National’s David Farrar has been running a series for some time trying to paint NZ Labour as out of step with Labour Parties around the world when it comes to their attitude on tax cuts. His intention, of course, is to portray Labour as extreme left and his mates in National as centrist and middle of the road. Problem is, he’s more interested in spruiking for the National Party than he is in getting his facts right.
Yesterday he reported excitedly that while NZ Labour was “almost alone in the world with its hostility to personal tax cuts”, in contrast the UK Labour Party is “delivering a massive package of tax cuts” to deal with the economic crisis.
We’ll forgive him for selectively ignoring the huge family tax cuts in Working For Families, the cut to the corporate tax rate, the personal tax cuts in this year’s budget and the tax credits for Kiwisaver and R&D – these are things National has to omit for its spin to make any sense.
But despite his obvious disdain for the intelligence of his readers he can’t get away with this one – under Gordon Brown’s tax plan that he endorsed so wholeheartedly the wealthy will face a hefty tax increase, while the cut is to VAT, a regressive tax similar to our GST that hits the poor the hardest.
Essentially, it’s a more progressive tax system, with tax reductions for those on lower to middle incomes paid for by tax increases on the rich, and it’s being described in the media as a rejection of Blairism and a return to traditional Labour values – values that would fit in very well with those of the Labour Party here that Farrar has tried to paint as extreme and “almost alone in the world”.
The only question is, given his enthusiasm for Gordon Brown’s plan, will Farrar now be rejecting National’s regressive tax plan – where families on less than $44k pay more tax so the rich can pay less – in favour of a system that’s fairer and more progressive? Somehow, I doubt it.
Bray bray bray Rottensox. Where’s your rebuttal? Seems Jimbo beat you into submission
Robinsod,
Tax cuts. In that these people are having their tax takes cut. Geddit? Tax?? Take??? Cut???
WFF didn’t cut the amount of tax someone paid. If it did, then there would have been no need for hundreds of IRD staff to figure out how much money to give BACK to people who would not have paid that tax in the first place if it was truly a tax CUT.
Geddit?
Scribe/Tim/Jimbo – a tax rebate is a tax cut. If you people are too stupid to understand that I suggest you get together and see if you can get a group discount on an economic literacy class…
But right now I’m just trying to figure out which one of you is Moe…
Robinsod – Erm… No, it’s not.
Assume starting tax rate of 30%:
Rebate = you start with the basic obligation to pay 30%, but since you meet certain other criteria (2 kids or whatever), the Govt gives you back 2%. If you qualify, your net position is that 28% of your income is paid to the Govt. If you don’t qualify, you still pay 30%, effectively supplementing the income of people who do qualify (again – I’m not saying such wealth distribution is wrong in principle).
Tax cut = you start with the basic obligtion to pay 30%. Govt cuts tax rates by 2%. Your net position is that 28% of your income is paid to the Govt. No hurdles to jump over and no administrative costs in policing the programme or advertising its availability. No one has chosen who should qualify and how much they should receive.
The two policies are DIFFERENT. You’d have to be stupid (or a Tool) not to at least concede that one point.
Pretty happy with my economics education, thanks. Keep on grinding…
Jimbo I don’t think WFF is a tax cut either.
However I think you’re stretching the truth to say it was promoted as a tax cut. You really should provide a couple of quotes if you’re going to continue with this assertion.
Also if the waiter who brings you pork looks a little like Sophia Loren, politely make your excuses and leave. Trust me on this.
Fair enough, Felix. Like I said, Tane’s original article about how Labour delivered “tax cuts” was a reminder to me about how the distinction got blurred. The mistaken view that’s out there (e.g. Tane, Robinsod as per this chain) must’ve come from somewhere.
You’re saying it wasn’t deliberate spin by Labour to encourage such a view. I doubt there’s much “proof” I could find to convince you otherwise – to my mind the constant references to WFF whenever the opposition called for tax cuts is the way it got played out. I might try and drag up a a few of those exchanges from Hansard some time.
The Sophia Loren warning is sound advice!
Actually it was probably more administratively efficient to implement WFF as a tax rebate than a tax cut.
For those of you who have forgotten IRD has hugely simplified the way it deals with most ordinary wages/salary only taxpayers. Most of us have forgotten about the annual form-filling ritual we all used to do. For most of us taxation is a matter that our employer takes care of via PAYE. Once the system is set up, it just rolls on with very little change from year to year.
The problem with IRD implementing a targeted tax reduction is that they spoil this simplicity. People have one, two or more children at irregular intervals, they divorce and reconstitute families… from IRD’s point of view changing family configurations are messy and expensive to deal with.
By contrast WINZ is ideally configured to handle this kind of thing. People go on and off benefits all the time. Their circumstances alter sometimes week by week. WINZ already had the people and systems in place to deal effectively with the kind of moving targetting that WFF required .
Yes there is an administrative overhead to any form of targetted taxation mechanism like WFF. But that overhead would still exist regardless, whether IRD implemented the scheme directly as a tax reduction, or WINZ implemented it as a tax rebate… but ultimately the task was probably a better fit for WINZ.
And the end result in your net tax position is exactly the same.
Jimbo,
You comparison is totally invalid. Your first example is a description of a targetted tax reduction scheme like WFF. Your second example is a description of a universal tax reduction which WFF is most definitely not.
If you implemented WFF universally it would no longer be what it was intended to be.. a tax reduction for working families with children.
Okay. I can see this stupid argument is going to run forever if someone doesn’t bring some sense to it. I guess that’ll have to be me:
While there is no financial or economic definition of “tax cut”. The effects of a rebate and a rate cut are micro-economically indistinguishable. Thus for all intents and purposes a rebate can be considered to fall within the definition of a “tax cut” at an individual taxpayer level.
But like I said there is no strict economic or financial definition of “tax cut” so we are free to construe our own understanding of it. That means this argument is as pointless as an argument about who would win in a game of bingo between batman and the incredible hulk (batman – every time).
Oh and Cullen talked about WFF as “Tax Relief” – a term the right used interchangably with “tax cut” but that also has no fixed definition.
Just for the record Jimbo – I was under the impression you considered National’s rebate for childless middle income earners, the R & D credit and depreciation to be a cut. To save me having to trawl through your turgid prose could you specify if this is the case in ten words or less?
I would also point out that even though a rebate will have a different effect to a rate reduction at a macro economic level that still does not preclude it from being considered a cut – it is simple a cut with a different macro-economic effect than another type of cut…
If I was forced to provide a definition I would consider WFF to be a tax cut because it involves the return of tax dollars to a taxpayer in the form of dollars and thus reduces their total tax payment. Because cash is fungible and nobody is entitled to receive more than they pay in tax this represents a cut. If WFF meant the government took cash and returned foodstamps or blocks of cheese or returned more than they took I would consider WFF to be welfare
Robinsod – just for the record, not once did I say that any of National’s policies you mention are “tax cuts”.
Redlogix – that’s my point. People wanted “tax cuts”, not “targetted tax reduction schemes” directed at particular subsets of society (even if such policies are admirable). WFF is a lump sum payment depending on (a) how much tax you currently pay, and (b) how many kids you have.
Some people wanted “tax cuts” that weren’t affected by how many kids you have. It’s not National spin to say that Clark and Cullen only gave “tax cuts” right at the end…
In my view, Labour would have romped in for a fourth term if it had kept the swing voters happy with measured tax cuts during the 2nd and 3rd terms. Instead, many actual and potential Labour voters “missed out” and realised that a policy dressed up as “tax credits” had nothing in it for them because they didn’t get past first base (i.e income and # of kids thresholds). Those voters started to believe that Labour was idealogically opposed to ever giving proper tax cuts (the the way that Aus and UK Labour govts have been prepared to do). In a close election, this “stupid argument” as Robinsod calls it may have been one of the factors that tipped the balance.
Jimbo,
It might be timely to point out that a govt that depends on tax cuts for electoral popularity everntually runs out of places to go. You could go on offering a 2% reduction year in year out, but at some point you do reach zero tax…. and people just might notice that the schools are shut, and nothing much works anymore.
The point is of course that tax cuts can be framed as a slogan to appeal to the dopey, but in reality it is a self-limiting, self-defeating tactic. At some point you cannot go on doing it any more, and then what do you do?
RedLogix,
It might be timely to point out that a govt that depends on promising state-provided services for electoral popularity everntually runs out of places to go. You could go on offering more services year in year out, but at some point you do reach the point where the state runs the entire economy …and people just might notice that they have no money and no choice about what services they choose to consume and who provides them.
The point is of course that “free” this and that can be framed as a slogan to appeal to the dopey, but in reality it is a self-limiting, self-defeating tactic. At some point you cannot go on doing it any more, and then what do you do?
Jimbo – tax cuts in the second term would have been economic idiocy. We had an economy running hot, a labour and skills shortage and capital at the limits of its productive capacity. All tax cuts would have done then is force inflation up.
That would have led to even higher interest rates which would in turn have made us an even more attractive debt market thus increasing the supply of cash, the rate of inflation and our interest rates… Do you see where that little cycle is going? It’s called a credit bubble. That leads to a credit crisis and as our US friends will tell you that’s something you don’t want to have to deal with – especially if you’ve increased your debt to GDP ratio to 60-70% by cutting taxes or going to war rather than by paying down debt to the low 20s…
Tax cuts in those circumstances? Nah. I’d rather see the left lose an election than win it by crippling our economy. You should also realise that the tax cuts National are offering put 30% of the cash into the top ten percent of earners – the only way national has managed to get any money to middle-income swing voters’ pockets is through a tax rebate…
Tax cuts – as this stupid argument has elucidated – were simply a tool of political rhetoric that were open to a broad interpretation devoid of economic sense…
God – I can’t believe I’ve decided to argue this inane point with you… What a waste of my time…
Billy – go to Somalia. The government lets you keep all of your money there…
‘Sod,
RL was trying to say that, if you want tax cuts you are (somehow) obliged to keep cutting tax forever. This is patent nonsense and I was trying to demonstrate by…oh, fcuk, you know what I was doing.
[lprent: you don't have to misspell the word. I removed all of those from auto-moderation after I got the anti-spam to work correctly. Now you just have to worry about true swear words like Whaleoil. Biased, bigoted - I have cause to be about idiot liars in the national smear unit
]
But thinking about Somalia, I might just fit in there. I already have the eye patch…
Sod
I think you make a couple of valid points.
However equally valid are two factors you haven’t mentioned.
1. The increase in Government spending as a % of GDP having similar effects as to those you describe.
2. The fact that average % of tax paid actually increased for two reasons. One, the addition of the 39% marginal rate for the top bracket (”rich pricks”). Two inflation leading to tax creep as people received higher salaries but paid a higher marginal rate and average rate (especially those around the $60K mark).
Addressing either of these would have allowed for scope in tax cuts. That Labour chose not to address either of these lead to considerable resentment, particularly among the chattering classes
“It’s not National spin to say that Clark and Cullen only gave “tax cuts” right at the end”
Yes it is.
I don’t know if you’re a religious chap. I’m not, but I know the bible. There’s a story in there that you’ve most likely heard of about Joseph interpreting the dreams of the Pharaoh. Skinny cows and fat cows? The point being that it is really stupid for an economy to eat all the good times and then have everyone starve during the next famine. That’s what Cullen did, ran surpluses, paid back debt, got the public sector functioning again and generally acted like a finance minister that believed that government has a role to play in promoting freedom and prosperity in the long term.
You say he is ideologically opposed to tax cuts, which really is spin. Or rather, a sort of reverse projection, whereby the right assumes that because they have a ideological “belief in tax cuts”, that the left must be polar opposites. I’m sure someone as smart as you can identify the name of that particular logical error.
What Cullen has an objection to is the belief that tax cuts are a cure all panacea to any given economic circumstance. When put that bluntly, it sounds stupid, but that’s what the right has been preaching for many years now.
Gov’t running a surplus because the economy is running flat out? Taxes are too high! Pay it back!
Economy slows down? Must need a tax cut to stimulate growth!
Wage growth not happening? Tax cuts will increase after tax pay!
Cullen simply rejects this flatulence and goes with a more non stupid idea that for everything there is a season, and that fiscal policy is a useful tool in more than one direction. One that needs taxes to sometimes rise as well as fall. It will be interesting to see if the right will be prepared to raise taxes to pay back the debt we will be taking on to weather the coming storm, once that storm passes. I doubt it, but live in hope. It’s a deeply conservative idea that they used to understand very well, till they got the supply side jesus religion.
Daveski – Not sure about your point on government spending. Government spending as a percentage of GDP was 32.4% in 1999 and 31.8% this year. So actaully less under Labour then under National in the nineties.
Daveski – a lot of that government spending was locked up in non-inflationary ways such as debt payment, the Cullen fund and Kiwisaver. I think they should have dampened the housing market with a capital gains tax and perhaps introduced a compulsory retirement scheme with an adjustable contribution rate instead of depending on the OCR alone to manage inflation (Singapore does this).
The 39% bracket was a good idea and signaled in the ‘99 campaign. Bracket creep is a marginal argument.Anyone who shifts up a bracket has more money in their pocket and tying it to CPI is a red herring for a whole lot of reasons I can’t be bothered going into…
Billy – arrgg and you knows what I was doing too, m’arty…
I admire pirates for their assiduous use of the subjunctive case.
Sod
Thanks for your reply. Ironically, I think your comments support the view that Labour took the “don’t rock the boat” strategy and largely went with the current. I do agree with your comments about capital gains tax although it does open up a pandoras box.
I’ve commented before about the 39% rate – it may be a good idea in terms of a progressive tax system but it’s impractical and inefficient when company rates are being cut to 30%. As to your other point, if govt spending is not increasing as a % of GDP (everything else being equal), there’s no argument against adjusting the thresholds.
It’s difficult to argue with the belief that Cullen was against tax rates on ideological grounds, more than economic ones.
Daveski – I’m not arguing Cullen as the perfect economic manager but he did better then most and under a lot of political pressure to do exactly the wrong thing…
Sod
Happy to agree. I’ll even go as far as to state he most likely disappointed those on the Left as much as those on the Right by steering a steady ship rather than responding to the different criticisms. He was brave in as much as he wouldn’t bow to pressure to change from the course that was set. Not all would agree that that was right but credit to him for doing so.,
However, I think he painted himself into a corner with his refusal to consider changes to taxation when he could have done so without rocking the boat.
FWIW, I don’t see WFF as tax cuts either.
Daveski: About the 39% vs 30%. Provides a pretty incentive to start companies rather than getting pay rises. Businesses are where the country makes money from exports. Perhaps it isn’t as silly as it looks at first glance.
captcha: bridge totaled
Where ?
Billy,
Of course tax cuts forever is patent nonsense; just as forever increasing taxes is. (I thought I made that perfectly obvious, but apparently you missed it.)
So why then do we ONLY hear constant bleatings for tax cuts? Why is it that most right wing commentators frame tax cuts as the magic formula for winning elections, turbo-charged economic growth, and wonderful happiness all through the land ever after? (And why no political aspirants who plainly propose to increase taxes in order that the country runs better?)
Any populist drop kick can promise tax cuts, it takes no skill, leadership or vision. Just the willingness to appeal to people’s basest sense of self-interest. But it is inherently a self-limiting formula. At some point it stops working. Then what do you dummies do for a slogan?
PB,
Yes the story of Joseph is one of the most complex and deeply layered stories in the Bible. The business of the seven years of plenty, followed by the seven years of famine makes an ancient and indelible case.
The years of plenty are rendered meaningless if society collapses and millions die during the years of famine.
Whoever the author of the story was, his condemnation of short-term thinking still resonates all these thousands of years later. Some truths never change.
Lprent,
You can start a compnay without starting a business. You can start a business without starting a company.
RedLogix – I agree there is too much bleating about tax cuts. Unfortunately all too often some post or comment includes the line “tax cuts for the rich”. While I am looking forward to having more money in my pay packet, I’m not opposed to lower income earners also having more money in their pay packet. I also don’t count myself in the ‘rich’ category.
I posit that as long as the line keeps getting rolled out there will be indignant reaction from those like me who could genuinely use the extra money in their hand for genuine reasons like housing and feeding their family.
Billy: Sure you can. But the joys of limited liability and lower tax rates sure help to swing it one direction.