Wednesday, August 31, 2005



Guest column: tax cuts and social (in)equality

By Anita

When National offered a tax cut for "all hard-working New Zealanders" I thought, as I guess we all did, "Excellent! I'm hard-working: I wonder how much they're offering" and then, having checked out their calculator and figured out exactly what to spend it on, the next thought was "How on earth will they afford it?" Again, a quick search on the net, or glance at the media answered that question. So I'm good and informed, and I can make my voting decision knowing that National is happy to pay for my overseas holiday, as long as I don't want to rely on them being able to pay for my health, education and superannuation, let alone the rest of New Zealand's.

That seems like a nice simple decision: money in my pocket or money in theirs - and when we look at it on a purely individual basis, it is that simple.

But let's say, for a moment, that we all do want the tax cut, that we do want to take the money. Why won't we all be taking a nice overseas holiday next winter?

The answer is that while we may all be hard-working New Zealanders, National doesn't treat us equally. Their tax cuts benefit the high-earning New Zealanders disproportionately. According to National’s online calculator, someone earning $25k will get $400 extra a year, someone on $100k will get $400 a month. Four times the base salary, but twelve times the tax cut.

This disparity gets even worse when we look at the gender imbalance National creates. New Zealand women earn, on average, less than New Zealand men. Measurements vary, but roughly speaking, women earn on average 85c for every $1 a man earns.1

National's tax cuts magnify that gap. On average, a woman in fulltime employment will get 65c from National for every $1 a man will get.2

The following graph3 shows how this happens. At lower wage rates, where women and men are roughly equally represented, tax cuts are tiny. At the high paid end - where men outnumber women 4:1 - the tax cuts are very generous.

tax-gender

This is not to say there won't be any women getting a very generous tax cut. The women earning over $100k will get the full $4,800, along with four-and-a-half times that number of men. But while, as individuals, some of us will do ok, some of us will do far far worse than ok.

The same calculations would show the same disadvantage for other groups: look at a disadvantaged group in New Zealand society, and you'll find that National will give them less than an equal share of the tax cuts. When you look at the group again, you'll find they'll be even more hurt by the spending cuts National will need to make to pay for the overseas holidays of those of us lucky enough to be the winners in this ideologically pure election bribe game.

It would be unfair to call National deliberately sexist, so we have to assume that they've fallen prey either to sloppy thinking, or to the kind of ideological zeal that just doesn't care about people. Whether they intend to or not, their proposed tax cuts would make the rich richer and the poor poorer, they would magnify the divisions within our society, and take away the supports from the poorest and most needy of our community.

Footnotes:

  1. Based on hour-for-hour calculations (weekly earning differentials are greater). See Pay Inequality between men and women in New Zealand and Next steps towards pay equity: a discussion document [doc].
  2. The figures for all women and all men show an even greater gap, but are confused by the presence of beneficiaries in the figures. National has pretty clearly stated that they have no intention of allowing beneficiaries to benefit from tax cuts. If beneficiaries were permitted the (trivial) tax cuts National's plans would give them, then overall the average woman would receive 52c in tax cuts for every $1 a man receives.
  3. Based on 2001 Census Figures, adjusted for wage increases to give projected pay rates at 31 March 2006. Tax cuts are plotted at the midpoint for each wage band. A full spreadsheet is here.

18 comments:

I agree National's tax cuts will disproportionally benefit the well-off, but I disagree with the gender slant.
A significant number of men earning in the upper income brackets will be supporting families. Is a tax cut for them a tax-cut to a man? or a tax cut to a family?

Posted by huskynut : 8/31/2005 10:24:00 AM

Here are two responses to Huskynut's comments.

Firstly, isn't that exactly the problem? Nationals tax cuts are blind to the individual circumstance. They give the most benefit to wealthy individuals, the least benefit to poor families.

A single man who owns his own home, and earns $100k will get exactly the same tax cut as the man earning $100k struggling with a $300k mortgage and supporting a partner and three kids. One will be able to take a nice ski holiday, the other might be able to cover increased health and education costs.

Secondly, the extension of your argument, along with the stats, shows that a one mum two child family will get on average two-thirds of the tax cut of a one dad two child family.

Anita

Posted by Anita : 8/31/2005 10:45:00 AM

You can't really blame the gender imbalance on National - that their tax cuts would give men more money is due to the overall income imbalance.

If National doesn't reat us all as equal then neither does Labour. My partner and I don't, and never will, have children. My partner has a now small student loan. So we would be better off econmically with National.

While I think Labour's policy of trageting students and families is perfectly OK, I don't see why people in my position should not also vote for their personal economic well bieing. Just like those students and parents who will swtich their votes to Labour - they will do so out of self interest.

And since Cullen in the budget had made it clear that fiscal restraint was in the best interest of us all, I can only conclude that the good of the whole has been sacrificed for the votes of particular groups. So there is no moral high ground in the position of parents and students.

Posted by Sock Thief : 8/31/2005 11:03:00 AM

I disagree - I don't think people should just vote for their own personal well being - that's just selfish (or maybe ACT) - this is a national election deciding on where the entire country is going - you have to think more than "what will I get?" - there are IMHO (and I earn over 100k and would get the Nat's max tax break) more important questions like "where will we be economically in 10 years? 30 years?" "how will I get on with my neighbour?" "will the hospital be able to look after me when I'm old?" etc etc

If I were a rabid Nat I'd probably respond "I've got mine, tough" - but I know we need to support families, education, students, immigration etc because when I'm old and retired I'm going to depend on a vibrant economy to support all the stuff I'll need to live on like my investments, health care.

Posted by Anonymous : 8/31/2005 11:31:00 AM

There's a problem with the greater good argument. Those students and parents who have switched to Labour have done so out of self interest. If they believed in the greater good then either they would not have changed their vote or would have been voting Labour anyway.

So if the election is to be decided by people who have acted purely out of self interest then why should others have any reason to put the common good first? And why should they take any notice of such moral blandishments when no one else is?

Cullen stressed in the budget that we should be concerned with the long term. But Labour has sacrificed this for straight forward vote buying - with the added insult of it being dressed with a veneer of the common good.

Posted by Sock Thief : 8/31/2005 11:58:00 AM

Sock thief,

I can blame National for trying to make the existing imbalance worse. At the moment on average women earn ~85c for every $1 a man earns (hour-for-hour). National is proposing they should get only 65c for every $1 a man gets.

They could have chosen to structure their tax cuts in a fairer way - but they didn't. They have chosen a model which makes existing disparities greater.

National have chosen an approach which risks our long term health, educational and social outcomes - and which doesn't even spread the short-term benefits fairly.

Posted by Anita : 8/31/2005 11:58:00 AM

Immigration is not a cost. NZIS charges for it's regulatory work, and most immigrants are skilled workers and pay quite a lot of tax.

Posted by Rich : 8/31/2005 12:14:00 PM

sock thief, thank God for a man who makes sense.
wiremu1306

Posted by Anonymous : 8/31/2005 12:14:00 PM

Anita - two comments:
1. you're straying very close to the politics of envy with your comments on the single man (person)'s ski holiday. That single person is already paying a large subsidy to the family man's family's education and health. They may also be struggling with a large mortgage and not quite as completely in clover as suggested.
2. One Dad with two kids will receive the same tax cut as one mum with two kids. His income (and tax) may be higher, and therefore he'll benefit more, but it's still a long stretch to turn this into a gender issue.
And you haven't addressed the fact of the significant number of families that choose to have the man be a fulltime breadwinner, the woman work at home at least part-time. The discrepancy in their incomes in that case has nothing to do with gender, and is not a social issue that needs addressing at all.

Posted by huskynut : 8/31/2005 12:23:00 PM

sock,

I believe that the idea that you should act morally instead of out of pure self-interest isn't something you can convince people of. Either people know right from wrong, and know that you should do what's right, or they don't .

So I have trouble taking seriously your question about why people shouldn't just vote out of pure self-interest. If you mean "why not live your entire life in a purely self-interested way, spurning this alleged 'morality' thing?" then forget any attempt at real answers.

Because the right thing to do is to vote in a way that will make New Zealand the best country possible (out of the choices you can vote for). Surely that is just obvious?

As for you specific complaints:

Saying "there is no moral high ground" is clearly false. The moral high-ground is only relatively higher or relatively lower, not Perfectly High. All parties fail to embody Pure Goodness - so what? Party-based democracy doesn't let us vote for what we think is 100% right, it just lets us choose the party we think is best from the available menu. That's got nothing to do with whether you'll choose to vote for what you think is best for the country, or out of pure self interest.

Saying "they're voting out of self-interest, so I will too" is an argument that applies anywhere. Those Germans did genocide, so I will too! Uh, maybe not. You'll always find people morally worse and morally better than you: which to emulate is your choice.

Face it: you can vote for what's right, or not. Your call.

[Which party has the moral higher ground is, of course, a debatable point - but that's a _different_ issue. I've respect for a committed Act or Libertarianz voter who is voting for what s/he thinks is right, even though I disagree with them. I've no respect for blatant self-interest.]

Posted by Icehawk : 8/31/2005 12:25:00 PM

I honestly don't grok the 'every man for himself' voting tactic. I mean, it's not necessary to care about society as a whole in order to have friends and family who are affected by policies that don't affect you per se. I have friends with loans, friends without loans, friends with kids, friends without kids, Maori friends, Pakeha friends... even if I didn't care enormously about the world I leave my children, I wouldn't just be voting on my own self-interest.

Posted by Ghet : 8/31/2005 12:45:00 PM

Icehawk - but there is a valid line of moral reasoning which says (almost) everyone acts out of self-interest.
Those who act in their perception of societal self-interest do so because it makes them feel good to do so, or because they've internalised ideas/values that they feel bad to act against.
There's no objective morality in any of that.

Posted by huskynut : 8/31/2005 12:47:00 PM

Anita:~
"it would be unfair to call National deliberately sexist, so we have to assume that they've fallen prey either to sloppy thinking, or to the kind of ideological zeal that just doesn't care about people"

Try the kind of ideological zeal that just doesn't care about people. With a drizzle of sexism.
Eg 1984 - 1999

Posted by Aj : 8/31/2005 04:57:00 PM

Technically - I think your comparison is incorrect.

National’s tax cuts disproportionatly benefit the poor. (Their SPENDING policies probably benefit the rich but the tax cut itself does the opposite).

A perfectly fair tax cut would leave the tax burden identical. So If lets say the amount the government needed to spend went down by 50% (let's say suddenly everything cost half as much, or the economy was perminantly twice as active) a fair way to redistribute that would be to cut the top tax rate in half and the bottom tax rate in half
NOT to
1) take the money saved and distribute it around (which would mean the poor would have a tax rate of negative several hundred percent and the rich would have a similar tax rate)
or
2) to cut the tax rate by equal percentages (in which case the rich might have a 25% tax rate and the poor have a -10% tax rate.

Both of those are obviously nonsense

As I understand it - National’s tax cut gives quite a high % tax cut to low income earners and a negligible one to very high income earners 9and a continum inbetween).

Posted by Genius : 8/31/2005 08:12:00 PM

Genius,

I just can't get the maths to back up your statements - can you show how it works?

What I can see is:

* A person earning $25k currently pays $4,680 in tax, and would get a $400 tax cut. That is their tax decreases by 8.5%

* A person earning $100k currently pays $30,270, and would get a tax cut of $4,800 a decrease of 15.9%

[Numbers generated by the IRD calculator and National's tax calculator and are based on dependant-free full-time wage earners]

That shows that the high earner gets a higher relative tax cut as well as a higher absolute tax cut.

No matter which way I cut it, someone at $100k does better than someone earning $25k.

So how do you cut the figures to show that National's tax cuts disproportionately benefit the poor?

Posted by Anita : 8/31/2005 10:19:00 PM

I think what we have here is the rise in the threshold effect. partly due to the specific numbers you selected but you have a point there.

This is probably a result of the changing of income tax brackets. creating benefits maxing out at 100,000 - somthing I was overlooking ona initial alanysis

Posted by Genius : 9/01/2005 06:18:00 AM

One thing that interests me is that National could have targeted the crucial middle ground better by shifting some the money from the upper income folk but it didn't. It is as if they couldn't resist their own ideological inclinations for the sake of political expediency. This seems at odds with their determination to exploit race, an issue of little ideological interest to them at all. Hmmmm.

Posted by Anonymous : 9/02/2005 11:06:00 PM

See the later graph - In a sense they did. the thing is if you cut takes for poor by 10% lets say (ie cut the bottom tax rate) the rich get it automatically. It would be difficult ot give the rich less money in the hand (unless you added an additional top tax rate or somthing similar). Not htat the rich would notice an extra $200 in their hands.

and so that graph MUST trend upwards. However the later (and much better) graph on this site might not.

Posted by Genius : 9/08/2005 07:35:00 AM