OnPoint by Keith Ng

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OnPoint: Like the mule with a spinning wheel

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  • linger,

    I don't think NZ needs tax cuts as such. The percentage of income tax we pay doesn't seem to me that onerous compared to the services we (expect to) get from government. If anything, there needs to be more funding of, e.g. health, education, and scientific research & development.

    That being said, it is well past time the income tax bracket boundaries were readjusted. Both major parties have been pussyfooting around that issue for far too long (most obviously just before the 2005 election, when Cullen promised to do just that, then changed his mind -- but it had been previously mooted some years beforehand). In the past 10 years, the proportion of NZers with incomes over the $38,000 threshold (at which some qualifies for the middle bracket -- and at which it becomes mandatory for the individual to file a tax return) has more than doubled (it's now close to 30%). This must have led to an increase in costs for tax collection, as well as an increased administrative burden on the taxpayer.

    On the third hand, I would argue against the 2005 proposal of annual (consumer-index-linked?) readjustment, as that would tend to increase the administrative burden, by changing the tax regime unpredictably every year, and creating irregular boundaries (like $46,728.71). Instead, I'd favour a regular (say, 5-yearly) review, creating clear, easy-to-remember boundaries (rounded to, say, the nearest $1000). Again, for me it's not primarily about reducing the tax, but about making the tax system clearer and easier to use.

    [NB: to get our tax tiers back to where they were in 1990, in terms of proportions of income earners on each level, we would currently need boundaries of around $50000 (for the 33% rate) and $75000 (for 38%).]

    Tokyo • Since Apr 2007 • 921 posts Report Reply

  • Don Christie,

    But, Sydney has a mono-rail. It's on the map.

    Keith, you obviously missed the ad in the NZ Herald by these folks with this graph.

    I am sure they would explain it all much better than I can. Seems that if we move the country back 150 years in time, to when there were no taxes and we were 2ND IN TEH WORLD, all will be just fine and dandy.

    BTW, the "Foundation for Economic Growth" provides a really great example of non-political political advertising.

    Wellington • Since Nov 2006 • 1616 posts Report Reply

  • Neil Morrison,

    There is a perfectly good case out there, explain why it's better for us to be spending the surplus on tax cuts or whatever rather than on paying off debt. I'm eagerly waiting for it.

    On the other hand there could be a good case for an increase in taxation thru not adjusting the tax brackets on a regular basis, but the argument is not being made either. At least National is putting forward a case to agree or disagree with.

    Since Nov 2006 • 932 posts Report Reply

  • Kyle Matthews,

    That being said, it is well past time the income tax bracket boundaries were readjusted.

    Hear hear! I don't have a problem with a fairly hefty surplus. And if there's going to be a smaller surplus, I'd much rather see the amount of money I pay to take my kids to the doctor, and the amount of money it'll cost them to go to university come down, well before there's tax cuts.

    But if there are tax cuts, it shouldn't be in the rate. We should have a simple system for moving the thresholds up with inflation. Currently the tax intake increases in two ways - normal inflation, which counters the fact that because of inflation, the tax dollar doesn't go as far, and the movement up the thresholds and therefore higher percentages. Taxes go up every pay increase as a result of the second one.

    Since Nov 2006 • 6208 posts Report Reply

  • Angus Robertson,

    The problem for National is that the value of a tax cut for the country as a whole is necessarily theoretical.

    No, you can measure a tax policy impact on the country. If the growth of the economy could be improved by the imput of more capital to consumers, then cuts in personal tax are worthwhile when the gains derived from the growth are greater than the savings in retiring debt. In the best case scenario a cut in tax frees up economic growth such that the revenue generated by the tax cut quickly exceeds the revenue lost by cutting taxes - a tax cut provides more tax revenue to retire more debt. Measures of the revenue take, before and after, provide the evidence.

    ...explain why it's better for us to be spending the surplus on tax cuts or whatever rather than on paying off debt.

    On a personal level, tax takes money from New Zealanders who have a high level of personal debt. The government says it wishes people to save and not borrow, but at the same time continually raises the amount of tax money it takes from people. The words conflict with the actions.

    Auckland • Since May 2007 • 984 posts Report Reply

  • Rob Hosking,

    (FYI: They have been funding infrastructure out of cash. It is unusual, but whether it's dodgy is a question of public accounting.)

    Not just a matter of accounting.

    There is also the issue of inter-generational equity. The main reason for funding such projects at least partly out of borrowing is not just a cashflow issue but rather that if future generations are going to get a benefit out of, say a hospital or a school, they should contribute something to it.

    Borrowing becomes an issue if it is being used to fund operating spending, a la Rowling and Muldoon.

    The other big issue is around inflation. This is something neither party deal with honestly, for their own reasons. Tax cuts are not as inflationary as increased govt spending, which is something Labour ignores. But the reason they ignore it is soemthing National can't point out: they are not as inflationary because they go disproportionatley to the more well off, who will save at least some of it, simply because they can.

    South Roseneath • Since Nov 2006 • 805 posts Report Reply

  • Rich of Observationz,

    Basically, the government controls a major part of the economy. This is the case in all western democracies and it isn't going to go away.

    As a result of this, the way the government manages it's tax and spending affects the whole economy. If they borrow and either spend or cut taxes, they inflate the economy - if they cut borrowing and raise taxes or cut spending, the opposite happens.

    Right now, we are pretty much at the top of the cycle, so keeping the surplus high helps keep the lid on things (the alternative is even higher interest rates - or accepting higher inflation). When the economy turns down, they'll have all that money to spend on countering the cycle.

    You might not have noticed, but actually the NZ economy is doing pretty well. I think Labour's slogan for the next election should be:
    "Quit Ya Fuckin Whingin".

    Back in Wellington • Since Nov 2006 • 4467 posts Report Reply

  • InternationalObserver,

    I'd much rather see the amount of money I pay to take my kids to the doctor, and the amount of money it'll cost them to go to university come down, well before there's tax cuts.

    Can't argue about the doctors visits but why should I pay for your kids to go to University? There are plenty of low income working class families who have little hope of their kids getting a University education (ah, yes, but anyone can saddle their child with a lifetime Student Loan, right?) so why should they forgo more money in their pocket now just so you can have a little sumpin' extra to subsidise your middle class academic fantasies? <I'm playing Devil's Advocate here, since I don't know your actual circumstances.>

    The government says it wishes people to save and not borrow, but at the same time continually raises the amount of tax money it takes from people. The words conflict with the actions.

    Which is why they've done nothing to raise the thresh-hold. More ppl over the thresh-hold means more tax collected. Ditto for rising petrol prices.

    actually the NZ economy is doing pretty well.

    Yeah, politics is a funny thing. After a certain period it becomes almost obligatory to vote in the opposition, just for a change. Labour's problem is that no matter how good thing's may actually be there's a perception that they've held on to the purse-strings too tightly and failed to deliver. Labour's solution to that perception problem lies with the surplus:
    Does anyone doubt the surplus will be spent next year in the lead up to the election in an unprecedented display of 'vote-buying'? And with just a little held over for 'non-political' (yeah, right) Government Department advertising??

    Since Jun 2007 • 909 posts Report Reply

  • Craig Ranapia,

    Rich wrote:

    I think Labour's slogan for the next election should be: "Quit Ya Fuckin Whingin".

    Yeah, Rich, where do these stupid peasants think they are - a parliamentary democracy or something? Sheesh... :) Seriously, the last thing Labour needs is Cullen on another of his 'charm offensive, hold the charm' rampages.

    North Shore, Auckland • Since Nov 2006 • 12040 posts Report Reply

  • Keith Ng,

    I am sure they would explain it all much better than I can. Seems that if we move the country back 150 years in time, to when there were no taxes and we were 2ND IN TEH WORLD, all will be just fine and dandy.

    BTW, the "Foundation for Economic Growth" provides a really great example of non-political political advertising.

    Great stuff! It *does* give me an idea, though. Revive the Third Reich, level half of Europe and kill, oh, 10-20 million people. That will bring New Zealand back to the top half of the OECD in no time at all.

    Anyone want to make that a campaign promise for 2008? Anyone?

    Auckland • Since Nov 2006 • 535 posts Report Reply

  • Michael Fitzgerald,

    Monorail it aint but a circus it sure is - look into the Central Plains Water scheme.

    Farmers land sacraficed so richer (AKL based) farming corps can irrgate the Canty plains for Dairty Dairying.

    On every point it's wrong.
    -Water take - sold to farmers as one flood is enuf for the year - It's a lie as water can't be taken untill it's clean as silt breaks pumps.
    -Storage - AKL based farimg corps displacing Canty farmers from their land.
    -Irrigation - washes minerals out of the soil and into the waterways polluting them - requiring more fertiliser - plus effluent to add to the vicious cycle.
    -Aquifiers - are already drained and many took 20k + years to get here.
    - Water Quality - Christchurch will lose its pure water Evian is the other place you'll find a town on pure untreated water.

    BTW CHCH water runs up hill - down the plain then hits the volcanic rock of Banks Pen and up it pops in artisian springs - this means any nasty floaties washed down have an increased chance of getting in the tap water.

    Since May 2007 • 631 posts Report Reply

  • Kyle Matthews,

    Can't argue about the doctors visits but why should I pay for your kids to go to University? There are plenty of low income working class families who have little hope of their kids getting a University education (ah, yes, but anyone can saddle their child with a lifetime Student Loan, right?) so why should they forgo more money in their pocket now just so you can have a little sumpin' extra to subsidise your middle class academic fantasies?

    1. The people who will benefit most from reducing the cost of tertiary education relatively, are those who have the desire and ability to go there, but not the financial ability. This is overwhelmingly kids from lower income families, who are 'debt averse'. That is, their parents cannot afford to pay for them, but their economic background makes them less likely to be willing to rack up big student loans. They therefore don't attend. Middle/upper class white kids, don't face this as a problem anywhere near as much. They either can pay their way through rich parents, or they don't have concerns about $30,000 student loans. Middle class kids always have, and continue to attend tertiary education in record numbers.

    2. There's a much higher requirement in the job market for tertiary education, for jobs that previously didn't require it. Jobs that 'working class kids' could get twenty years ago after dropping out of school, now they'll compete against kids who have completed diplomas and certificates and degrees, for the same job. We need 'working class kids' to get these qualifications now, and it's proven difficult enough with issues in families, economies, crime, unemployment, the earlier stages of the education system, without putting $4,000 price tags at the front door.

    3. 'Middle class academic fantasies' are also known as future doctors, teachers, nurses, lawyers, civil servants, entrepreneurs, engineers, dentists etc etc. If we want to have these people in our society in 20 years, we have to educate them now. If we want them to stay in NZ and not run off to London where they can earn three times and pay off their debt, then not saddling them with the debt in the first place is a good start. If we don't want to pay more for doctors, teachers, nurses etc etc, then not having them pay 10% additional tax on their income to pay off their student loan is another good way to start. Everyone goes to a doctor, everyone sends their kids to be educated by a teacher. Tertiary education is an investment in the whole community.

    4. Students are the only NZers that I can think of that borrow money, until recently at pretty high interest rates, to pay rent, eat, electricity, clothes etc. It makes more financial sense, as I advised a number of students when I studied, to drop a couple of courses, become a part time student, go on the dole, and take an extra year for your degree. That's stupid, we encourage people to get a tertiary education because it's good for them and their community, but we provide them with less financial support than someone who's main requirement is to turn up to a day long workshop every six months and apply for a job occasionally.

    5. If you want research-led, innovation economy etc etc, most of that happens either at universities, or at places filled with university graduates. It costs to build this intellectual infrastructure. If the government is going to rabbit on about it, at some stage the money has to follow the mouth. A lot of our top researchers go and work for overseas firms because the research sector here isn't funded well enough.

    5. Graduates who benefit from their education financially pay the country back because we have a progressive tax system. If they earn more, they pay more tax and fund the next generation of students. And social welfare, health care etc, for people who earn less.

    6. NZ is well down the pile when it comes to the amount of money we invest in tertiary education. Government funding only makes up 38 percent of New Zealand universities income compared with 46 percent in comparable Australian universities. In 1980 the government invested $11,293/student, in 2002 $7,367/student (in 2002 dollars). During that same time period, staff/student ratios have increased 50%. Quality institutions doing quality teaching and research cost money.

    7. If it's a debate about tax cuts vs expenditure, then it will always be about how much people get back. Low income earners will never get a lot back from tax cuts, because they don't pay a lot of tax. High income earners (who can afford doctors and tertiary education anyway) will always get a lot more back, because they pay a lot more to start with. Tax cuts that reduce the top tax rates are going to benefit the well-off, because those are the ones who pay in those brackets. Changes to the base rates will return piddling amounts of money to low income earners.

    As an example, A reduction in the bottom rate (currently 19.5%) to 18.5% would return $200/year or less than $4/week to a person on $20,000. The same % reduction in the top rate, from 39 to 38%, for a person earning $300,000, will return $2,400, $46/week. Of course the $300,000 income earner also benefits just as much from the change in the bottom rate as well, so they get a double hit.

    The only 'tax cut' that makes sense for low income earners, more than investing in social expenditure, is one that reduces the bottom rate, but increases a top rate so that the overall tax intake remains the same. Then they would pick up their big $4/week, and not get hit any more when they go to the doctor etc.

    Since Nov 2006 • 6208 posts Report Reply

  • Angus Robertson,

    Great stuff! It *does* give me an idea, though. Revive the Third Reich, level half of Europe and kill, oh, 10-20 million people. That will bring New Zealand back to the top half of the OECD in no time at all.

    Anyone want to make that a campaign promise for 2008? Anyone?

    You mean a political movement should coalesce around an idea of appeasing tyrannical regimes that promise the subjucation of Jews and engage in fervored supremacist dialogue? Saying that the promise of peace in our time is to be gained by making concessions?

    Nah, it'd never happen.

    Auckland • Since May 2007 • 984 posts Report Reply

  • Angus Robertson,

    7. If it's a debate about tax cuts vs expenditure, then it will always be about how much people get back. Low income earners will never get a lot back from tax cuts, because they don't pay a lot of tax.

    How about a cut in GST? It is a regressive tax and a product of the 80/90s neo-liberalism.

    Auckland • Since May 2007 • 984 posts Report Reply

  • Kyle Matthews,

    How about a cut in GST? It is a regressive tax and a product of the 80/90s neo-liberalism.

    GST is a flat tax, that stuff about it being regressive is waffle. It's a flat percentage, not adjusted for your income etc.

    The only good thing about GST is that it catches everyone. There's a big hole in our tax system for people who own their own businesses and get a horrendous tax dodge by claiming that their primary home, vehicle etc, are all 'places of business' and therefore can be written off against income.

    GST catches them, for all its other failings. I'd like to see it removed, but you'd need to change the business tax laws to catch everyone. And that would be horrendously unpopular.

    Since Nov 2006 • 6208 posts Report Reply

  • Michael Fitzgerald,

    Budget Surplus vs District Council Rate Rises.
    A more equitable taxation system seems to be the answer, not tax cuts.

    Since May 2007 • 631 posts Report Reply

  • Angus Robertson,

    Kyle,

    Thanks

    Auckland • Since May 2007 • 984 posts Report Reply

  • Michael Fitzgerald,

    "5. If you want research-led, innovation economy ... A lot of our top researchers go and work for overseas firms because the research sector here isn't funded well enough."

    The contested funding is another great joy. 1/2 your time is getting funding to continue the study & justifying the existance in/of your organisation.

    How are the med lab test in AKL these days?

    Since May 2007 • 631 posts Report Reply

  • 81stcolumn,

    Kyle..... I would loooove to see more money in HE and I would love to see wider access to all income brackets (I'd like to be paid better too). But I do think educational investment needs to go further down the tree. The students I teach are for the most part nice people, but many of them work more than they have to in order to buy stuff they don't really need. Some of them are quite literally on holiday until it is time to get a job. They quite genuinely lack a commitment to education. When i get 'em many are beyond fixing in this regard. Some of this problem would be alleviated by more fulfilling primary/secondary education; a problem that has it's origins in class sizes.

    Nawthshaw • Since Nov 2006 • 728 posts Report Reply

  • kowhai montgomery,

    81stcolumn, please tell us more. I am interested in your thoughts about education.

    wellington • Since Nov 2006 • 485 posts Report Reply

  • Rob Hosking,

    Kyle,

    The less well off ain't 'debt averse'. If only. Take a look around the main drag in Otahuhu or Newtown. They're full of loan sharks. They're lending to people who are already in debt - that's what's behind all those TV ads offering to rationalise people's debts into one package.

    It's our own version of the sub-prime lending mess.

    One of the biggest hurdles to higher education for the less well off is not debt-aversion: the trouble is too many of them leave school without basic literacy or numeracy skills.

    About 20% of school leavers in NZ, according to one international study (could have been OECD, not sure)

    Anecdotally, a mate of mine teachers technology at at mid-decile Auckland secondary school. He gets the less academically inclined kids. Too many of them can't read the textbooks.

    South Roseneath • Since Nov 2006 • 805 posts Report Reply

  • InternationalObserver,

    many of them work more than they have to in order to buy stuff they don't really need

    1. farken wikid new phone
    2. farken wikid new iPod
    2. farken wikid new threads
    3. farken wikid new pills
    4. farken wikid new tachometer for the car
    5. farken wikid new blue light for under the car
    6. petrol for the farken wikid car

    Hmmm, maybe I should buy shares in Farken Wikid, they seem to produce everything the kids are buying these days.

    Since Jun 2007 • 909 posts Report Reply

  • Kyle Matthews,

    Kyle..... I would loooove to see more money in HE and I would love to see wider access to all income brackets (I'd like to be paid better too). But I do think educational investment needs to go further down the tree. The students I teach are for the most part nice people, but many of them work more than they have to in order to buy stuff they don't really need. Some of them are quite literally on holiday until it is time to get a job. They quite genuinely lack a commitment to education.

    Yeah I agree that's a problem, and as you note, by the time they're in tertiary education, their life habits and culture is set pretty hard, and difficult to change.

    But some people would argue that if we charge students for their education, they're going to respect it more. I work at a university, and that's not necessarily the case. The student loan is an illusion in front of a bunch of them, making it appear that their education is free, when in reality the debt comes back to bite them (and us) later in life.

    But the most curious thing about tertiary education is that political dialogue gets applied to it that you wouldn't dare apply anywhere else.

    Imagine a political party coming out with a policy of charging high school students $4000 per year as that will increase their commitment to education. Or primary school? You can't imagine anyone to the left of the Libertarianz having that policy, no sane political party is going to suggest it.

    All the time I hear politicians talking about future income benefits of a tertiary education. "If you go to university you'll earn X thousand dollars more over your life time."

    If I break my leg, and it gets fixed in hospital, that doctor has vastly improved my future income benefits, particularly if my job involves some sort of physical activity. I don't pay to have my leg fixed on that basis however. The doctor doesn't get a cut of my future income, or charge a flat rate of $2,000 for the job.

    If I spend six months on the dole, while trying to find a job, that income has kept me alive and allowed me a (hopefully) lifetime income vastly greater. Why do we say to the student, you should go into debt while you prepare yourself for your increased future income from tertiary education, but not say that to a beneficiary?

    The discourse around the funding of tertiary education has been captured by new right, individualist idealists, and the whole sector, and the media, and the community has bought it.

    Since Nov 2006 • 6208 posts Report Reply

  • Max Call,

    Some of this problem would be alleviated by more fulfilling primary/secondary education; a problem that has it's origins in class sizes.

    Recent negotiations with teachers (when the govt tried to back out of changes that had already been promised earlier) said only something about schools having to 'endeavour' to have maximum class sizes. The government has, however, not provided any funding for this to happen.

    Fruit Bowl of New Zealand… • Since Jun 2007 • 153 posts Report Reply

  • Kyle Matthews,

    The less well off ain't 'debt averse'. If only. Take a look around the main drag in Otahuhu or Newtown. They're full of loan sharks. They're lending to people who are already in debt - that's what's behind all those TV ads offering to rationalise people's debts into one package.

    I was talking about debt aversion in relation to tertiary education. Tertiary education is debt at a relatively high level, with no immediate prospects for paying it off, you can't sell it if it doesn't work out, and there's no guarantee that you'll make it through. It often requires a commitment of three or four years, and often comes with other complications such as moving to a different city or living away from your family at a relatively young age. I'm sure hire purchase companies and loan sharks do very well in that area on other sorts of debt.

    There was a study done by the New Zealand University Students Association about five or six years ago on the topic, which talked to seventh form school leavers, which categorised their responses into school decile from memory. As the students came from less well off schools, debt concern became more and more of a reason for not attending tertiary education.

    One of the biggest hurdles to higher education for the less well off is not debt-aversion: the trouble is too many of them leave school without basic literacy or numeracy skills.

    Oh yes, financial issues are only half the problem. But you can't solve literacy issues at the tertiary level - it's incredibly hard once they're adults. As you note, these need to be solved much earlier.

    And if you did magically solve the literacy problem in NZ, you'd have more people studying at the tertiary level, so you'd have to invest more in it.

    Since Nov 2006 • 6208 posts Report Reply

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