A former Labour minister has ridiculed plans to raise the top income tax rate saying it “takes us back to old Labour and the politics of envy”.
This is as reported in The Telegraph in England - Higher tax rates will hold back economic growth Labour’s tax on the rich would send the message that Britain penalises enterprise – but ex New Zealand Revenue Minister Peter Dunne points out it’s relevance here.
Relevant message to NZ Labour for tomorrow here – Higher tax rates will hold back economic growth.
NZ experience also shows higher taxes stymie growth. Labour can’t have it both ways.
This should be a warning to David Cunliffe and David Parker, but they already seem committed to raising the tom tax rate.
Also from The Telegraph:
Economics behind Labour’s plan to bring back 50p top rate of income tax would not even get “a pass at GCSE”, says the party’s own former City minister
Ed Balls, the shadow chancellor, promised on Saturday that Labour would reinstate the tax band for those earning more than £150,000, if the party won the next general election.
He insisted that increasing the rate from 45p to 50p — for “the richest one per cent” of earners — would make the tax system “fairer” and help cut the budget deficit.
However, Lord Myners, who served as City minister in Gordon Brown’s government, attacked the policy, saying it would take the party back to the days of “old Labour”.
Cunliffe has indicated he would increase the top tax rate here – it is sometimes referred to as rich prick tax. But it could be counter productive.
Mr Balls claims his purpose in imposing a 50p tax rate on those earning more than £150,000 is to “finish the job of getting the deficit down and do it fairly”.
The reality is that his plans would cause a significant reduction in Government revenue, making his declared objective more difficult to achieve.
The one policy that will not help lower-income taxpayers is increasing the top tax rate; indeed, as it is known to reduce revenue it is likely to aggravate their situation.
It is revealing that last summer, during the first month in which the rate for higher earners was reduced to 45p, the Treasury received an extra £1.3 billion in income tax. This lends support to the hypothesis of the “Laffer curve”: that there is a point at which higher tax rates become counterproductive.
In a globalised economy higher tax rates push people with money and assets to other countries with more favourable rates, leaving more tax burden for poorer people.
Punitive tax rates are wrong both in practice and in principle.
In a globalised economy, high tax rates simply drive investors overseas, and personal and corporate assets offshore.
Labour’s proposal would send out the negative message that Britain penalises aspiration, enterprise and success.
And it discourages investment from overseas.
The shadow chancellor no doubt hopes to strike a populist chord with voters struggling to make ends meet, and it is possible that he will succeed, at least in the short term.
It is regrettable that Labour, concerned by its modest opinion poll lead and the unfavourable public perception of its leader, has retreated to its comfort zone of class warfare and its former preoccupation with making the rich poorer rather than the poor richer.
Labour here doesn’t have a lead in the polls, it still significantly lags behind National and needs Greens to have any chance of leading Government. Greens are likely to favour raising top tax rates too.
This paper reports estimates of the elasticity of taxable income with respect to the net-of-tax rate for New Zealand taxpayers.
The marginal welfare costs of personal income taxation were consistentacross years, being relatively small for all but the higher tax brackets. For the top marginalrate bracket of 39 per cent, the welfare cost of raising an extra dollar of tax revenue wasestimated to be well in excess of a dollar.
Furthermore, for the top bracket the marginal tax rate was often found to exceed the revenue-maximising tax rate.
Cunliffe and Parker seem to be trying to gain support through populist policies rather than sound policies. They must know higher tax rates can lead to a lower tax take, so presumably they are choosing to dupe voters with a risky tax strategy.
If Labour and Greens do take over and slap higher taxes on the top earners it will be the middle earners – the voters they are trying to dupe – who bear more tax burden. Again. That would be ridiculous.