Tax cuts in store but what is Joyce thinking?

By   /   February 21, 2017  /   9 Comments

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We are beginning to see the colour of Steven Joyce’s eyes. Some insights into his views about who deserves tax cuts can be gleaned from this Herald piece: Economy Hub: About those tax cuts… Steven Joyce, the big interview

We are beginning to see the colour of Steven Joyce’s eyes.  Some insights into his views about who deserves tax cuts can be gleaned from this Herald piece: Economy Hub: About those tax cuts… Steven Joyce, the big interview

Joyce says that he is worried about individuals earning at the top of the second tax bracket.

“What you might see, if we get the room, is that I’m worried about some of the thresholds. The obvious one: at the $48k level people go from paying 17 and a half cents in the dollar to 30c. And if they’ve got a student loan they’re at 42c. Those sort of things worry me. “

It might be pointed out that his policies on funding tertiary education are the reason that so many are still repaying student loans at that $48k level.   But where does he acknowledge the impact of Working for Families (WFF) and the damage of his government’s policies on effective tax rates?

So in Joyce’s example, an earner with children and a student loan on an income over $48k faces not just a 42% tax rate but also a 22.5% loss of WFF. That makes the effective tax rate as bad as 64.5%.  

For those between $36,350 ( today’s threshold  for WFF), and $48k  the tax rate is currently  a very unsatisfactory 52%.  But it all gets worse under his watch.  Over time the WFF abatement rate rises to 25% and the threshold falls to $35k, further hurting the very people he professes to worry about.

It clear that raising the second tax threshold from $48,000 is his top priority.  But the cost of a $5k rise would be around $625 million and won’t help any of those currently in the second bracket who are facing an effective tax rate of 52%. These are the families who will bear the brunt of future cuts to Working for Families. Raising the threshold for $5k will have virtually no impact on child poverty and will mean there is $625m less available to address this urgent problem.

When will National acknowledge that the low top tax rate of 33% is possible only because  low income people are forced through user pays and targeted policies to pay much higher marginal rates with all the poverty entrapping and disincentive consequences . Those sorts of things should worry Joyce.

 

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About the author

Co-director retirement policy and Research Centre, CPAG management committee

9 Comments

  1. CLEANGREEN says:

    Well pointed argument Susan,

    As to Joyce being quoted in the press;

    “Joyce doesn’t accept that inequality is growing.”

    “Although he does accept New Zealand has been part of a global asset bubble driven by an environment of low inflation and low interest rates.”

    “In terms of asset prices these are very unusual times. There’s a lot of money around the world, as a result of quantitative easing.”

    “It is one of the reasons New Zealand asset prices have gone up,” he says.

    “But with interest rates low, the cost of servicing a house mortgage is also low”

    He cant take comfort of this as rates are about to rise as Government has warned and the housing bubble was caused by them removing 20000 HNZ homes from the available housing stock and ramping up immigration.

    All short term measures to falsely “stimulate”the economy.

    This shoddy jaunts has cast a cloud over this country with the “Panama papers” still releasing bad dealings of this corrupt government.

  2. Priss says:

    It must be election year.

  3. Realist says:

    I wish people would spare a thought for hard working, responsible kiwis who don’t have kids because they can’t afford them…

  4. Mike in Auckland says:

    “When will National acknowledge that the low top tax rate of 33% is possible only because low income people are forced through user pays and targeted policies to pay much higher marginal rates with all the poverty entrapping and disincentive consequences . Those sorts of things should worry Joyce.”

    As usual, the Nats, and that includes Mr Joyless Joyce, they have had their experts do some number crunching, and they will have considered the likely impacts on the very low income earners, and that includes the working poor with families and getting “WFF”.

    The main concern for Joyce will be, to make sure the income groups and population sections that tend to have voted Nats the last three and more elections, will be benefiting more than the poorer lot of the populace. That is, because the lowest income earners will be less likely to bother to vote, so will not hurt the Nats in the coming election.

    It is the same like with the beneficiaries, most of whom do not bother voting, so BOTH larger parties ignore them, as they are in their eyes “dispensable”, as they will not give them their vote, and have NOBODY else they can vote for.

    We are geared to focus on that “magic centre ground” again, that is Nats, Labour, Greens and NZ First, all wanting to compete for the same votes from the mostly middle class voters, many owning property (even where debt funded), one to two cars per family, having somewhat secure employment or small businesses to run, and being concerned about their “share” of the cake. They have bought into the systems brought in by Nats and Labour, and they want “their money back”, that they have paid in tax.

    Stuff the poor, the working poor, the single parents, the sick and disabled on benefits, the other “unemployed” and unemployable, as they will not feel inclined to vote for any of them, that is the reality here.

    The upper middle class and upper class can lean back again, no matter who will win the next elections, the changes that may come, they will be marginal and not touch the system we have, we will have more re-arranging of the deck chairs, some dancing around and mostly muppets, dummies and showroom puppets in Parliament.

    • Susan St John says:

      Mike
      It is going to be interesting to see the documents behind the tax cuts when they are released. Shameful

      • Mike in Auckland says:

        Released perhaps in three, four or five years, I guess, when it is no longer that relevant and when the public have moved on. They changed the OIA law under an earlier government long ago, so advice given and received within government departments and ministries can be used as a refusal ground for information sought by the public or the media.

        Try the Ombudsman, and you can also wait a few years, as they continue to be overloaded and underfunded, while their work load continues to be very high.

        http://www.legislation.govt.nz/act/public/1982/0156/latest/DLM65371.html

        Section 9(2)(g) OIA:
        “maintain the effective conduct of public affairs through—
        (i) the free and frank expression of opinions by or between or to Ministers of the Crown or members of an organisation or officers and employees of any department or organisation in the course of their duty; or
        (ii) the protection of such Ministers, members of organisations, officers, and employees from improper pressure or harassment;..”

        Also: Other refusal reasons:
        http://www.legislation.govt.nz/act/public/1982/0156/latest/DLM65600.html

        • Andrea says:

          Mike: the answer lies in the date – 1982.

          It was a great idea at the time, and taken seriously.

          Poor old thing’s over thirty now, and is old enough for the wily and sly to have legislated and regulated and precendented as many ways as necessary for circumvention.

          It’s probably landed in the same box as the one for cutting MPs’ perks.

  5. Afewknowthetruth says:

    ‘we will have more re-arranging of the deck chairs, some dancing around and mostly muppets, dummies and showroom puppets in Parliament.’

    I agree, Mike.

    Muppets, dummies and puppets rearranging deck chairs on the ‘Titanic’.

    And the ‘Titanic’ sinks a little more each day that passes, of course.

    There are no immediate worries for the ‘first class passengers’, since ‘the orchestra drowns out the screaming of the third class passengers trapped in the lower compartments’.

    It will be ‘when the water starts flooding into first class cabins we will see widespread panic, and the realization there are insufficient lifeboats and that no one knows how to launch the few there are’.

    Until then the consumption party goes on.



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