Thursday, May 17, 2007

Budget Day

In case anyone had missed it, today is Budget Day. In the Herald, the Child Poverty Action Group's Susan St John presents an alternative budget, in which she advocates a capital gains tax on housing (with a large exemption for people's homes), shifting tax brackets to compensate for inflation since 2000, greater funding for low decile schools and improved access to medical care for children, eliminating the discriminatory "in-work" payment from Working For Families in favour of a universal boost to the Family Tax Credit, and a significant boost to benefit-clawback income thresholds. It's the sort of Budget a progressive, left-wing, social democratic party like Labour should be delivering - but we're not getting it. Instead, we're getting business tax cuts, which will benefit only the rich, foreign owners of our economy.

Labour's departure from its roots and its capture by the rich couldn't be any clearer.

(Actually, I expect to be moderately pleased by much of the Budget. Boosting KiwiSaver and foreign aid and electrifying the Auckland rail network are all good policies. But there's a widening gap between what we elect Labour governments to do - you know, helping the poor - and what they deliver. While Labour would no doubt blame this on its coalition partners, its worth noting that some of the above policies (for example better access to health care and the inflation indexing of tax brackets) are explicitly advocated by those parties. With the exception of the capital gains tax, I can't actually see either of them objecting to such a package).


Why is that when business tax cuts are announced it is always "it is going to line the pockets of overseas corporations" mantra.

No benefit at all to locally owned businesses?

The SME (of which I own one) are getting hammered with compliance costs, being unpaid GST collectors, etc, ect,. No break for us?

Bollard has done more to drive New Zealand's money overseas by continual hike to the interest rates, so all the extra interest goes straight to the Australian owned banks. They cant help but take the extra profit (and exporting it) with Bollard setting the interest rates to punish the home owner for buying property.

Perhaps a tax cut to stop the government collecting such a big surplus would be a help to the "poor".

But that is for election year, no?

And upping the price of petrol in Auckland to pay for electrified rail is doing the poor a big service?

Posted by Anonymous : 5/17/2007 01:06:00 PM

I didnt realise that the nz economy was overseass controlled?

So are you saying that all people in nz that start of in business dont have the right to sell their business and take advantage of their success.

maybe we should have an economy with no business such as north korea.

It may come as a shock to you, but to have goverment spending you have to have tax. Tax revenue is best boosted by people earning wages. Wages come from business.

Perhaps you can tell us how you would help assist business ??

Posted by Anonymous : 5/17/2007 02:02:00 PM

The fruits of working for families?

Posted by Sanctuary : 5/17/2007 02:15:00 PM

Banks don't take all the interest money and line their pockets with it - if they did then I'd have all my money and bank shares and would be a rich boy!

Just like a supermarket buys groceries, a bank "buys" money from investors, savers, other banks and the central bank.

Incidentally, on the subject of Working For Families, if I wanted to bludge the dole and had the neccesary offspring, what's to stop me from setting up a pseudo-business and paying myself a minimal salary using money I lent to the business (meeting the "in work" requirements) and getting paid WFF credits without actually doing any real work? [You actually *can* do this in the UK where they pay tax credits to childless single people]

Posted by Rich : 5/17/2007 02:49:00 PM

Whatever people vote Labour for, it certainly isn't fairness. As DPF observed: Talking of tax, 14% of taxpayers will now be paying the 39% tax rate, up from 5% in 2000. And those 14% will pay 53% of all income tax.

Posted by Anonymous : 5/17/2007 04:12:00 PM


As the money has flowed out of New Zealand, it is not being invested here, but overseas. Some returned to shareholders but mostly reinvested overseas.

That is the problem.

Now a socialist government could insist that all interest received in New Zealand should be reinvested here, but I wont hold my breath for that one.

Posted by Anonymous : 5/17/2007 04:19:00 PM

How much of the income and assets do those 14% earn/own? I'm betting it's less than 53% but a great deal more than 14%.

If you remove some basic "necessary income", and thus only consider discretionary income, I think you'd get much closer to the current situation being fair. Of course, the first rule for rich people is so often "to each according to what they have, from each according to what they can't protect". But I don't like that approach, it seems unfair to me.

Posted by Moz : 5/17/2007 04:25:00 PM

" How much of the income and assets do those 14% earn/own? I'm betting it's less than 53% but a great deal more than 14%."

I don't know about own, but if they're paying 53% of the tax then the earning would be somewhat under 53%. We have progressive taxation in New Zealand - even though they might earn 35% of the income, they pay more than 50% of the tax.

Posted by Graeme Edgeler : 5/17/2007 05:04:00 PM

How much of the income and assets do those 14% earn/own? I'm betting it's less than 53% but a great deal more than 14%.

What does that have to do with anything? Taxpayer-funded services don't cost more because you happen to earn more.

Posted by Anonymous : 5/17/2007 05:27:00 PM

Im not worried if business pays less tax. In theory if you have a tough commerce comission labour protection laws kiwi savers and so forth it all gets sucked out the back end anyway - what concerns me is that rich individuals pay less by restructuring their affiars via trusts and companies.
Im also conerned that we have a very flat tax structure in the upper region. the tax rate creep effectively emans that a person making a million dollars pays similar percentage tax to some one on lets say 80,000 quite possibly less (as a result of making certain tax dodges more feasible).

I like the kiwi saver

"apital gains tax on housing (with a large exemption for people's homes)"
I hate to have to say it again - but this is just a stupid benefit for the middle class. that isnt a progressive policy - its somthing for united to be supporting. How could someone suggest the "in work" payment is bad and yet propose home ownership as an exemption to capital gains tax??

a capital gains tax/stamp duty on ALL homes is somthing for a party that represents the poor to support.


Posted by Anonymous : 5/17/2007 06:01:00 PM

"14% of taxpayers will now be paying the 39% tax rate, up from 5% in 2000"

Yes, damn that evil Labour Government for raising so many New Zealanders' incomes...

Posted by Anonymous : 5/17/2007 06:01:00 PM


They haven't adjusted the tax brackets for inflation.

Posted by Anonymous : 5/17/2007 06:12:00 PM

The reason business tax cuts only benefit foreign owners is because when a NZer receives income from dividends they have to pay the extra tax above the company tax rate (once it becomes income). Only foreigners benefit because their dividends aren't further taxed by the NZ Govt (although they may have to pay tax to their own Govts). So business tax cuts are (in effect) tax cuts for foreigners only (which is why it is best to keep the top income tax rate and the company tax rate the same).

Posted by Anonymous : 5/17/2007 08:10:00 PM

which is why it is best to keep the top income tax rate and the company tax rate the same

so i take it to are advoating for the top rate to go down to 30 cents now?

Posted by Anonymous : 5/17/2007 08:50:00 PM

old scheme:
Company tax 33%
Personal tax 39%
net amount of each dollar 'profit' a person in NZ gets: .4087

new scheme:
Company tax 30%
Personal tax 39%
net amount of each dollar 'profit' a person in NZ gets: .427

all of 1.83% difference

Posted by Anonymous : 5/17/2007 10:45:00 PM

Stevencnz, Company tax in NZ is not a terminal tax, but a withholding tax...

Posted by Anonymous : 5/17/2007 11:46:00 PM

Gerritt: Why is that when business tax cuts are announced it is always "it is going to line the pockets of overseas corporations" mantra.

I was going to explain, but I see an anonymous poster has already beaten me to it.

Quite apart from the question of why the hell we're giving foreigners a tax cut, there's another issue. One of our biggest economic problems at the moment is the balance of payments deficit. And the prime cause of this isn't oil (though its a big chunk), or imports, but profits repatriated overseas by the foreign owners of our largest corporations. The government has just boosted the amount they can suck out of us every year by 10%. That hardly seems likely to improve the situation.

Posted by Idiot/Savant : 5/18/2007 12:09:00 AM

Don't mean to jack you thread, but I think 'the poor' should also be casting a sceptical eye over the Regional Petrol Tax mooted yesterday.

After all, I've seen a lengthy story in today's Herald where the usual suspects can't wait to get their hands on all the dosh.

What is conspicuous by it's absence is any assurance that public transport providers aren't going to hike fares again, and justify it as an inevitable response to fuel price increases.

Pretty perverse incentive to use public transport, isn't it? And I suspect there are a few low-income people in Auckland and Wellington where public transport isn't a socially conscious 'option' but a necessity. And while a couple of hundred dollars a year might be chump change to the likes of Mike Lee and Dick Hubbard - who don't seem to use public transport anyway - it can be a significant extra cost to some of us.

Posted by Craig Ranapia : 5/18/2007 07:33:00 AM

there are a lot of flaws in Kiwi saver - Ive mentioned a few on my blog

Posted by Swimming : 5/18/2007 10:10:00 AM

Well Craig, what's your alternative?

Central govt public transport spending has increased 900% since 1999. The regional fuel tax provides another revenue stream for specific local projects.

How would you pay for it (asking this genuinely)?

Posted by Michael Wood : 5/18/2007 10:12:00 AM


Do you think you'd care to re-read my original comment again, and respond to that? I'll let you in on a little secret, I'm actually quite a big fan of user pays. :) Though I doubt any local body candidate in the Auckland region would want to go on the hustings with my enthusiasm for a well-designed (and please note the emphasis) region-wide tolling and congestion charging regime. User-pays a greater proportion of the cost, you see.

But if central and local government is serious about encouraging people to use public transport, I respectfully suggest another fare hike is not a smart way to go. Especially on people -- like myself -- for whom public transport is not an 'option' but a necessity.

Posted by Craig Ranapia : 5/18/2007 10:53:00 AM

What is really sad about this Fudget is there is nothing for the people that need it most, the poor. People struggling to survive on low wages who can’t afford to contribute to kiwi-saver, watch as govt gives tax cuts to their bosses, knowing that payrises wont be forthcoming because of employer contributions to kiwisaver. They can expect fuel prices to rise from 5c-10c litre, and electricity prices will rise as demand increases to power trains. House prices continue to rise at $7k/month and not a penny to alleviate the shortage of state housing. Only thing Red about this was the cover.

Posted by Anonymous : 5/18/2007 11:35:00 AM

Hey Craig,

One question: What about low income workers? They are going to be hit the hardest on tolls. But you dont really give a shit about them do you?

Brendon "Millsy" Mills

Posted by Anonymous : 5/18/2007 11:50:00 AM


Care to restate without the silly little outburst at the end?

Posted by Craig Ranapia : 5/18/2007 12:20:00 PM

> How would you pay for it (asking this genuinely)?

Not that I was the person being asked but I think a lot of people keep ignoring the elephant solution in the room.

There is no shortage of money - just pay it out of the consolidated fund.

Either building a transport system is worth it or not if building a certain section of road for example is worth 100 million dollars (net present value) then you can spend up to that amount on it. Just spend it and get it done in a fast but efficient manner don’t worry about if some quirk of circumstance has left you with just ten million in the budget. The transport company’s goals should be to create a net benefit.

Sometimes Auckland will benefit sometimes some odd village in the south island will benefit.


Posted by Anonymous : 5/18/2007 06:36:00 PM