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Originally published by the National Business Review on Thursday, 26 May 2016
The one thing we knew wouldn’t be in the Budget this week was tax cuts. The Government has said not today, probably not next year but maybe at some stage before 2020.
While National has done a good job at getting the Government’s books into surplus, it has done so on the back of an increasing tax burden on New Zealanders.
National campaigned in 2008 on tax cuts. They implemented the first tranche of their programme in 2008, but ditched the next two tranches. In 2010 they did a tax switch which saw GST increase and personal rates decrease. This was designed to be overall fiscally neutral. So the last true reduction in the tax burden was in 2009.
Fiscal drag has helped the Government balance the books, as rising wages push people into higher tax brackets. This has been quite considerable.
Take a worker earning the median full-time wage. In 2010 Ms Median paid $7,132 in tax at an average rate of 15.4%. Her marginal tax rate was 17.5%. She got to keep 82.5% of any extra money she earnt (putting aside the other taxes such as GST, excise tax)
Today Ms Median pays $9,148 in tax. An extra $2,016 or $40 a week to the Government. Her average tax rate has crept up to 17.0% and her marginal tax rate is now 30%. She only keeps 70% of any extra income, rather than 82.5%.
A centre right government should be sticking up for Ms Median, and pledging to allow her to keep more of her earnings. Someone on the median wage is not rich. They should not be facing a 30% marginal tax rate on top of 15% GST.
Looking at other significant parties is even more depressing. Labour have just announced that they will campaign to increase taxes on New Zealanders in 2017, and the only thing they don’t know is by how much, and what new taxes they will impose.
NZ First promises more in spending than all the other parties combined, so they offer no hope for tax relief, unless it involves massive deficits.
The Greens attitude to tax, is to impose one on anything they disapprove of – and that is a very very long list. I once counted up all the things they wanted to ban (there were around 120), so I imagine the list of things they want to tax is equally high.
As I have a masochistic bent, I have been keeping tabs on all the spending demands made by political parties, MP, media, NGOs and others since the 2015 Budget. In just one year an extra $15 billion of extra spending (per year) has been demanded. And that is not even including Labour’s flirtation with a Universal Basic Income which could easily add $10 billion more to that.
There is a huge amount of economic research showing that low tax developed economies do much better over time than high tax developed economies. If we allow families and businesses to keep more of their income, the country gets wealthier and more people have jobs.
However Ms Median paying an extra $2,000 a year in tax doesn’t get front page newspaper headlines which seem reserved for stories saying it is outrageous that a family has to repay the massive cost of their taxpayer funded motel accommodation after their last three state homes tested positive for Methamphetamine and they were banned for a year.
This family of ten appear to have been receiving close to $3,000 a week in assistance, or $150,000 a year. $1,200 a week in welfare payments and $1,700 a week in motel accommodation. Despite this, the complaint is that taxpayers are not generous enough and should not be expecting any of this money to be repaid.
No matter how much money the Government spends, there will be scores of politicians and lobby groups demanding even more. That is why the Taxpayers’ Union will be fighting for a commitment from the Government to reduce the tax burden on New Zealand families, rather than competing with parties of the left on how best to spend the surplus.
David Farrar co-founded the New Zealand Taxpayers’ Union. He blogs at www.kiwiblog.co.nz
On One News, they found someone to complain that they won’t be getting a free $1,000 KiwiSaver contribution from the taxpayer. She claimed that the contribution “kind of feels stolen” from her.
Her name is Alexa Rae Johnson. The same one who only moved to NZ this month to start a job here. Has been here working just one month, and already complaining that we’re not giving her a free $1,000.
Consider that the contribution was scrapped to fund the child poverty package. Now is Miss Johnson in poverty? Well, on her travel blog, she boasts of having traveled to 39 countries in the last couple of years.
Now this post is not a criticism of Alexa Rae. If a Government is silly enough to offer free $1,000 handouts to people who have just moved here, who wouldn’t want one. I’ve taken one. You’re a bit of an idiot if you don’t take one.
But the issue is whether the $1,000 hand out was a good use of taxpayer money. I’m not sure we need to help someone who has travelled to 39 countries save money.
Stuff reports some interesting data:
While 2.5 million people have signed up to KiwiSaver 38 per cent are making no contributions to it.
Many of those members are likely to be children whose parents signed them up to take advantage of the now-removed $1000 kick-start.
So middle class families with smart accountants have all rushed in to get the $1,000 handout for their kids, but it doesn’t actually lead to them saving money. They just take the $1,000 and leave it there.
In fact the overall change in savings behaviour has been very limited:
KiwiSaver has cost the taxpayer more than $6 billion and its success in helping people who really need a boost in their retirement savings has been described as “marginal, at best” in a report released by the Inland Revenue Department.
Think what else we could have done with that $6 billion?
Of those who are saving 56 per cent have money taken from their salary and wages and of those 58 per cent contribute at the minimum 3 per cent rate.
But just one third of the income saved was estimated to be additional savings.
So of the 2.5 million in KiwiSaver just 62% are making contributions. That’s 1,550,000 people. And of those 1.55 million just 56% are contributing from their wages. That’s 868,000.
And of that 868,000 only a third are doing additional savings, which is 290,000.
So we’ve spent $6 billion and it has led to just 290,000 people actually saving more money. That’s a cost of almost $21,000 per net saver. Now these are ballpark numbers and not entirely accurate, but the overall picture is clear that it is a hugely expensive scheme that has had a modest impact at best on savings.
IRD concluded:
A costs and benefit analysis shows that for the period 2007/08 to 2013/13, the additional savings amongst the estimated target group for each $ of government spending ranged from $0.20 to $0.38 as the level of government contributions dropped with fewer new enrolments and policy changes.
So 20c saved for every $1 spent.
25% of the Crown subsidies were paid to the highest income quartile.
Middle class welfare.
David Farrar is a cofounder of the Taxpayers' Union and blogs at Kiwiblog.
Radio LIVE spoke to Jordan Williams and David Farrar of the Taxpayers' Union for their analysis of Budget 2014.
A reader has sent this in to me. They note:
Just got a letter today that informs me that the Auckland Council will now inspect my pool fencing every three years to make sure it is still there and charge me for the privilege. Revenue generating at its best.
Original inspection received sign-off. It cost a fortune to put in a steel fence. Current charge for initial inspection is $75 – I am OK with that and foolishly thought that was the end of it.
Now it will be inspected every three years at a higher cost of $125 per inspection. For now.
My points are:
- Why follow up inspections? It is a metal fence set in concrete – we are hardly likely to lift it out of the ground
- Why more expensive since it is just (supposedly) reaffirming it is still there so technically they could look from the top of our drive and view it rather than inspect it
- Why can’t we just send in a photo showing it is still there – saves them a trip and us a lot of money
This is revenue generating pure and simple. It is a loose interpretation of Fencing of Swimming Pools Act 1987 section 10 (Every territorial authority shall take all reasonable steps to ensure that this Act is complied with within its district.)Exploitation of vague legislation seen as a revenue opportunity.
Since Len(it’s all about me) came in our rates have increased and services decreased as well as additional charges sneaking into the mix. This is snowballing and there seems to be no vehicle to challenge other than talk to a child at the call centre who sounded very sweet but “that picnic may be short of a sandwich” if you know what I mean. She struggled to know what to say and failed to find me anyone to talk to. Any suggestions for recourse?
The $75 initial charge does seem okay, but checking every three years the fence set in concrete is still there seems indeed just revenue generating – especially as they will cost more than the original check.
NB: This post also appears on my personal blog kiwiblog.co.nz. Please feel free to comment on the post there.
Readers will be aware that Australia is facing huge deficits, despite the promise of the previous Government to get into surplus.
As a response to this, the Centre for Independent Studies has proposed some fiscal rules to bind future Governments.
They are:
Fiscal rules are not new for Australia. The Labor Hawke/Keating Government set rules being:
Anyway what I like most of all is their mechanism to encourage Governments to keep to the fiscal limits or rules. They propose:
This would involve cutting federal politicians’ overall remuneration by 1% for every percentage point breach of each fiscal rule for the duration of the breach.
Now that appeals!
NB: This post also appears on my personal blog kiwiblog.co.nz. Please feel free to comment on the post there.
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