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A new report by Taxpayers’ Union Research Fellow, Jim Rose,analysing the impacts of implementing a tax-free threshold concludes that the policy would be an expensive and poorly targeted way of reducing the tax burden and increasing after-tax incomes of New Zealand families.
> The introduction of a tax-free threshold is poorly targeted with many of the intended beneficiaries of the policy already receiving other Government support such as benefits, superannuation and tax credits, which could be increased without spillovers to other higher income groups.
> The more important tax threshold that needs to be adjusted is the $48,000 income tax threshold that when crossed sees individuals paying a 30% marginal tax rate. Given that a full-time minimum wage worker earns $47,216 annually, they only need to work one additional hour a week or get a 40 cent per hour pay rise in order to be pushed into the higher tax rate. This, combined with the 27% abatement of Working for Families tax credits, can create punishing effective tax rates well above 50%, which has significant impacts on incentives to work.
> Most of those in incomes low enough to substantially benefit from a tax-free threshold are either in groups where more targeted support can be provided (such as those listed above), are students working part time, or are second earners, again working part-time.
> The tax-free thresholds proposed by the Greens and Te Pāti Māori, along with the one considered earlier in the year by Labour, would cost more than what is currently spent on Working for Families but spills over to many taxpayers who do not need it, rather than just those the policy intends to help.
Commenting on the report, Taxpayers’ Union Head of Campaigns, Callum Purves, said:
“While it might be seen as appealing at first, the introduction of a tax-free threshold is arguably one of the least effective tax cuts. It is poorly targeted and doesn’t address the real issue, which is high marginal tax rates for primary earners in a household. Marginal tax rates matter because the impact on incentives to work, invest and up-skill along with being key determinants for whether people come to New Zealand or if our best and brightest decide to head overseas for a better return for hard work.
“The Taxpayers’ Union would of course prefer a tax-free threshold be introduced to the current high-tax status quo if it was funded by reductions in wasteful spending. However, there are far more effective options which should be explored instead, such as reducing the tax burden at the point where it hits the hardest by increasing the income threshold at which the 30% tax bracket kicks in.
“Hiking taxes even further to fund a tax-free threshold is simply untenable. The taxes proposed by the Greens and Te Pāti Māori (and previously by Labour) would economically ruin New Zealand by punishing innovation, investment, and success, draining New Zealand of the income needed to sustainably fund such a threshold.”
A new report published by the New Zealand Taxpayers’ Union analysing the impacts of taking GST off fresh fruit and vegetables concludes that the policy would be expensive, complicated, poorly targeted and would see most of the benefits going to supermarkets rather than consumers.
Using a collection of the leading research on GST and VAT systems from around the world, the report concludes:
> Evidence of significant litigation internationally over the categorisation of certain food products demonstrates the significant cost and bureaucratic complexity of determining whether different items should be zero-rated or not.
> The inherent complexity of a GST system with a zero-rating regime adds significant compliance costs to small and medium sized businesses who currently enjoy the benefits of a system that is simple to calculate and administer.
> Taking GST off fresh and frozen fruit and vegetables will not see a 100% pass through to consumers and is likely to be substantially less than this. Any pass-through of less than 100% therefore leads to wasted money which would be more effectively spent on other social policy tools such as an increase in Working for Families payments.
> The lack of competition in the New Zealand grocery sector means that consumers are even less likely than their international counterparts to see the GST reduction result in lower prices at the checkout.
> Removing GST off food items is a poorly targeted way of reducing the cost of living for those most in need with most of the benefit going to those on higher incomes.
> Undermining the GST system for fresh and frozen fruit and vegetables is likely to lead to a slippery slope where lobbyists push for more exemptions to be made to other products such as other basic foods, sanitary products and children’s nappies which would further erode the efficiency and simplicity of the current system.
In response to the report, Taxpayers’ Union Campaigns Manager, Callum Purves, said:
“A flat-rate GST system with few exemptions is one of the few things economists have been able to almost universally agree on as being good policy. It is a shame that certain politicians and political parties are willing to go against the overwhelming consensus for a policy that supposedly focus groups well.
“The Finance Minister’s own comments in relation to GST before the policy was announced shows that he knows creating GST exemptions is a bad idea, a sentiment which was also shared in earlier comments from former Revenue Minister David Parker and former Prime Minister Jacinda Ardern. The Labour Party strategy seems to be one of simply hoping that New Zealanders are too silly to see this policy for what it is.
“If the Government wants to bring down grocery prices for struggling New Zealanders, they should focus on removing overseas investment barriers for supermarkets, particularly those relating to the purchase of land, and also cutting the red tape in our resource management system that make it so costly and complex for any major developments to occur.”
A new report published by the New Zealand Taxpayers’ Union exposes the bad decision-making that led to a 61% cost blowout in Auckland’s City Rail Link and shows that the costs of the project now significantly outweigh any benefits.
‘The City Rail Link: A Great Big Sucking Sound for Taxpayer and Auckland Ratepayer Dollars’ provides the first in-depth analysis of cost overruns and benefit shortfalls in the Auckland City Rail Link (CRL). The report’s author, economist Jim Rose, argues that key decisions made first by the Government and Auckland Council were premised on a flawed business case.
As of December 2022, total costs for the CRL project were estimated to be $5.5 billion, 61% higher than the original cost estimate. While project managers blame COVID-19 for this big cost over-run, the evidence suggests that the project should never have gone ahead.
Key findings of the report are:
Taxpayers’ Union Campaigns Manager, Callum Purves, said:
“The City Rail Link will go down in history as a monument to the sunken costs fallacy as we continue to throw good money after bad. It is clear that the benefits of this project are now more likely than not to be outweighed by the costs of the project that have been allowed to spiral out of control.
“The planners at Auckland Transport who dreamt up this project shouldn’t be let anywhere near the public purse again. If there is a silver-lining from this, it’s that Cabinet ministers and Auckland councillors might think twice before trusting the advice they get from Auckland Transport in the future.”Read more
Today we have released our latest report, ‘Socialism for the Rich’, by Jim Rose. The report shows that the annual cost of corporate welfare is now $1.6 billion - or $931 per New Zealand household.
‘Socialism for the Rich’ collates the costs of all the corporate welfare expenditure in Budget 2017. It shows that the company tax rate could be six percentage points lower if these favoured handouts were abolished and spread fairly across all New Zealand businesses.
Instead of rewarding profitable businesses with an across the board tax cut, these subsidies pick winners by directing subsidies to businesses that cannot keep afloat on their own.
Budget 2017 has allocated $294 million to commercialising science and innovation. In the past, the Government has directed investment at ‘public good’ science - research and development that has low commercial viability. Now, funding is going towards trying to commercialise technologies in the private sector. It’s socialised costs for privatised profits.
A further $148 million is going towards subsidising the film industry, $12 million less than the last budget. Since 2008, $997 million of taxpayer funds have been spent trying to attract the glitz and glamour of Hollywood.
The largest recipient of taxpayer funded corporate welfare is KiwiRail. The latest budget has allocated $396 million to KiwiRail, a 50% increase on the previous year. KiwiRail has now received more than $4 billion in taxpayer handouts since 2008 despite being valued as a $1.5 billion liability.
Corporate welfare is not only a waste of taxpayer money but also counterproductive. Look at Emirates Team New Zealand. Removing the direct corporate welfare saw Team New Zealand bring home the Auld Mug. Forcing private businesses to compete on their own footing, rather than rely on government handouts, will inspire competition and innovation. On the other hand, corporate welfare slows down the boat.
The report's author, Jim Rose, says, “The role of government is to provide essential public goods and social welfare that the market cannot. This Government has significantly overreached this role and actively engaged in picking winners and propping up failing businesses.
New Zealanders will have to pay an extra 40% in their insurance fire levy from July despite the key selling point of the Government’s amalgamation of fire services being ‘efficiency’ - according to a new report we've published today.
The Government's reform package will result in an immediate cost increase of $80 million for little or no increase in services, despite claims by Peter Dunne, who has driven the reform, that the amalgamations will save money.
Total fire services costs will shoot up by $80 million per year despite efficiency being the key promise by Mr Dunne of these reforms. What is worse, the Government has increased the economic burden on New Zealanders without any comparable increase in the level of service.
According to the Government's own figures, efficiency gains years down the track will not even recoup 12% of the forecast increase in costs due to the amalgamations.
Despite rhetoric by politicians that these reforms are about saving money, according to official estimates, the emperor has no clothes. The costs are forecast to skyrocket.
The Fire and Emergency New Zealand Bill is in the final stages of passing in Parliament and will centralise both urban and rural fire services under the funding of the insurance levy on 1 July 2017.
Currently, only New Zealand First are blowing the whistle on this issue. The question is, why haven’t the other parties done their homework and held Peter Dunne to account for what appears to be an enormous own goal? His reform, which he’s sold on the basis of ‘efficiency’ will, in fact, cost New Zealanders’ hundreds of millions over the next few years alone.
New Zealanders currently pay less than a third of the cost of Tasmania - which has a similar fire climate to New Zealand - where rural and urban fire services are centralised. Tasmanians pay $293 per person compared to only $86 in New Zealand. Despite that, the Government is adopting the Tasmanian business model.
Not only are the costs going up, but the reforms will mean insurance holders are unfairly targeted to fund the fire service. For example, foresters, who seldom insure, will now pay 38% less in protection whilst Mum and Dad households are paying 40% higher levies on their insurance. How is that fair?
The changes do nothing to incentivise self-insurance and actually rewards those who opt out of insurance altogether.
Read (or download) the report below.
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