Monday, May 17, 2010

Who will pay for National's tax cuts?

On Thursday, Bill English will present his second budget, which is widely expected to include a package of tax cuts for the rich. The top tax rate will be eliminated, removing the most significant progressive element in our tax system. This will be paid for by hiking GST to 15% and by tax changes to the treatment of losses on investment properties.

The winners will pretty obviously be the rich, who will gain 5% of their incomes over the threshold. In the case of John Key, on a $350,000 salary, this means a windfall of $14,000 a year (his backbenchers will only get $2,500 each). The losers will be the poor: GST is a regressive tax, which impacts more on those who spend most of their incomes on necessities. Cleaners in Porirua and supermarket workers in Manukau will be paying 2.5% more for their food, power, and clothing, so John Key can have another Hawaiian holiday. Fair? I don't think so.

But its actually worse than that, because as Marty G points out at The Standard, the burden of those tax changes on investment properties will ultimately be dumped on renters. And who rents? The statistics speak for themselves:

  • 29% of households pay rent.
  • They are mostly low income – 50% of renting households have incomes of under $50,000 a year. The median household income is $68,000.
  • We’re not talking just students or young people. 260,000 of the 400,000 renting households are families.
  • Renting households tend to be larger, so a lot more people rent than the % of houses that are rented would suggest. 1.4 million of 3 million adults do not have tenure over their residence.
  • 60% of non-Pakeha don’t own the house they live in.
  • One million of the people who don’t own their residence have incomes below $35,000.
  • Approximately 100,000 households spend more than a third of their incomes one rent.
What we are looking at here is massive upwards wealth-transfer to the rich. The poor will face a double-whammy of higher GST and higher rents to pay for the greed and excess of people like John Key.

This is not how a fair society should operate. Instead, we should be using the tax system to help people on the bottom, not to screw them over. This will grind people deeper into poverty, and further widen the gap between rich and poor - something which is bad for everyone. But then, that's what National does, isn't it?

Update: People have pointed out that I was wrong about this.