by frog
So, the tax war has begun.
Today, Labour announced a $400-million-a-year package of targeted tax relief, aimed at low- and middle-income families. I decided it would be fun to compare this package with what National might announce. You will see the comparisons in the table below, which sets out how many dollars a week families on different incomes will save under each party’s policies.
I have assumed that National will get rid of the 39c a dollar tax rate, and cut 3 cents off all remaining personal tax rates (so, the 33c rate goes to 30c and the 19.5c rate goes to 16.5c, and so on). This across-the-board tax cut, at a cost of about $3 billion, is perhaps at the generous end of what National might be expected to deliver on Monday, but it is a useful basis on which to do our comparisons.
For the purposes of the table below, I have done the following:
- I am using a family with two children under 12 as the basis for my comparison. I am also assuming that both parents earn the same income. This is usually not true, but if you start trying to guess how much each parent earns in a two-kid family, it becomes too complicated to make the required calculations.
- To work out how much our family will save under Labour, I have used Labour’s tax relief calculator.
- To work out how much our family will save under National, I have used David Slack’s tax cut calculator, cutting tax as described above.
| Family income | Labour | National | Better package |
| $20,000 | $50 | $10 | Labour by $40 |
| $30,000 | $89 | $18 | Labour by $71 |
| $40,000 | $128 | $20 | Labour by $108 |
| $50,000 | $141 | $28 | Labour by $113 |
| $60,000 | $103 | $34 | Labour by $69 |
| $70,000 | $64 | $40 | Labour by $24 |
| $75,000 | $45 | $42 | Labour by $3 |
| $80,000 | $26 | $46 | National by $20 |
| $90,000 | $0 | $52 | National by $52 |
| $100,000 | $0 | $58 | National by $58 |
| $150,000 | $0 | $122 | National by $122 |
| $200,000 | $0 | $208 | National by $208 |
| $300,000 | $0 | $380 | National by $380 |
| $500,000 | $0 | $726 | National by $726 |
So, what does this tell us? That Labour believes that tax relief should be targeted at low- and middle-income Kiwis, and that National believes in universal tax cuts which will disproportionately benefit the rich.
Families earning $75,000 a year or less will be better off under Labour; families earning more than $75,000 will be better off under National. So, Labour’s giving the big money to the people who need it; National to the people who really don’t. The other positive thing about Labour’s tax package is its cost – at $400 million a year, it’s eight times cheaper than the package I have envisaged National announcing. Anyway, I will republish this table when National’s actual policy is announced. For now, we can safely say: Give The Rich A Truckload More Money, Party Vote National!
I do, however, have one quibble with Labour’s policy. Again, it has failed to do anything to help those Kiwi kids most at risk of malnourishment and poor education: the kids of beneficiaries. Why not extend Working For Families to them?
Published in Campaign | Economy, Work, & Welfare by frog on Thu, August 18th, 2005
Tags: environment
on the trolls and those who are unable to keep on topic
that’s really great frog. how about if you also do this exercise for the Greens tax policy – zero tax on the first $5000 of income – what effect would that have on these different earnings figures. At what salary bands does that have most effect?
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Frog, I really object to the WFF package which only provides benefits to families. As a young single person it frustrates me that I am going to be taxed more and more so that families get a break. Whilst I don’t disagree that life may not necessarily be easy on families, it isn’t easy on single people either. Single people are less likely to be able to buy homes, and are not able to share fixed costs such as cars, appliances etc and ongoing costs across multiple incomes. It is policies like this that will drive single people overseas, diminishing the number of workers who are taxed to support the families that receive tax relief. Sorry, but everyone should get a tax cut. Picking winners like this isn’t fair on those that aren’t chosen.
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Bernard,
I grew up in an era when a single person was more heavily taxed than a family man (as it usually was then) with a dependant spouse and children. I am not saying it is or is not fair, but I believe it is not unusual for governments (of several countries), to try and support families in this way.
Yes, I do agree that the general tax brackets need to be looked at and addressed, but on balance, if there has to be a choice, then I think families will always win. And no, I do not expect my grandchildren’s parents will benefit from this annoucement.
As for Frog – your comment about families on benefits, well, I am am puzzled about that one too. Joy.
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“Single people are not able to share fixed costs across multiple incomes.”
Yes they are, it’s called flatting.
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Frog, you know, I am disgusted by this policy and National’s not much better. But by the time all taxes and costs have been assessed, we, as a new family living in a small, two bedroom house have approximately $500 left per month. Despite being in the 39% tax bracket.
We’re expecting our first child in October and that $500 has to cover license costs, WOF, clothes, any baby supplies necessary, will have to pay for day care when my wife goes back to work (Although we’d prefer it if one of the parents could actually – you know – be a family member to them all day) and whatever other expenses are out there – and all this time more and more of these Labour policies shoot past us. We’re outside of all the brackets for everything and not earning enough to take care of our family.
Where is the help for people like us? Nowhere under this government. There is only one party that can help ALL of New Zealand and that is ACT.
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It creates more beneficiaries, more bureaucrats to manage the paper work, which uses more tax dollars.
There is little reward for earning extra money, because you lose the corresponding benefit. It creates a culture of mediocrity.
For people putting off a family and saving for a house, they effectively pay for those that have a family and then apply for benefits. An extra kick for exercising responsibility. It encourages the “me now, some-one else pays” mentality.
I’d rather see a universal benefit, or GST off food. Even then, the politics of envy would reign in socialist NZ. Can’t have a rich person eating bread GST free. Bastards.
Still, if you are a married mother, you could spend a life time doing university courses, put it on the tab, have kids, never get a job and never pay back your interest free loan that sits there year after year proving how humitarian Labour is.
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I still think the easiest way to treat everyone fairly and still benefit families is to let the husband and wife spread their income so that that say if the first $5k of an individual is tax-free, then the couple gets the first $10k of their combined income tax free – regardless of which individual earns it. The same sharing is applied across each tax bracket as well. At the same time give tax cuts to all. That way the families will benefit because they can redistribute their income for tax purposes and achieve the same benefits, and at the same time everyone else that is not a family also benefits for tax cuts. WFF is nothing but a targeted bribe to those that fall within its driftnet.
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Stuey – flatting is only socially acceptable up to a certain age I’ve found. After a while there is very real social pressure for even single people to ‘go buy a house and live alone’. I know because I’m currently flatting and I get the house thing all the time. Flatting is fine in your twenties, but the older you get, the less socially acceptable it is.
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ZenTiger,
I do not have a problem with a few more clerical staff at IRD or where ever they are needed – these people have a job, pay taxes, buy goods and services and it is all part of the money go round.
Bernard,
Income splitting for a couple sounds interesting. What are the arguments against it? And the first whatever tax free, it is a Green policy anyway. Joy.
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Frog:
For someone who’s pretty tough on junk stats, perhaps you should wait until Monday evening and compare two real policies?
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Joy. Government workers are all part of the money go round, but saying they pay income taxes is a nice fiction to make them feel better. They do pay GST, rates, petrol tax and so on, but there is no need for a government to pay them extra money, calling it income tax, and then taking it back again.
And it doesn’t really help the economy to invent a whole lot of jobs that just move paper and numbers around, whilst receiving a very high unemployment benefit. Why should they get singled out for a higher benefit rate, than some-one doing nothing at home, who at least saves on extra computers, desk space, team building training courses and manamgement overheads? Get rid of waste: put them on a benefit and save heaps of tax dollars, and if they want to contribute to the economy, great, they can get a real job.
Now Frogs, please don’t extrapolate and say I want ALL government employees on a benefit, and NO bureaucrats. There are a couple of positions that would be left over after I was elected supreme ruler.
I just think we can be much much much more effecient, and policies like this increase the bureaucracy for the nett benefit of creating a beneficiary minded middle class.
And my government policies would include some serious kick-ass shit to protect whales and dolphins. Why work for the dole, when you can work for the dolphin?
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Frog, I don’t think you should use the term “tax relief”
That would imply that lower and middle class Kiwis object to too much tax being taken out of their pay-packets, and that it is a relief, a temporary respite if you will, to get a little more back.
Maybe some kind of stirring phrase to indicate that whilst people really want to donate more, the government is saying “no, no, no, not today thanks, from you. The next comrade along will undoubtedly be happier to pay your share”
Maybe “Kyoto family offset payment”? Given that the extra dosh to selected citizens will go straight back to the government via higher petrol costs, rates, alcohol excises, and around 20 other hidden taxes, it has a nice positive ring to it.
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ZenTiger
Please explain for me what it is you consider to be a “real job”. Joy.
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Just about anything you care to name Joy. Except for bureaucratic jobs created by a rapidly bloating government that likes to solve problems by moving bits of paper around, after getting others to fill them in for them, which only hampers all the businesses out there engaged in service delivery, production, trade, infrastructure support, tourism, construction, taxi drivers, lawyers, financial advisors and even accountants.
Mind you, I could even cut the work load of accountants by around 80%, which would then allow them to side-skill to play a more advisory role with business development, rather than arguments with IRD on behalf of countless small businesses (and schools, based on an overheard conversation a few weeks ago) arguing about the ridiculously punitive penalties for minor stuff-ups.
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yea, wasn’t there a study which found NZ’s level of beurocrats was on par (per head of population) to other western governments like Britain?
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Why not just reduce the tax rate to achieve the same effect, and where the amount of tax paid becomes less than the refund (?) offered you could be negatively taxed! Oh man, I’d love to see that payslip.
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I think it’s a little disingenuous to make assumptions about what National’s tax policy is going to be.
I think it’s a hell of a lot more disingenous for National not to come out with it’s tax policy… so you’re forgiven.
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BTW, Frog, it’s nice to see that Labour and the Green have forgotten that not every family has children in it. Some, like Helen Clark and Peter Davies, choose not to have children. Some, like my partner and I, can’t.
Guess we just don’t count.
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Bernard – I have a strong visceral reaction to this policy, which is just like yours. As I said on NRT, this will push me to investigate trusts and other tax structures, something I’ve avoided on principle up till now.
I acknowledge so many families do struggle and should be supported, but it’s their *choice* to have children.
One friend of mine sees red over all the other ways individuals in family relationships get benefits that single people don’t, eg if one of her married colleagues wants to work part-time to spend time at home with the kids, then HR are very quick to support this, but if she wants the same for study, travel or just to work less, there’s minimal cooperation.
Families are just one social unit/structure, yet they’re frequently supported and promoted in unique ways. This sucks, basically. I may wind up choosing not to have children and invest the time into the community in other ways.. I don’t expect to be a second-class tax citizen as well for that choice.
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Huskynut:
Indeed. And may I also note that not having children isn’t always a “choice” (Lifestyle or otherwise): My foster brother and his wife (who had a totaly hysterectomy in her early 20′s) are in the process of adopting and they’d make wonderful parents. I’m looking forward to being the eccentric uncle.
But my same-sex partner and I can’t even adopt – and the various ‘gayby’ options aren’t acceptable. (Not least my partner wouldn’t want to start a family at 60!)
Just because David and I don’t have biological children, doesn’t mean our family – who are involved with our extended whanau and communities – is any less valid or worthy of respect. I would have thought Helen Clark, of all people, would understand that.
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Agree Craig.. truth is, this is another carefully-calculated plank to buy the election, and if they lose my support in the process it’ll be compensated for by the many they’ve bought.
In the bigger picture, if this is part of the cost of a Labour victory then I’ll pay the price rather than see Nat/NZF in power, but meanwhile I’ll begin to protect myself as far as possible financially and otherwise, as it’s clear Labour are unsymapthetic to my interests.
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And yeah, the fixation with families disadvantages all minorities.. since the greens are champions of the underdog, perhaps this is another good cause Frog..?
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Hi Frog, I am curious about where you got the 400 million cost from? The media are reporting this policy to cost 1.3 billion.
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Toa: The 1.3 billion cost is over three years… The annual cost is $440 million.
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Thanks for that. I did some calculations on DPF’s discussion and came up with 1-1.2 billion per year for the under 35K families.
http://blognz.com/mt/mt-com.cgi?entry_id=11589
If I reverse the calculations, there are 660,000 families (Dept Stats) in NZ. Proportionately (2005 Budget) about 2/3rds are in the under 35K income or 440,000 families. Now using $440,000,000/440,000 Families = $1000/Family , or $19.23/week Family. As a median I would expect it to be $60-$70/week and not the $19.23/week. As you can see it does not add up and Labour is seriously underestimating the cost of this policy. The real concerning aspect is whether this is intentional (eg $600 Million for roading) or not (eg Kyoto).
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You know, people whine about having to pay taxes without realising that taxes pay for schools to educate our young, hospitals to treat our sick, cops to protect us from crime, prisons to lockup rapists and murderers, fire brigades to protect our properties from fire, housing to shelter the homeless, defence to protect us from invasion, biosecurity to protect our farms from nasty bugs, etc and so on…
Cut taxes, you cut those services.
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Millsy,
Thank you. I have just been reading the comments on DF’s blog on this subject. Your comment here is what was running through my mind as I read whinges from people who wanted THEIR MONEY to do with as they please. Just how far do such people want to go in cutting out government services? Their points do not seem logical to me, not when I consider the whole picture of NZ as a community. Joy.
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Millsy – encouraging population growth with a policy like this will only put even more pressure on public services, not ease them. The way society is going, there will be less workers out there to generate the taxable base required to support more children in society. Education and health costs at a minimum will go up as well.
Everyone – I find it interesting that the Greens are supporting a policy that encourages population growth. From a party that suports Populations Action International and Zero Poluation Growth, I don’t think that WFF should provide any additional benefits to more than 3 children. Up to three, I don’t have a problem with, but any families bigger should not be supported by government. That is inefficient and a waste of what are becoming scarcer international resources. I would have expected more from the Greens on this point. People should not be encouraged to have large families in this day and age.
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The irony is, Joy, is that by international standards, we are lightly taxed. Even the free market paradise, the good ol’ USA has higher tax rates than us (and more taxes).
I would prefer more spending on the things I mentioned above to tax cuts anyday.
However, I belive a cut in GST would do a lot for low and middle income earners. Reducing GST to 10% would be a good move in my reckoning..
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Bernard, I am fully aware of the implication of population growth, and it is an issue that needs to be discussed.
I belive that educating people from an early age – in the schools, about the cost and responsibilites of having children is much better than putting financial penalties of those who have (too many) children. It is a measure that I support to solve the DP/single mother problem as well.
And – in case you were wondering – I do not have children, and I do not intend to have any, that is due to the fact that I am not a “kid” person more than anything else.
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Bernard,
Your comment about small/moderate sized families is worthy and one that my partner Paul & I support. Unless parents are seriously wealthy and can independently support their extra children then yes, responsible moderation should be the order of the day if parents expect govt help.
Millsy,
How about no gst on locally produced food? Joy.
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Just for the record. I had 3 children way back in the 60′s. All 3 have married. One couple cannot have children. The other two couples have, 3 and 2 children each, and can support their children OK.
Sadly Paul & I do not have children.
Someone mentioned DPB. That is an area we feel strongly about. Continuing to breed, as a sole parent, whilst on govt support IS irresponsible. Joy.
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RE: DPB.
I would rather that we educate people to refrain from having kids at an early age than trying to meddle with the DPB.
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Millsy,
Indeed you are correct. Responsible people making educated choices in their lives. Joy.
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Joy and Millsy – there are still a lot of irresponsible people out there too, the ones that don’t make educated choices about their lives. Pick an issue – speeding, crime drugs, health – people know the consequences but still make poor decisions. Just because people may be educated against having large families, doesn’t mean that they will actually have smaller families. Education nearly always needs to be combined with very real incentives (be they postive/negative). Which is why a program like WFF needs to taper off financial support rapidly after the third child.
I agree that in an ideal world education would be all we need, but currently it isn’t enough – not judging by many other issues in society right now.
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It seems that all those lazy single parents are the problem again!
- Instead of blaming the parent that is looking after the kids, – why don’t we punish- sorry “dissinsentive” the ones that leave (or are left by) the one that takes custody of the kids.
When you see a separated parent without kids, they are the bludger not the one that has the kids!
If you have sex, you run the risk of being a parent, if your a man, that desision may be out of your control, so I want to urge all the men out there. Be responsible, If you have sex, you could be a dad. Be prepared to PAY!!!
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