Tax cuts for those who need them least
Well, National’s tax policy is out. The changes Brash is promising to the income tax rates are as follows:
- Income between $9,500 and $12,500 will be charged at 15c tax rate instead of 21c.
- Income between $12,500 and $50,000 will be charged at 19c tax rate instead of 21c.
- Income between $50,000 and $100,000 will be taxed at 33c tax rate instead of 39c.
- Income above $100,000 sill be taxed at 39c tax rate.
As promised, I have re-done my table from last week with National’s real policy (as opposed to my guesstimate of National’s policy). The results are broadly the same. Those who want to know the assumptions I made in constructing this table should go read my original post. However, my conclusions can remain broadly unchanged.
The table compares how much more money, in the hand each week, a family of four will get under Labour and National’s tax relief policies. Families earning around $75,000 a year or less will be better off under Labour; families earning more than $80,000 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. Also, the other big difference is the cost: Labour’s tax relief, at $400 million a year, is around eight times cheaper than the package National’s offering.
So, National’s giving most of its money to people who don’t need it, and in the process is savagely attacking the tax base, at great cost to our public services. We can now certainly say: Give The Rich A Truckload More Money, And Cut Public Services For Everyone Else, Party Vote National!
| Family income | Labour | National | Better package |
| $20,000 | $50 | $1 | Labour by $49 |
| $30,000 | $89 | $9 | Labour by $80 |
| $40,000 | $128 | $13 | Labour by $115 |
| $50,000 | $141 | $16 | Labour by $125 |
| $60,000 | $103 | $20 | Labour by $83 |
| $70,000 | $64 | $24 | Labour by $40 |
| $80,000 | $26 | $28 | National by $2 |
| $90,000 | $0 | $32 | National by $32 |
| $100,000 | $0 | $36 | National by $36 |
| $150,000 | $0 | $70 | National by $70 |
| $200,000 | $0 | $128 | National by $128 |
UPDATE: If you want to go and play on National’s tax calculator, it is here. As with Labour’s, I have no idea how reliable is it 
Keith Ng also has some useful tables here on National’s tax policy. If you’re earning $30,000, you’ll get $12.50 more a week. If you’re earning $100,000, you’ll get $91.73 more. We all know who this policy is aimed at helping the most
UPDATE 2: No Right Turn has an excellent graph showing who benefits most from National’s tax cut policy.
UPDATE 3: As Edge rightly points out in the comments threads, my calculations don’t include National’s “family tax cut”, and if I done so, this this would change things in my table significantly. Specifically, the gaps between the two parties on lower income bands aren’t nearly as marked as shown in this table. The problem with redoing the table is that we’re no longer comparing apples with apples. The Labour figures in the table above were the amount of extra entitlement last week’s Working For Families extension gave, whereas National’s figures in its tax calculator seem to give figures for the complete Working For Families package. So, as I haven’t the time to try and redo these figures, we’re left with the two parties’ assertions from last night’s debate: Labour says that two-thirds of taxpayers will get less than $10 a week in tax cuts under National while those on $100,000 will get around $90 a week; National says two-thirds of taxpayers will be better off under its package than Labour’s. I think we can all be clear with this: National’s offering more jam in the form of tax relief than Labour.
August 22nd, 2005 at 1:42 pm
I absolutely agree that any tax relief should be targetted at lower income New Zealanders, those who really need it etc. and in this sense I am drawn to Labour’s policy.
What I am not so keen on is its emphasis on tax reliefs to families. Presumably frog you could create a table (as above) which showed the income of an individual without a family being benefitted by National at every income level.
Must this election really be a familyathon because the worm and the focus groups just really like the warm fuzziness of the word family?
I understand the logic of supporting individuals who are in turn supporting children, but I wonder if the Labour policy doesn’t miss some of the most at risk groups in society. Low income earning young people for example, who have not found their way into tertiary education, but into the work force.
August 22nd, 2005 at 1:52 pm
Uh, sorry Froggie, but Either your maths is wrong, or mine is, regards how much National favours the rich (ie those on $200k/year or more).
Consider an individual earning $100K or more. Their tax cut would be:
4% of 3K (between 9500 and 12500)
+4% of 37.5K (between 12.5K and 50K)
+ 6% of 50K (between 50K and 100K)
= $4245 annual
= $81.63/wk
So for a couple on 200k, it’s $163/wk under National.
And, um, nothing under Labour. As you’d expect since Labuor’s aiming mainly at low-middle income earners and National is aiming mostly at those individuals earning well over $50K each.
August 22nd, 2005 at 1:52 pm
Yes Joy, and of course the Green Party tax policy is no tax on first $5000 which will benefit everyone, so party vote green to get a Labour-Green government that will strong enough in Green influence so that this kind of tax restructuring happens rather than just family-friendly, student-friendly or mega-rich friendly.
P.S. Avoid using “tax relief” because it is passing the baton in the language battle to the right because it implies that tax is somthing that you need relief from.
August 22nd, 2005 at 2:04 pm
Icehawk: your maths is out.
In your example:
*it’s a 6% of 3K ($180)
*it’s 2% of 37.5K - drop for 21c to 19c - ($750)
*it’s 6% of 40K - between 60,000 and 100,000 there’s a decrease from 39c to 33c - ($2400)
Which is a total saving of $3330 a year, or $64 a week, or $128 a week for a couple earning $100K each.
August 22nd, 2005 at 2:14 pm
Ah, of course, 50k to 60k is already at 30cents.
ta
August 22nd, 2005 at 2:21 pm
Frog,
according to the IRD (and one would hope they’d know) income from $0-$38000 is taxed (now) at 19.5%.
August 22nd, 2005 at 2:22 pm
ahem, I mean at 33 cents.
August 22nd, 2005 at 2:27 pm
Also Frog,
your calculations exclude National’s family tax proposals - go to http://www.taxcuts.co.nz to work out newer, better numbers
August 22nd, 2005 at 2:56 pm
And, of course, nice to see the political rhetoric from all sides continue the assuming that people without children aren’t only not real families - but certainly don’t need any kind of tax relief.
August 22nd, 2005 at 3:53 pm
Tax cuts for those who need them least? The politics of envy Frog.
If you provide a tax free threshold of $5000, you supposedly provide for the poor. If National lower the tax rates for all up to $50,000, those people need a cut least do they?
Your example is a family of 4. Always wanting to push the extreme to suit an argument. The average family size is 1.9 I thought - at least go with the averages with your examples.
National’s policy is much fairer than labours “targeted assistance”. It sends a message that, whatever your life choices, if you are low or middle class NZ, you get to decide how to spend your money. The rich have been redefined at 100,000 and higher. That’s going to sound fair by many peoples standards. A tax rate of less than 20 cents in the dollar earning up to 50K per person, that’s going to sound fair by many peoples standards. People want a fair tax system. If we need extra money, then drop the company tax rate to 20% and see how much growth we get in NZ. The extra activity will fund our extra expenses, and the rich still pay 39 cents in the dollar plus other taxes.
Again, your “rich get all the money” example is unbalanced.
If Theresa Gatting pays $21,000 a week in tax, and she suddenly only has to pay $15,000 a week, it doesn’t change the fact that Fred on $20,000 pays about $1,500, which is a shit load less.
Can Fred use that $1500? Absolutely. We could charge no tax on the first 20,000 to make a real difference to Fred. Your $5,000 tax free threshold is really pretty wimpy. If you have principles, then make it an amount that reflects the strength of those principles. Your fisking of Nationals reasonably egalitarian offerings might have more impact.
Well, that’s the way I see it.
August 22nd, 2005 at 3:59 pm
Err, Obviously Fred on $20,000pa pays $1500pa (assuming new rates, and the odd deduction). We could talk of it being $30 per week in tax, so we can contrast that to Theresa’s $21000 per week in tax effort.
The point is whenever some-one screams “that guy gets $100 a week back in taxes” they conveniently forget that the other guy is only paying $30 per week in taxes anyway.
Yes, yes, $30 bucks is a lot blah blah blah. Which is why I suggest you set your tax free threshold at a decent level and make a name for yourself. Its hard enough with GST on food!
August 22nd, 2005 at 4:02 pm
Zen Tiger: by family of four, I meant two parents, two kids, which is pretty much your average
August 22nd, 2005 at 4:34 pm
Zen,
I didn’t understand your post.
Cutting tax on the first $5000 to nil would give tax back to all. It would give the same amount of tax back to everyone. But you’re complaining that’s not egalitarian.
As for cutting tax to nil on the first $20K - uh, I’d vote for it, given tax increases elsewhere to make it workable. I suspect the whole Green caucus would too. But small steps, mate: start with the first $5K and work from there.
[Actually Zen, this week my favoured tax policy is a tax of negative $160/wk (ie the govt sends everyone a cheque for $160/wk), followed by 33% on every dollar to 80K, followed by 39% thereafter, and we introduce a bunch of taxes on pollution and resource use. Scrap social welfare, student allowances, and all that stuff, and fire the beaurocrats who administered all that (we are talking serious savings here). Children under 10 receive only $40/week, under 17 $70/week. So there’s absolutely no such thing as high marginal tax rates. But I’d say I have more chance of winning Lotto than of convincing anyone that my tax policy is a good idea].
August 22nd, 2005 at 7:03 pm
Both Labour and National must have focus groups screaming ‘family’ at them, or is it Petulant Peter Dunne [like a dinner]?
Nothing much anywhere from both sides for couples with no children, singles, elderly….and I’m still wondering where the Asian votes are going?
Thank goodness Greens offer the first $5000 tax free. It’s a start to reach a broader base.
August 22nd, 2005 at 7:10 pm
I’ve heard this sort of idea before Icehawk, and it sounded pretty damned good then and still does now. Do you know if any nation has ever tried something like this?
August 22nd, 2005 at 7:25 pm
Oh, sorry Frog - I read it as 4 kids.
Icehawk: To explain - cutting tax on the first $5000 to nil would give something back to all. Just as cutting tax on the first 12,500 effectively gives something back to all. Agreed.
Cuts on the next 37,500 also gives something back to heaps of people. Sure, a few people who don’t earn all the way up to 50K do not benefit directly, but it gives them something to aspire to without extra taxes kicking in as they improve in a marginal way. Indirectly, people will tend to spend just about all their income up to that level, so the economy benefits through spending. Not really as horrible as Cullen makes out I suspect.
I think zero tax on the first 20K is affordable, but there are other ways of structuring the deal too.
I think your tax policy is a good idea - so go buy a lotto ticket. (If support it is a different topic, but it is still a good idea)
August 22nd, 2005 at 7:26 pm
Sorry - should have read : (If *I* support it is a different topic, but it is still a good idea)
August 22nd, 2005 at 10:55 pm
Frog,
I imagine you will have noticed that your numbers for money in the hand per week differ from those National’s tax calculator is spitting out. Quite markedly.
Well, I think I’ve realised where your mistake is: in calculating how much various hypothetical families will receive in the hand under a National-led government you have assumed that they are abolishing the Working For Families package, when in fact they promise to keep it (if changing the name to the incredibly stupid “family tax”).
You have compared Labour’s Working For Families package with National’s tax cut package, when you should compare Labour’s Working For Families package with National’s package of tax cuts and the previosuly announced Working For Families package (i.e. excluding the recent extension promised by Labour).
Were you to incorporate this into your table you would find (using National’s Tax Cut calculator) that (adopting your assumptions of dual indentical-sum-earning parents with two children under 12) that in fiscal 2006 the family earning $20,000 would be $2 a week better off under National than under Labour (but $17 a week worse off in 2007).
There are similar alterations to your table at each income range, with the differences substantially less than your current (though no doubt soon to be corrected) table shows. In fact, you will note the majority of working (and all retired) families (even excluding those whose children have left home, or who have yet to have children, or never did) will have more money in the pocket under National next year (but please feel free to argue even though they’d have more money in the hand they’d still be worse off because of funding cuts/interest rate rises etc.).
You will note that National’s calculator and Labour’s calculator spit out the same figures for families’ “savings” under Labour’s scheme. And that Labour’s calculator (understandably) does not spit out a figure for “saving” under national. I suspect that both calculators can be relied upon, given that no assumptions of the sort needed in the student loan calculators need to be made.
These are knowable figures - they have to be or IRD would never be able to implement Government policy. If person X earns a certain amount next year we can know exactly how much the ought to pay in income tax and exactly how much they will be entitled to under either Labour’s Working For Families scheme, or National’s Family Tax scheme. But it is interesting that you used Labour’s calulator to estimate how much families would be better off under their policy and did not use National’s to calculate the figure you asigned to them. But better late than never, eh?
August 22nd, 2005 at 11:09 pm
OK Im part of a family of four. I have a relatively low income. Accordingto the tax calcuclator I get no more from National than I get from Labour. So who am I better off with? See big news for more info.
August 23rd, 2005 at 6:51 am
zenTiger
The struggle is still going on here. Fortunately this is still a Democracy. In the USA the class war is over, has been over for quite a while and the wealthy are mopping up pockets of progressive thought all over the left and center of the spectrum.
The class war is over (in America), the rich folks won.
Which is why we have shooting wars but only poor people go to fight them… and democracy with all the voting machines moved to the wealthy suburbs.
respectfully
BJ
August 23rd, 2005 at 8:06 am
BJ - Well put - but don’t expect the average “4 year old” in this tax debate to look beyond their pocket. “Mine, mine, mine.”
Haven’t we, as a society and globally, got more pressing problems.
If we get the climate change solution and peak oil transition wrong, there won’t be an economy as we know it, to provide goods and services, let alone arguing about appropriate levels of taxation.
August 23rd, 2005 at 10:36 am
Thanks Frog, I figured it was something like that … you’re particularly busy, I know, so just feel free to direct people here:
http://www.nzherald.co.nz/index.cfm?c_id=1&ObjectID=10342037
Where the wonderful people at the New Zealand Herald have done some tables for us. I suspect the assumptions are different, but people will get the idea. I believe the tables compare extra money in the pocket under National/Labour Governments compared to what people get now? (but don’t quote me)