Thursday, May 20, 2010

Is this what you voted for?

If you voted for National because you wanted tax cuts, you might be pleased with today's Budget - depending on what your income is. But you may be less pleased when the consequences take effect. You need to trawl carefully through the fine print, or pay heed to some of the more astute commentators, to understand what's really going on. A few pertinent points to add to the one I made in my last post about the shonky argument that big tax cuts at the top are necesary to draw skilled professionals back to NZ:

1. The Budget does in fact reduce the tax take - and therefore, of course, restricts the amount available for essential services such as health and education, in the face of an ageing population and growing healthcare needs resulting, for example, from child poverty and our obesogenic environment. Russell Brown points out that the cost of the tax cuts "will be $1.085b in the next four years". But the "magic money" argument is that "tax cuts will spur economic growth, and therefore the economy will grow faster, and so it'll be revenue positive by 2013/14."

2. This really is a winner take all Budget. Idiot Savant does the numbers. The tax cuts come to $3740 million. The 45% (yes, that's right - almost half) of NZers with incomes up to $20,000 get just $320m of this. The 31% earning between $20K and $50K get another $807m. The 12% earning 50K - $70K get another $987m. The rest goes to the 12% earning more than that. The top 2%, those earning over $150,000, "pocket $430 million, about 11.5% of the total. This is almost exactly the amount the government has to borrow to fund this package. The people of New Zealand will be saddled with further debt to pay for the greed of the few at the top."

3. The government has made various attempts to hide the full extent of their generosity to the best-off and their incredible meanness to the worst-off. Russell Brown skewers the ludicrous claim that "Two-thirds of the tax cut goes into reducing the bottom two brackets." Well, yes - but this just means that the best-off benefit from ALL the tax cuts. "Even very high income earners have a "first $14,000" of income" - and so on through all the brackets until the top one, which gets a whole 5% lopped off. "Which is why it's stupid to talk about low brackets, and you'd only do it if you were deliberately trying to mislead."

4. If you're well-off and avoid paying the top tax rate, you will be handsomely rewarded by a tax cut which lowers your tax to the rate you were already managing to keep it down to. And then you could well be further rewarded by another big cut to the company tax rate (to 28%), so you can probably work out new ways to avoid tax. But if you're on a really low wage, the hike to GST - which you can't avoid, because you spend all your money on the stuff you really need - will mean you end up, at best, no worse off. But hey, don't be jealous! Just remember what Gordon Campbell calls the PM's "breath-taking" justification: because the rich spend more, they'll be paying more GST than you. 


  1. Yes I did vote National, not because of a tax cut, but to get rid if the sanctimonious prigs in the Labour party. In 1999 I did not vote for a tax increase that was inflicted on me by the Labour Party.