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Joined: Dec 25, 2001 Posts: 34,391 Location: Poundland
Posted: Thu 15/Sep/05 2:44pm Post subject: The Truth About Tax ...
I'm not sure if this has been posted before but it's the most useful and concise piece of information I've seen about the proposed tax cuts so far.
www.stuff.co.nz wrote:
29 August 2005
As Labour and National squabble over how best to slice up and serve the country's tax take, we have been treated to a dizzying parade of bribes, statistics and counter-bribes.
National says it will run a bulldozer through our tax scales, returning large sums to wage-earners. Labour promises a bonanza for low to middle-income families with dependent children.
But are all these dangled promises too good to be true? And who's right about the best way to tax New Zealanders? To find out, Ruth Laugesen put the big questions on tax to three economic experts, Infometrics economist Gareth Morgan, business commentator Rod Oram, and economist Brian Easton.
Q: Are New Zealanders paying through the nose when it comes to tax?
Rod Oram: Only through one nostril. The government's tax take as a percentage of GDP is the 12th lowest in the OECD so 18 countries are more highly taxed.
Gareth Morgan: "Through the nose" is a little strong. Our tax take as a percentage of GDP is 41 per cent compared to the OECD average of 37 per cent. Nose bleeders abound in Sweden where the rate is 58 per cent. The US is at 31 per cent and Australia 36 per cent.
Q: Do families get special handouts from the government in other countries?
Easton: Is the Pope Catholic? I don't know any country that does not offer some family assistance.
Oram: Loads in most countries. Since reforms, we had been one of the purists that spent as little as possible. Labour broke the mould and now National is trying to outbid them.
Morgan: Yes, and so did New Zealand when it used to practise this through the Family Benefit. It is not a new policy.
Q: National says Labour's family tax package is effectively putting working families on welfare. Is that just spin?
Morgan: I'd call that spin mainly. What Labour is doing is saying that families should be subjected to different tax rates than individuals. It's a recognition of the numbers of dependants on the household income. It doesn't, to me, seem all bad that we recognise that those who raise children are making an economic contribution to society.
Easton: If we want to describe family support as "welfare", so be it. National has contributed to family assistance packages in the past (including when Bill English was finance minister) with some generosity to children and without compunction about whether it was "welfare" or not.
Oram: Yes, it is spin. They are no more on welfare than say a child getting a free education. In both cases, they are benefiting from other people's tax dollars.
Q: Labour says National's tax package will mean cuts in health spending. Is that just spin?
Oram: To avoid health spending cuts, National will have to prove they can spend money more effectively than Labour. But National has promised not to reform the health services again, which makes efficiencies harder to find. Last time National was in power it kept the lid on healthcare only by starving the sector for funds.
Morgan: Yes, that is Labour resorting to primal emotional blackmail. The reality is that doctors with their heads in the public sector health trough and bleeding hearts have carte blanche in this area to practise emotional blackmail. That licence arises from our paranoia about our own mortality. We're not capable of thinking about what a life is worth in cold hard cash terms, and so long as we dodge that issue, opportunists will convince us that no amount is too much.
Easton: What we know is that the big unbalanced tax cuts of the 1980s led to significant cuts in spending on health and education in 1988 and 1991 - and major social security benefits cuts in 1991. The 2005 National package is also unbalanced. We don't know how they really plan to finance it. They talk about waste elimination and restraining government spending.
Q: Everyone and his dog says you're better off in Australia when it comes to tax. Is that true?
Morgan: Well, tax is collected, at least in theory, in order to deliver public goods and services which we want, so it doesn't necessarily follow that higher tax means you are "worse" off. Australia's personal income tax schedule is much steeper than ours, but almost all Australian wage earners pay a lower average rate of income tax for the same dollar level of income than we do.
Oram: These are the Australian tax rates: Income of $0-$6000 - 0 per cent; of $6001-$21,600 - 15 per cent; of $21,601-$63,000 - 30 per cent; of $63,001-$95,000 - 42 per cent; and above $95,001 - 47 per cent. On these figures you can argue the case either way on who has higher taxes. But clearly, high earners are hit harder in Australia. And don't be fooled by the 30c corporate tax rate there versus 33c here. Australian companies have plenty of levies ours don't such as payroll taxes. So they pay more to the government than companies here.
Q: We know there's no such thing as a free lunch. Where's the money coming from to pay for National or Labour's tax promises?
Easton: We know the Labour promises are coming out of the contingency reserve. There is a worry they have used too much of it, and there is not enough left for real contingencies. National's promises far exceed the reserve. We don't really know how they will pay for it. I expect that when in office they will find that their current financing plans don't work. I just hope they are courageous enough to admit their error and cut government spending by the required (presumably large) amount.
Oram: Finance Minister Michael Cullen has run a very conservative fiscal policy. He has collected as much tax as he can so he can spend more, pay down government debt, fund super, give tax relief through the Working for Families package and run large surpluses. National is offering us $10b of tax cuts by slowing the rate of growth of spending, seeking efficiencies in spending, increasing debt a bit and reducing surpluses. National's higher debt and lower surpluses are still responsible by almost all other countries' standards, but are not as conservative as Cullen's approach.
Morgan: Expressed simply in terms of the government's accounts, there is a surplus and the government's balance sheet is in strong shape. So "affordability" isn't a problem. Michael Cullen argues he's already committed the surplus to capital programmes and undertakings already, so a larger tax cut package is not "affordable". This is arbitrary. National can simply borrow to cover capital outlays - it isn't a crime.
More telling is looking at "affordability" in an economic context. Both parties are looking to spend up when the economy is at full capacity and inflation is at the top of the band. So they risk a reaction from the Reserve Bank, which is duty bound to control inflation. All those voters who are leveraged into the housing market had better weigh up the benefit to them of a government handout versus the pain of what a rise in interest rates might do to house values. Not that there's many options here - since both parties are promising to spend up.
Q: What's the point of taxing all of us and then recycling it back to some of us in the form of family tax concessions?
Oram: You do it if you believe that families need the support to turn out healthy, well-educated kids who can then support us in our old age. Incomes are low here not because we are highly taxed but because most businesses in New Zealand run such low-value, labour-intensive business models that generate such meagre profits that they cannot afford to pay us more.
Morgan: The recycling occurs because, through our government, we identify some as being in need. If those folk are income earners and taxpayers we target them for assistance. The problem is, of course, the cost of administration to ensure people apply and then get what they're entitled to. Generally, National tends to prefer helping the lower paid by having lower tax rates which benefit not just the poor but everybody, while Labour prefers higher taxes and to look after the needy through redistribution.
Q: Why not charge everyone the same tax rate?
Oram: All depends on your sense of fairness. Left of centre says rich people should pay higher rates because they can afford them; right of centre says we should all pay the same or nearly the same rates.
Morgan: Progressive income tax scales have been the traditional means through which governments have redistributed income from rich to poor and avoided extreme disparities between income groups.
Q: Has Labour been wasting our tax money?
Easton: Every government - Labour, National or the dog's - has some inefficient spending. So does the private sector. Every government - Labour, National or the dog's - does their best to eliminate such waste. They only ever partly succeed. As ex-Treasury Secretary (and Act list candidate) Graham Scott said, "Designing tax cuts is child's play. It is on the expenditure side where all the problems are."
Morgan: Unavoidably there is waste in government. But there is also waste in many private sector businesses. The difference with the private sector is that often competition squeezes out that waste. In government this is far more difficult - you need auditors and scrutinisers. Government should stick to delivering only essential public goods and services. Unfortunately, New Zealand's democratic socialist style of society means a burgeoning demand for public goods and services, with elections decided on who offers the most. Apart from reversing this trend, the only solution is continued vigilance and purges of wasteful endeavour. It is very erratic and arbitrary
Q: Is it true that cutting tax makes people work harder?
Morgan: It is certainly true that if 100 per cent of each extra dollar you earned was taken away by taxation, it would stunt your enthusiasm. The question then becomes how much tax drag discourages people from working. With a progressive income tax structure you do run the risk of discouraging work. A flat tax system does not have that baggage. Generally, the best tax system is one with as wide a tax base as possible and as low and as flat a tax scale as possible.
Oram: Depends entirely on the person. Some people will respond to a tax cut by not working any more hours. Some will keep their income the same by cutting their hours. And some will be eager to work more and earn more. But who ever turned down a pay rise or a new job because it would put their income over $60,000 and thus up from the 33c tax rate to the 39c?
Easton: The theory says it may, but the evidence is surprisingly thin. Even more surprisingly, the evidence is that high-tax countries do not have worse economic performance than low tax countries.
Q: Some say tax is government theft. Why should we pay any at all?
Oram: It's not theft. You can't have a civilised country without paying tax to fund services we cannot fund as individuals. It is entirely up to each society to decide what services it is willing to pay for. So the Scandinavians like lots, the Russians very little.
Morgan: It's only theft if you don't value any public goods and services. This is not a credible view to hold in a society that devotes 30 per cent of its GDP to core government spending.
Easton: The statement belongs to the same rhetoric as "property is theft", so why should we recognise private property? We pay taxes in order to attain community goals which cannot be delivered by the untaxed market.
Q: What are the chances a new Labour or National government will break their tax promises because they can't afford them?
Morgan: Higher for National than Labour. Labour is the incumbent government and so hasn't really got much of an excuse. National could claim that when it saw the state the nation was in, shock horror, it had to adjust its plans.
Easton: They won't introduce their tax cuts if either their coalition partner won't let them or if there is a major crisis which gives them the excuse or requires them to tighten the fiscal stance.
Joined: Jan 12, 2003 Posts: 32,882 Location: Derailled
Posted: Thu 15/Sep/05 2:48pm Post subject:
This whole election is turning into a disaster, treasury report on labours student loan interest right off is saying that the cost will be 3 times what labour predicted... we can't win either way!
Joined: Dec 25, 2001 Posts: 34,391 Location: Poundland
Posted: Thu 15/Sep/05 2:55pm Post subject:
jeremyb wrote:
This whole election is turning into a disaster, treasury report on labours student loan interest right off is saying that the cost will be 3 times what labour predicted... we can't win either way!
Isn't the 3 times the cost prediction coming from Cullen asking for a worse case scenario?
This election is a trainwreck and I blame the greedy Joe Public who've become so fixated on their pocket and themselves that they've focussed National and Labour on trying to out bribe each other rather than focussing on real issues.
Joined: Feb 09, 2004 Posts: 13,750 Location: land of the long white latte
Posted: Thu 15/Sep/05 2:57pm Post subject:
Tama wrote:
This election is a trainwreck and I blame the greedy Joe Public who've become so fixated on their pocket and themselves that they've focussed National and Labour on trying to out bribe each other rather than focussing on real issues.
For Shame!
Tis a society fueled by baby boomers... WAAAAAAA WAAAAAAA WAAAAAA
This whole election is turning into a disaster, treasury report on labours student loan interest right off is saying that the cost will be 3 times what labour predicted... we can't win either way!
Isn't the 3 times the cost prediction coming from Cullen asking for a worse case scenario?
This election is a trainwreck and I blame the greedy Joe Public who've become so fixated on their pocket and themselves that they've focussed National and Labour on trying to out bribe each other rather than focussing on real issues.
For Shame!
yeah the initial Treasury figures assume that 95 percent of students would take out loans but didn't take into account the Labour (not Government) policies that allow for more student allowances and slower fee rises.
The idea that economists and National are running that everyone will borrow who can because of the interest rate implies that all students are completely 'rational' about squeezing every last cent out of their moneyand will ferret away their 150 a week to put into term deposits or something. Don't know about you but my economic behaviour at varsity was far from rational. Discovering mountainbiking didn't help...
worth noting that the worst case scenario is still tiny compared with the tax cuts propsed by national.
Joined: Apr 10, 2002 Posts: 10,326 Location: Talos IV
Posted: Thu 15/Sep/05 3:26pm Post subject:
E Dogg Capizzle wrote:
I've been thinking about whether port and cigars is a better way to spend my tax cut.
I'll slide you some extra cos I will be gnikcuf rolling in it, I'll be able to run that race team I've been thinking about (or at least audition for brolly girls)
Joined: Mar 15, 2002 Posts: 14,315 Location: Heading South
Posted: Thu 15/Sep/05 3:37pm Post subject:
I think the current situation is perfect,
- both parties have been outed for the lying kcufers they are.
- a big percentage of the population stands to gain quite a bit if either party gets in.
- both parties are going to bankrupt the country.
The only thing we're missing is a centre left or centre right party to moderate the madness.
So instead of focussing on the coin, maybe now we can focus on the important bits like social policy and so on.
Which in this case, due to Don's dasdratly sucking on the yankee sav and his inability to make up his mind, I'm going with the grumpy hctib.
...oh kcuf it, the general populace ain't that intelligent.
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