Income Tax to Vote for

By   /   October 7, 2014  /   6 Comments

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The UK Conservative Party tax scale is well to the left of anything offered in New Zealand by the Labour Party or the Green Party.

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On Sunday I saw on TV3’s Three60 (episode 28) a speech by David Cameron announcing his party’s policy on income tax. The highlights (with British pounds converted to $NZ at £1=$2):

  • first $25,000 tax free (up from first $20,000)
  • top rate of 40% to kick in at $100,000 (up from $83,800)

“With us, if you work 30 hours a week on minimum wage you will pay no income tax at all. Nothing. Zero. Zilch” (David Cameron promises tax cuts… Independent, 1 Oct 2014). While not a particularly radical tax cut, its main effect would be to increase aggregate demand (unemployment reducing stimulus). Its political aim is to be aiming tax cuts at low-income and middle-income earners.

In UK terms it is somewhat disingenuous, in that it also offers tax cuts to high income recipients. Persons earning $500,000 would get a tax cut too, though their proposed reduction will be the same as that received by a person on $100,000; therefore smaller in percentage terms.

What matters to us in New Zealand though is that this UK Conservative Party tax scale is well to the left of anything offered in New Zealand by the Labour Party or the Green Party. It also recognises that one of the two most important first steps to getting beneficiaries into part-time work is to not require them to pay tax on their meagre wages. (The second step is to ensure that it is easy for beneficiaries to get back on a benefit when their casual part-time job comes to an end.)

 

What the timid NZ left parties were offering

Labour’s income tax policy was:

Green’s income tax policy was:

 

What might have made them electable?

These were my suggestions in my September 5 posting:

Labour’s income tax policy could have been:

  • first $9,370 tax free
  • top rate of 36% to kick in at $70,000

Green’s income tax policy was:

  • first $9,370 tax free
  • top rate of 40% to kick in at $70,000

My suggestions would have delivered tax decreases to the poor; and increases to the rich (incomes over $90,000 on the proposed Labour scale; incomes over $79,425 on the proposed Green scale).

Significantly, by British standards, my suggestions, too radical for New Zealand’s left, look conservative even for Conservatives. New Zealand’s economic policy consensus is very right-wing.

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6 Comments

  1. Brigid says:

    The most important first step to getting beneficiaries into work of any sort is for work to be made available.

    • Dennis Dorney says:

      I dont agree with the comment that work must be made available as though the purpose of life,is to work and not vice versa. Work in abundance is available now but the money to fund it isn’t. (“Show me the money”). The money should be available because money is purely a human-created convenience, created by the private banks from nothing and bearing the interest from which banks make their profits.That is not my lowly-regarded opinion, it is the opinion of the Bank of England, so it should carry weight.
      The problem with new money being created in this way is that it is not related to any new services or products, so about 60% of it goes to pumping up the price of mainly second hand housing, which provides neither a new service nor a new product.
      Logically when a person works, thereby adding a service or product to the common wealth, he should be given some tokens that enable him to retrieve from that common pool an amount that society agrees is his fair contribution.
      Those tokens, if they are notes and coins, which are created interest and debt free, by the Reserve Bank, would function well, so there should not be unemployment, or work forced on to the people just to pay escalating debt.
      The problem occurs by the banks creating money quite separately from production, causing inflation, and then adding interest which can only be repaid by depleting earnings, which in turn means that the tokens can no longer buy all the goods in the common pool. The goods accumulate, staff are paid off and unemployment rises.
      This is the basic problem.

  2. Brian says:

    If you want as many people working as possible, the easiest solution would be a govt. guaranteed job at a living wage.Unemployment is everywhere, and always a monetary phenomena and necessarily a govt. imposed crime against humanity! The currency is a simple public monopoly. The dollars to pay taxes,ultimately come from govt. spending,or lending,[or counterfeiting].Unemployment can only happen when a govt. fails to spend enough money into the economy to cover its tax liabilities it imposes,and saving desires that firms and individuals may pursue that are created by the tax , and other govt. policies.Said another way ,for any given size of govt. unemployment is the evidence of over taxation.The labour and greens are economic illiterates.So in my humble opinion all parties in N Z ,motivation not withstanding, all promote policy that creates and sustains unemployment.This state of affairs is not going to change anytime soon.Remember that financial and debt pyramiding are weapons of mass destruction which goes hand in hand with mass deception.Private debt remains our biggest threat ,along with climate change.

    • Dennis Dorney says:

      Brian, you say that “Unemployment can only happen when a govt. fails to spend enough money into the economy to cover its tax liabilities”. I take this as meaning that Governments budgets must balance and that a failure to do so creates unemployment.
      That is strange because a balanced budget philosophy is what caused the Great Depression to linger on for about 6 years, and it only ended when governments went into debt to fund WW2.
      Similarly, the present Government’s obsession with a balanced budget has also failed to get the economy going after 6 years. The Government has sold off assets and increased government debt from $10 billion to over $60 billion in a failed attempt to balance the books. The so called rock star economy is starting to slide again. Governments should not have to borrow from Private banks at all. The Reserve Bank can create the nation’s money supply, and has in the past. Unemployment is caused only by a lack of money in the economy caused by the Private Banks usurping the States prerogative.

  3. Bec says:

    Interesting points, though I suspect that they are not ones the NZ psyche is prepared to gamble with just yet. Many people in this country still remember that their parents could afford to be one income families, who bought a family house in the 20s, had a car, and maybe even a little shack of a bach somewhere in their late 30-40s. Many didn’t even need a tertiary education to do this, let alone a massive student loan. Their children and grandchildren don’t have the same good fortune, but the expectation and dream remains entrenched in their psyches. The UK has never really had an equivalent quality of life like that for its working class. The class system was well entrenched prior to the world wars, and despite improvements for workers in the last century, they have had a long time to resign themselves to their purchasing power, their lot, and to their current taxation system.

    The UK arguably has a bigger public infrastructure than NZ – including expansive public transit systems etc. So, some might argue, they’re getting ‘more’ for their money on some levels. I doubt the equivalent tax rates here would even begin to pay for those items. They also have higher wages. True, UK housing is really expensive (as is Auckland), but they have much lower mortgage interest rates than in NZ. I think they have better purchasing power there, but some stats out there on the web suggest variability on this. So, comparison is actually pretty complicated.

    The fact that we seem to have a steady demand for immigration from the UK suggests that a certain demographic prefers the quality of life on offer in NZ, despite our lower wages. That being the case, it makes it a hard sell to say to NZers that we want to emulate a tax structure like the UK, people would wonder to what end? What do they get for their tax dollar? Is the UK a beacon for the environment, or do they have the best health care system in the world? Do they promote small business over the corporate overlords? Is their public welfare system fair and just? Does it matter if you don’t go to a ‘good school’ in the UK – does this affect your future? Is there such a thing as a ‘bad school’? Do they use those tax dollars for lining the pockets of arms dealers in never ending wars? Hmmm.

    Anyway, I digress.

    My concern is that if you want people to accept higher taxes, you must overcome a few hurdles first:

    1) Get the left into government in the first place, which means not alienating our new middle class.
    2) Introduce modest tax increases, targeting incomes over 250K first.
    3) Consider tax deduction schemes, which benefit the middle class (stop lumping them with the top 0.1%). May include the following ideas:
    a. Mortgage interest on primary homes should be a tax-deductible expense – any legislation can be written in such a way to discourage people just paying off the holiday house first.
    b. Tax deductions could be claimed for dependents living on your household income, including: a stay at home spouse or partner, children, or other family (elderly) who your income supports. This should apply to everyone, not just low-income earners who qualify for working for families’ benefits.
    c. Tax deductions for other expenses that benefit the social good. This might include: health insurance premiums or out of pocket health care expenses for specialist care or private operations (non-GP related items); private schooling expenses up to a set limit; city or council rates payments on primary homes – to avoid double taxation; consider allowing GST to be claimed back on building costs for new homes that are expressly for a primary home, and not for development or sale. And so on…
    4) Prove your government is trustworthy in responsibly spending tax dollars. People don’t see the benefit of the extra money gone from their pockets in the first few years. They need time to see the public good and flow on effect of their tax dollars at work. They then need to feel good about contributing to the public coffers, rather than resentful, that is if you wish to remain in government. They are also more likely to accept future tiered increases, if they see the merit in the long-term plan, and believe in its success. Hence, again point 1) above: you need to be in government first. You need to win over the psyche here, and understand it, which seems to be something the left would rather criticize this sector of society for. Standing behind the moral high ground is counter-productive; they should be your allies. So make them your allies.

    See my comment on targeting the new middle class here at: https://thedailyblog.co.nz/2014/10/06/why-the-green-party-should-not-go-to-the-centre/
    It’s down at the bottom of the page around comment number 50.

    The strategists for the left need to sit down and figure out HOW to actually get into government. One of the most glaringly obvious things in my mind is to stop targeting the new middle class and ‘upwardly mobile’ (no matter how annoying you may find them) to foot the bill – you need their vote, and they don’t trust you yet with their tax dollar. The left needs to start playing the long game, and end the tradition of pitting middle NZ against the lower income earners. This is folly, and has proven to be a failed strategy, the last election attests to this. The ‘them and us’ should be the 99.9% of us against the top 0.1% them, who don’t contribute a fair share anywhere in the world. Middle NZ, with their big mortgages, car loans, and inadequate retirement savings, are not the rich, even if they pull in 200k a year.

    I’m just putting it out there, as I’d really like to see an end the to the sellouts and tyranny we’re subject to at the moment. Refine what is the middle class, target their vote, and the left may just win the next election.