reaction:

The Tory-Lib Dem Budget is a hammer blow to families and business across the country – and to the future of the British economy. George Osborne’s measures are driven by ideology not economic reality. And the price will be paid in higher unemployment and lower living standards for the poorest and those on middle incomes.

When they asked for your vote at the last election, David Cameron and Nick Clegg said they would reduce the deficit without hitting the frontline or hurting the poorest – but they have already broken that promise.

…

Below I set out what I would do differently – read on and then sign up to my Broken Promises campaign – help me show David Cameron and Nick Clegg that we will expose and oppose their Broken Promises every step of the way.

  1. I would make reducing unemployment a top priority. We must oppose the Tories’ decision to scrap Labour’s job guarantee, which provided work to the long term unemployed. The Tories are making the same mistake they made in the 1980s, of letting unemployment devastate lives and communities.
  2. I would not increase VAT, which is a regressive tax that hits the poorest hardest. Don’t take my word for it, David Cameron said it. And the Lib Dems promised to fight against a VAT rise until they decided to support it.
  3. We should be supporting the industries that will drive jobs and prosperity in the future – like Sheffield Forgemasters who have been robbed of a loan that offered world-beating jobs for Britain.
  4. The Tories’ four pounds of spending cuts for every one pound of tax rises is extreme. Even Mrs Thatcher went for a pound of spending cuts for a pound of tax rises. I would strike a fairer balance between reductions in spending and tax rises to reduce the deficit. If we need more tax let’s look at measures like a Mansion Tax on £2m homes not VAT rises.”

Sound familiar?

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Filed under: Budget, Foreign Affairs, Tax, economy, finance, inequality
86 Comments

BUDGET 2010: feedback so far

Posted by David Cunliffe on June 22nd, 2010

Hi RA readers – I’ve been off air a bit lately due to running around the country on the post- Budget speaking tour, and because my laptop died!

Today parliament shifted into a new stage of the Budget debate – the Appropriations Bill that legitimises the Supplmentary Estimates (amended spending lines) between Budgets 2009 and 2010.   It was remarkable for what it does not say – nothing about a plan for protecting  jobs or lifting incomes during the worst of the Great Recession.   No new ideas over there.

Quick feedback from the Budget tour: spoke to about 20 groups, a mixture of Labour-organised public meetings, community sector groups and businesses.  Hard to tote up exactly but would have seen close to 800 people face to face: groups of 160 down to about 25, plus individual business site visits.

The feedback was clear:  most Kiwis understand that by the time inflation of 5.9% next year eats away the tax swindle, and wage growth is held down, they will be worse off.   That includes increased govt charges like ACC and ECE, plus power bills, rent and higher mortgages.  The Government made the classic mistake of overpromising and under-delivering.   Kiwis hate the rise in GST.   They know the tax cuts aimed primarily at the wealthy are unjust and inefficient. 

Was it a coincidence the govt’s polling fell 5% in the week after the Budget?   

Second, businesses and commentators understand that the Budget lacks a real plan for jobs, incomes and growth.  Fiscal prudence matters, but it is no substitute for a strategy to address the yawning triple deficit around the savings gap, current account deficit and innovation deficit.  Gutting Kiwisaver, the R and D tax credits and NZSF prefunding made these worse.  The Govt’s innovation package, which represents only 39% of the value earlier striped out, has been almost universally panned.     

Third, the added debt from the unaffordable tax cuts has opended up $1.1 bn fiscal hole over 4 years, $9.2bn over 12 years, and that makes the job of turning the boat around ever harder.  National will seek to fill this “strategic deficit”  through asset sales and service cuts.  Don’t let them!

Future posts are going to broaden out somewhat to the rlated issues of monetary and fiscal settings that surround the needed economic strategy.

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Filed under: Budget, GST, Tax, blogs, business, economic, economy, finance, inequality, polling, science, wages
122 Comments

BUDGET 2010: English – A Fudge Too Far

Posted by David Cunliffe on June 1st, 2010

Good fun in the House today grilling Bill English here and here on why the Government’s online tax/benefit calulator leaves out the forecast inflation rate of 5.9% in 2010, and thus overstates benefits.  Its a blatant case of misleading the public.   The Speaker rules it is a straight question that deserves a fair answer: Bill English doesn’t get it, and digs a hole deeper than the original mistake…

…It would be funny except it has misled many average income Kiwis who were encouraged by the Govt to believe that the budget left them “better off”, when in reality it left them behind until at least 2014.   It will be no fun at the checkout queue for many hard working families.

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Filed under: Budget, GST, Tax, economic, economy, finance
50 Comments

Another Budget Video

Posted by Chris Hipkins on May 25th, 2010

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Filed under: Budget, GST, Tax
6 Comments

BUDGET 2010: The Sucker Punch

Posted by David Cunliffe on May 25th, 2010

We all know Budget 2010 was full of broken promises – from NOT raising GST  – to being “fiscally neutral” while borrowing an extra $1.1 billion to fund tax cuts - to being “fair” while giving a third of all those tax rebate $ to the top 5%.

Most people now realise that the gains they thought they might get are more apparent than real:  the proof – even on the Governmnet’s own numbers average gross incomes don’t catch up with inflation unitl 2014!  That’s two elections away!

 Most now know the results are economically desultory – the current account blows out to 7% of GDP, growth is static (taking 7 years to accumulate a measley 1% extra), and what empoyment growth there is is largely unrelated to Budget meaures.  

What has become clearer as the debate has progressed is just how cynically National has attempted to buy votes through a Budget increasingly seen as highly political.   John Armstrong - who is no Labour acolyte to say the least – politely nailed that in Saturday’s Herald.

The game afoot is this: fool middle income voters into thinking they have a win.  Push through much larger tax cuts for the upper end under this smokescreen.  Deliberately stretch the government balance sheet by borrowing more to fund the cuts.  Begin compressing public services, but slowly, and hope the rosy glow lasts until the election…

But Bill English could not help the Freudian slip about selling off KiwiBank.  (As if anyone believes that a mom-and-pop share issue would mean shares didn’t end up in institutional hands eventually – remember Contact Energy?)

This is important as a foretaste of things to come: extensive privatisation of assets the public already owns, and deep Budget cuts to balance the books that this Government has deliberately run up by cutting taxes too far.   Both add up to shrinking the state, and with it the essential services that all Kiwi families need.

Budget 2010 is not a step change,  and not a step up.  It’s a set up - a sucker punch for the full flowering of the Right’s agenda should New Zelanders allow them a second term.

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Filed under: Budget, GST, Tax, Uncategorized, Unemployment, economic, economy, education, finance, health, inequality, public services
68 Comments

BUDGET 2010: Pass the Berocca

Posted by David Cunliffe on May 21st, 2010

After the beehive-spin induced euphoia wears off and the hangover sets in, middle New Zealand will reach for the Berocca and try to work out what the Budget really means for them.

Not to add to the inevitable headache, but here are a few of the facts of life for the morning after.

  1. For at least 3/4, and maybe 90% of the country, by the time they eat a whopping 5.9% inflation next year (Treasury Budget forecasts, not NZLP numbers!) they will be worse off until at lesst 2012/13.   For a family with 2 kids on $72k for example, $55 a week worse off.
  2. That inflation will feed into mortgage costs and rent rises.  It will result, quite rightly, in pent up wage demands from workers who have gone without wage rises for the last two years. 
  3. While its ok that the middle income brackets got some income tax relief, and would have likely got more relief from us, the tax cuts are way too skewed to the top.  You just can’t get around the fact that someone earning a $million a year gets $1000 a week back.  That is going to make the haves/have nots gap wider.  And that gap will inevitably worsen over time, undermining the Kiwi dream and taking us further from the “fair go for all” kind of place we want to be.
  4. That is made worse by the underlying agenda of shrinking the state and the services it can provide.  We have already seen home help for the elderly branded “low quality” spend and cut.  Health’s new money in the Budget is, we reckon, about $270 m short of standing still given next year’s inflation forecast.  That means more cuts to the services and more pain for the vulnerable.
  5. My personal gripe is early childhood education.  What has the Govt got against quality preschool education?  Why is it swiping $100m pa from that?  Labour will lead in this area and every family with young kids will hear us. 
  6. Rebalancing the econmy is way undercooked.  Take away the smoke and mirrors of the tax switch, and we are still left with residual taxt incentives for property and LAQC avoidance mechanisms.   Proof:  LAQCs sheltered $2.3 billion of taxes in 2008.  The tinkering in the Budget trimmed only $70m p.a. of that.  
  7. There is STILL no credible plan for growth in this Budget.  The National Govt seems intent in relying on “passive” instruments. I have no problem with dropping the company rate – provided the fiscal balance can support decent public services (personal view – see “About” on the blog site) – but that cannot be enough to get the export sector going on its own.  What about the R and D tax credits?

The strucutral problem remains: we don’t export enough, we don’t save enough, and we don’t innovate enough.  As an economy we are short on capital, technology, skills and IP.  Budget 2010 does not fix that.  Time is short and the job is urgent.  When NZ wants positive action, Labour will be ready to lead.

As the bubbly wears off in the Beehive and the Berocca gets passed around the country; the poor, the forgotten middle class and the structural problems of the economy have not been moved forward by this Budget.

It remains a suger-coated tax swindle.

It remains a step back, not a step up, and certainly not a step change.

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Filed under: Budget, GST, Household income, Labour Party, Tax, Uncategorized, business, community, economic, finance, health, inequality, poverty, productivity
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