Monday, August 22, 2005



Tax cuts for the rich

National has finally released its tax-cut policy. It would massively flatten the tax-scale, extending the 15% rate up to $12,500, a 19% rate up until $50,000, and the 33% rate to $100,000, but retaining the 39% top rate for income over that level. I've done some quick and dirty number crunching, and the weekly amount people would benefit by is shown below:

(Interestingly, my numbers differ from those given by National's calculator, which both rounds upward and seems to overstate the benefits to those on lower incomes. I don't think I've missed anything, but if I have, I'm happy to update the figures and graph, but given that this is about the location of threshholds, I don't think it will affect the significant points below in the slightest)

The policy would deliver next to nothing to anyone earning under $38,000, and of course the big gains would go to those on incomes of over $60,000. By way of comparison, according to the latest Household Economic Survey, the lower bounds for the top three deciles of personal income earners are $35,300, $43,300 and $59,200. In other words, the benefits will flow to the top 25% of income earners, rather than the bulk of "hard-working New Zealanders" that Brash likes to talk about. Just as they did in the 80's and 90's.

And the cost of this welfare for the rich? Around $10 billion over three years. That's about the cost of our entire health system for a year, and there is simply no way National can maintain public services at their present levels, spend more on roads and prisons as they have promised to do, and slash taxes in this way. Well, not unless they intend to create another strategic deficit to "justify" radical spending cuts again.

Update: Tweaked spreadsheet and graph; I was including the 15% low-income rebate. As predicted, it didn't make any difference to the core points above - and in fact, the number of those who would substantially benefit is lower than I thought. According to Treasury, those earning over $60,000 will make up only 11% of all taxpayers in 2006. And they're the ones who will be benefitting by thousands of dollars a year. According to the table on Public Address, national's plan would hand those on $100,000 and over a $5000 a year tax cut. Nice if you're in that 3%, I guess...

16 comments:

http://www.publicaddress.net/assets/sm/2443/79/Nationaltaxcuts.pdf

Posted by Anonymous : 8/22/2005 02:56:00 PM

Apparently there is also a rate cut, of the 21c to 19c. It's confusing though, because currently there's a 19.5c statutory rate anyway, and it only acts as if it was 21c because of the abatement of the low income earners rebate.

Posted by Jordan : 8/22/2005 03:12:00 PM

National will pinning their election hopes on these pathetic little amounts? This is an area where Labour were vulnerable but luckily National just can't stand the idea of giving poor people a break...

Posted by Ragged Glory : 8/22/2005 03:28:00 PM

Raggie,

I don't think $4800 is a "pathetic little amount" even to someone on $100K per year. According to National's website:

Rich:
$100K/year = $4800 in tax cuts.

Average:
$36K/year = $600 in tax cuts.

It's interesting that they're going to cut the corporate rate to 30% from 33%e: I wonder what that means for trust funds? It's not just idle wondering: the wealthy tend to move their income/wealth across to the Family Trust, so there may be another tax cut for the rich hidden in here.

Posted by Icehawk : 8/22/2005 03:51:00 PM

I mean "another tax cut for the rich above and beyond the $4800".

Posted by Icehawk : 8/22/2005 03:52:00 PM

I'm not disinterested, since I'm in that 11%, but you should remember that when the current top marginal rate was introduced, only 5% of taxpayers were in it. So the number of people paying that rate has doubled in less than 6 years, and will no doubt increase further before the next adjustment.

Moving the top threshold to 100,000 might well be too far for fairness, but it would have to be near 80,000 to catch the same number of people as it did when introduced.

Welfare for the rich, to me, would be taxing the poor to provide benefits to the rich. But this isn't the case - we 11 percenters pay proportionately and absolutely more tax than anyone.

(The truly rich, of course, are rich by virtue of their assets, not their income, and arrange their affairs so as to minimise their income tax exposure as much as possible. But that is an argument for another time).

I'm unlikely to vote National or ACT, in case you were wondering. Currently mulling over which left wing party will cause me to hold my nose least hard. Slightly annoyed at the outrage level, though.

Posted by stephen : 8/22/2005 05:20:00 PM

PS: as someone with shared custody of a child, the family-oriented "relief" is leaving me cold too. Bring back the family benefit and be done with it.

Posted by stephen : 8/22/2005 05:22:00 PM

The 11% figure is somewhat misleading - that includes people on $60,001/year, for whom being technically in the top tax bracket is meaningless.

Posted by Commie Mutant Traitor : 8/22/2005 05:34:00 PM

Tax cuts for the rich, standard of living cuts for the poor. Same old story.

Posted by Anonymous : 8/22/2005 06:17:00 PM

stephen,

"Bring back the family benefit and be done with it."

This sounds surprising like the Greens' Universal Child Benefit.

Good luck in making up your mind.

Posted by fastbike : 8/22/2005 06:32:00 PM

I have to say, that as a Catholic I don't hold with legal prostitution or the civil unions, or abortion. But _no_ party is really making any moral stand, other than Destiny, who I can not abide. Humpf, "bishop" indeed...

So I think I'll vote Green. Why? Because they actually seem to really care about child poverty, education and health, and that would make a real difference to people's lives if they get into power with Labour. That and their energy stuff looks good. Go public transport!

And I can't vote UF because I couldn't bear them to go into coalition with National.

Posted by muerk : 8/22/2005 06:56:00 PM

CMT, true, but that applies to every dividing line. There is no arguing that there are many more people on the far side of it than before.

Posted by stephen : 8/22/2005 08:13:00 PM

Heh, who saw the debate? Don can't seem to answer questions when he doesn't have a prepared and approved answer. At least Helen looks like she's answering the question.

Posted by CutFoldGlue : 8/22/2005 09:10:00 PM

You cant jsut calculate how much you get from a tax cut you should also subtract off the amount of extra debt that you owe as a result. Ie a 10% tax cut to every NZder would mean an equal increase in effective debt carried by each NZder (if there was no change in expenditure).
Effectively this is bit like a tax rise for the very rich in this context but having said that not many believe this would not be accompanied by service cuts. Or other tax cuts later on.

In that regard of course national should have to spell out exactly the cuts it plans on making.

Posted by Genius : 8/22/2005 10:23:00 PM

cutfoldglue:

Amazed you could hear anything. Bad move having an audience - because it seems to have been made up of rabid monkeys with electrodes attached to their genitals.

After five minutes, we ended up watching a DVD instead. Own goal, on the part of TVNZ.

Posted by Craig Ranapia : 8/22/2005 11:22:00 PM

"those earning over $60,000 will make up only 11% of all taxpayers in 2006. And they're the ones who will be benefitting by thousands of dollars a year"

What does it matter if they are getting thousands dollars more in tax relief per year than someone on half that salary - after all if you pay more to start with and then rates are cut of course you are going to get a bigger slice of that pie. They pay far more in tax than somone on $38k pa anyway

Posted by Anonymous : 8/26/2005 06:04:00 PM