National’s economic policy of temporary tax cuts yesterday proved, if proof be needed, that they are unapologetic neoliberals. While their claim that with more money in their pockets people will spend more might sound attractive, the reality is that tax cuts always benefit the wealthy and make the lives of folk on lower incomes worse.
Why?
Because we know from bitter experience that neoliberal trickle -down theory widens the gap between the rich and the poor and even the most cursory look at National’s tax cuts announcement confirms that a vote for them is a vote for the ME society not the WE society (especially if they hold political hands with ACT to form the next government).
For example,under National’s scheme if you were to earn between $20K and $40K a year you would receive roughly an extra $8.0 a week , while if you were to earn $90K and over you would have $58 more in your pocket.
We know that people on low incomes spend every dollar they have just to get by, whereas wealthier people don’t. So high income earners who receive extra money can invest it in things that increase their personal wealth but don’t necessarily contribute to the public good.
Logic also tells you that the less money a government collects the less it has to spend. This means that under National there would be cut backs in vital services like Health and Education – the very things that the rich can already buy but the poor desperately need to stay well in the Covid 19 economy and also improve their lot in life.
If Labour were brave they would turn this National tax policy on its head with a progressive tax that raised the level for those on incomes over $90,000 and lowered the rate for Kiwis on low incomes, because THAT would be a move in the direction on Well-being and the WE society.
That said, I do think that Labour’s approach of more State involvement in the marketplace, which proved so effective in getting us out of the Great Depression, is far better way of fixing a broken economy.
The government can create money because it has its own bank. It can also borrow money at very, very low interest rates and pass that benefit on to its citizens in many ways – eg. cheaper housing.
Economic policy statements by the Greens such as:
“People with the least ability to pay tax should pay the least as a proportion of their income, while those who can pay more should do so to contribute to the welfare of society”
suggest they want to close the gap between the rich and the poor.
But while their full economic policy certainly contains lot of feel good factors in it , I would really like to see some specifics from them. For example – How much would each income tranche pay in progressive tax and other taxes under a Green led government ? ( Since writing this however I am now reliably informed the detail is on Page 21 para 12.2 of their policy! This really needs to be upfront info).
NZ First Economic Policy ??… umm.. well when I Googled it I found a couple of news items where party leader Winston Peter’s made statements back in March to the effect that there would be no personal or company tax increases and a No to such things as a Capital Gains tax .
Their approach, as best as I can garner it from news items, would, in my view, put them closer to National’s economic philosophy – ie .that private businesses, more than State intervention in the market place, is the way to deal with the economic crisis we are facing eg. their ideas of special tax concessions for certain business start-ups in rural and regional New Zealand, an Instant Asset Write-Off Scheme – allowing small businesses with turnover less than $1 million to claim immediate deductions for new or second-hand plant and equipment purchases such as vehicles, tools and office equipment up to a combined value of $3000 annually and so on.
However if you go to NZ First’s website and click on “policy” you get a reference to the coalition agreement. Nothing is immediately clear and I shouldn’t have to hunt for a party’s economic policy.
If you are looking for a completely different approach to running our economy there is the Social Credit Party and The Opportunities Party, both of whom advocate State intervention in the economy.
Social Credit’s website, for example, promotes the idea of using the Reserve Bank to create money rather than the current system where the commercial banks are basically given a licence to do it.
They would get rid of GST and replace it with a Financial Transaction Tax . They want a maximum payment of $20 for all GP and dentist visits, no tax on the first $20,000 of income, no fares on all urban public transport, a “Child Dividend’ of $30 per week for all children under 18, a guaranteed minimum income for all low income earners, a rent-to-own public housing programme an grants for relocation to lower cost parts of the country
The Opportunities Party on the other hand is promoting such things as a Universal Basic Income of $250 a week for everyone no questions asked , the introduction of a property tax, taxing houses the same as other assets and a tax on sugar and junk foods.
Does this help clear the fog of choice in the up coming election for you a bit …or not?
Bryan Bruce is one of NZs most respected documentary makers and public intellectuals who has tirelessly exposed NZs neoliberal economic settings as the main cause for social issues.
Well stated there Bryan 100% correct. I couldn’t say it any better than that. “Trickle down” was a evil lie and just another Neo-Liberal nasty ‘trick’
I think TOP’s proposed equity tax would face the same problem that Capital Gains taxes face, i.e. it would not be popular with owners of family homes; the same thing may apply also to alternatives such as land taxes. However, Socred’s idea of replacing GST with a transactions tax sounds like a good idea.
TOP is also proposing a switch to a flat income tax of 33 cents in the dollar. With a UBI of $13,000 per year everybody would gain from this since that amount would always exceed the loss from the change in the taxation method; though special arrangements would need to be made for beneficiaries and superannuitants. The only problem would be knowing how to pay for it.
No-one is suggesting CGT should be on family homes. Just on speculative investment rentals which are purely for capital gain.
CGT applies also to landlords who are not after capital gain.
And for the most part income is aligned with status. How many in the top echelon of incomes pay for lunch, have company vehicles or general perks? Because as you rightly mention they don’t spend the tax relief, because they don’t have too.
The reality is ” tax break” is the worst pork barrel of them all. A bribe to appeal to a person’s senses. Remember Nationals tax cuts in 2008 were eroded immediately by Key’s rise in GST.
National nor ACT are a friend of the vast majority, they are the friend of about 1%
Interesting post Bryan. At the risk of getting lynched on this blog site, National’s policy is not totally daft. The idea of freeing up money so that people spend more and help get the economy moving has merit. The problem with any tax cuts under the present system, as you rightly point out, is that the people who need the money least get more and they will likely save or invest that money rather than return it to the economy.
Even though, as you state, those earning between $20K and $40K a year would only receive roughly an extra $8.0 a week that is more than what Labour is promising. So how do you change this?
The present tax rates are:
Income up to $14,000 10.50%
Income over $14,000 and up to $48,000 17.50%
Income over $48,000 and up to $70,000 30%
Income over $70,000 33%
So consider this scenario:
Income up to $14,000 0%
Income over $14,000 and up to $30,000 10%
Income over $30,000 and up to $48,000 17.50%
Income over $48,000 and up to $70,000 30%
Income over $70,000 and up to $120,000 33%
Income over $120,000 and up to $180,000 35%
Income over $180,000 39%
By my calculations that would mean someone earning $40,000 would end up with approximately $43 per week extra in their hand which would almost certainly all be spent and help stimulate the economy. But here’s the kicker:
Those earning more than $120,000 would continue to have their income up to $48,000 taxed at the present levels. So that would remove the tax cuts for higher incomes that a blunt instrument approach of across the board tax cuts always results in. Those on lower incomes would get more and that money would be recycled into the economy. Those on higher incomes would pay a bit more that should offset the lower income cuts. It may result in more tax overall but I haven’t done the sums.
Would that be too hard to administer? Why do we keep tinkering and doing the same thing when it obviously doesn’t work or delivers the results that we are trying to avoid? Just a thought.
Thanks for all your blogs during this election Bryan.
This is the first time in my life I have not known which party to vote for.
I am no longer a member of any political party and the lack of knowledge and experience of those offering themselves as parliamentary candidates is staggering .
I am angrier than ever at the state of our country and the lack of direction and vision from all political parties ( except the Greens and TOP…at times)
The distinct loss of technical expertise and real life experience among the nepotistic policy wonks of Wellington has brought us to where we are now. We are up a creek without a paddle, a clue or anything resembling a viable path thru the looming future shitstorm .There is no coherent energy policy from any party . Nothing workable on housing and a health plan that includes the lunatic dribble spouted by Heather Simpson is a frightening portent of the clustersfuck Jacinda insists on presiding over as she has no philosophy and is so very poorly advised. I am scared very scared. So my partner and I are growing the largest garden we have grown in years so we can at least provide for the local food banks. You know this is the reality of what we face Bran.
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