Who will reversing the tax cuts affect the most?

The previous (National) government legislated for tax cuts from next April that would benefit everyone earning money, in particular all workers.

Labour campaigned on scrapping these tax cuts, and intend to pass legislation that will reverse them. But they have been quite quiet about it.

In two interviews in the weekend new Minister of Finance Grant Robertson mentioned then just once in passing. On Q+A:

CORIN You will be well aware of the famous winter of discontent or so-called ‘winter of discontent’ – 1999, Labour government that came in. Are you worried that business is going to react badly to you? I mean, what is your message to, I guess, the small business owners, the business people in New Zealand this morning watching? Can you assure them that you’re not going to rip up the rulebook for them?

GRANT Absolutely. I mean, we are a party that’s committed to a partnership here with business, with working people as well. And, yeah, I went to a Mood of the Boardroom event with, you know, 150 CEOs just before the election and heard from them that their biggest concerns about New Zealand were about inequality. They said that we didn’t need tax cuts; we needed to invest in social services. They were worried about multinationals not paying their fair share of tax. They’re the same policies that we’ve got. Now’s the time for us to sit down with the business community and say, ‘How do we make this work together? How do we grow businesses and ensure a fair share in that prosperity?’

CEOs said “we didn’t need tax cuts” – good for them, they probably don’t, but they don’t speak for all workers. It’s curious to see a Labour finance minister taking a justification for a significant policy from big business CEOs on what they think all workers don’t need.

From the interview on The Nation:

Lisa Owen: Minimum wage — you’re going to raise it to 20 bucks an hour by the end of your first term. Are you worried that that’s going to put a handbrake on job creation?

Grant Robertson: No, not at all. When Labour was last in government, we were raising the minimum wage by about a dollar a year during that period. In fact, we had some of the best economic growth and the lowest unemployment that we’ve seen. Bear in mind, the people who will be getting these minimum wage increases will then be spending that money in the economy. It actually stimulates growth.

Lisa Owen: So in terms of paying for that, the Prime Minister’s indicated that there could be some breaks for small businesses, perhaps, to offset the cost of rising wages. But the thing with that is that will lower your tax take, and don’t you need that money?

Grant Robertson: Look, obviously, as Minister of Finance, I’m always keen to see the money that comes in that we can use, but we do have to make sure we’re being fair on small businesses. Australia has this — the idea of potentially a progressive tax rate for small businesses with low turnover. We want to take a look at that and see whether that could work in New Zealand.

Increasing the minimum wage will help low paid workers (if it doesn’t trigger price inflation. And Labour are also considering tax cuts for small businesses.

Jacinda Ardern has also mentioned small business tax breaks – see Ardern considers tax cut for small businesses to offset $20 minimum wage.

Ardern has also said little about reversing the tax cuts. She has said that their first 100 days plan is largely going to happen. This includes:

  • Make the first year of tertiary education or training fees free from January 1, 2018.
  • Increase student allowances and living cost loans by $50 a week from January 1, 2018.
  • Increase the minimum wage to $16.50 an hour, to take effect from 1 April 2018, and introduce legislation to improve fairness in the workplace.
  • Legislate to pass the Families Package, including the Winter Fuel Payment, Best Start and increases to Paid Parental Leave, to take effect from 1 July 2018.

So that will provide more money to students, low wage workers, families and superannuants (Winter Fuel Payment).

From Labour’s Families Package:

Now is not the time for tax cuts. The top 10 percent of income earners get $400 million from National’s tax cut, which is as much as the bottom 60 percent receive combined. So Labour will eliminate National’s tax cuts, saving $1.5 billion a year. Making this choice provides Labour with the opportunity to reduce inequality and boost family incomes.

Families, students, old people, and possibly small businesses will all benefit from Labour’s changes.

There’s a large group of people who will miss out on the currently legislated tax cuts, and will also miss out on handouts from the incoming Government – wage earners who earn more than $20 an hour who don’t have dependant children.

Many ordinary middle New Zealanders will be paying for ” the opportunity to reduce inequality and boost family incomes”. They will do this in a number of ways.

They are already gradually paying higher tax rates due to bracket creep, and that will continue.

If pushing up minimum wages pushes up inflation those not getting more wages will see their costs increasing.

There is also a risk that interest rates will be pushed up – that will impact in middle New Zealanders the most.

The fuel tax will cost Aucklanders more.

And there’s another risk – house prices may drop. Prices have already levelled off in Auckland. The incoming government has plans to dampen property inflation further. This could impact on middle new Zealanders who already own homes (and have mortgages).

During the election campaign Labour kept emphasising the tax cuts ‘the top 10%’ would get in comparison to ‘the bottom 60%’ from the currently legislated changes.

They ignored the other 30%.

Labour will need to be aware of the risks of building resentment by ignoring many middle New Zealanders in their modifications of wealth redistribution. There are a lot of people who will not just miss out, they may end up paying out.

Leave a comment

25 Comments

  1. Trevors_elbow

     /  30th October 2017

    And those middle people voted for it in big enough numbers to create this reality… so enjoy the feelz from smile and wave politics, cause here comes the bite middle income NZ

    Reply
  2. Blazer

     /  30th October 2017

    Hard to miss what you never…had.

    Reply
  3. Basically it’s my money they’re taking. I’d rather have it back rather than have mouthy socialists arbitrarily deciding to redistribute it. If I choose to stimulate the economy nad spend it, or if I donate it to one of my charities, I’ll do it myself thanks.

    Reply
    • Blazer

       /  30th October 2017

      You can apply your rationale to any tax,even those instigated by your party of choice.I’m sure you already …know this.

      Reply
      • Yes and I do. I accept tax is the price I pay to live within a functioning first world democracy, but when the economy is strong I’m happy to accept the odd ( very odd) dividend.

        Reply
        • Blazer

           /  30th October 2017

          Very benign statement-‘the economy is strong’.Allocation of govt spending to where it is most needed is more important than election bribery.’

          Reply
          • PDB

             /  30th October 2017

            So you’d be against the ‘election bribery’ involved in where Labour will instead send the money – to families with children already well catered for by the govt?

            How is rectifying people being over-taxed in the first instance (bracket creep) ‘election bribery’? Or do you think the govt should continue to collect more taxes from taxpayers than they have technically legislated for?

            Reply
            • Patzcuaro

               /  30th October 2017

              The tax bracket creep could quite easily be fixed on a regular basis especially as most calculation is done by computer these days.

              When the realignment is announced in election year to take effect after the election, then if it looks like a bribe, sounds like a bribe, smells like a bribe, then what is it? A big bribe.

            • PDB

               /  30th October 2017

              Under your definition then ANY policy announced during an election campaign that benefits anybody is therefore a ‘bribe’ – so Blazer is rightly being accused of being one-eyed in describing Labour’s ‘bribes’ as ‘reallocation of govt spending’.

              If tax bracket creep is so ‘easy’ to fix why was a National-led govt going to fix it and a Labour-led govt is not?

            • Patzcuaro

               /  30th October 2017

              @PDB all governments like tax creep because it increases their revenue without raising the tax rate.

              The tax creep could easily be solved by making regular adjustments as I said above. National could have come out with a policy stating that the tax creep will adjusted every year or whatever period they chose.

              But instead of a policy like that they legislated for the one off adjustment to take place after the election. A bit like dangling a carrot in front of a donkey to get it to go where you want.

              You could say that all election policies are bribes, some bigger and more cynical than others.

    • Traveller, surely you would rather have a pointless tramline in Auckland and pay for the children of rich people to go to university than selfishly have a tax break ? Or pay women on the highest incomes to have children rather than have this money for yourself ? Tut tut.

      Reply
  4. Wealth redistribution is a just a pseudonym for envy tax. Yes, we need to look after those in genuine need. Yes, I am staggered by the eye-watering salaries and bonuses of both corporate and public officers. But the answer to either of the above is not to set up expensive bureaucracies of robbing Peter to pay Peter.

    Reply
    • Blazer

       /  30th October 2017

      Bit of a contradiction there Duncan.Do people deserve those eyewatering salaries and bonus’,that is the question?

      Reply
      • Kevin

         /  30th October 2017

        Of course they do. It’s because of them that the business is able to pay them sky high salaries.

        Reply
      • It’s not a contradiction. I have concerns about both ends of the spectrum. As I said, I can’t justify the top end exorbitant salaries. But setting up yet another form of taxing all the people and then paying some of it back to some of the people is inefficient and ineffective. The tax system does not need to become more convoluted. It needs to be simplified. Government efficiency would do more for the less fortunate than yet another tax grab.

        Reply
  5. PDB

     /  30th October 2017

    The main thing is the bracket creep that the new tax rates were also meant to rectify – this ‘over-taxing’ will continue under the new govt estimated at around $500/annum for an average worker.

    Reply
  6. Zedd

     /  30th October 2017

    BOO HOO.. the wealthiest 10% wont get the tax cuts, they have likely already spent ! 😀

    Reply
  7. Patzcuaro

     /  30th October 2017

    In our mixed economy, the market does a very good job of distributing goods and services. The government then takes some of the income produced to provide the services that it carries out. It also then redistributes some of that income to level out some of the uneven income distribution created by the market.

    Every three years we get a chance to vote on where the balance between the market distribution of wealth and the amount of redistribution of that wealth. This election the pendulum swung towards the a bit more redistribution. Even under National the pendulum was already moving in that direction.

    Reply
  8. Alan Wilkinson

     /  30th October 2017

    Of course the tax cuts are just the start. Labour’s multi-billion dollar promises have to be paid for by you. Already Auckland fuel tax will remove a few dollars from your wallet every week. Millionaires mightn’t miss it but poor people will. More to come. Enjoy.

    Reply
    • High Flying Duck

       /  30th October 2017

      There is a lot of talk about the “poor” and the “rich”. What is missed is that the middle classes are the most affected by these policies. Those just getting by or trying to get ahead get pulled down by extra taxes & redistribution policies.
      The poor don’t care as the Government pays their bills. The rich don’t care – they can ride out any extra costs.
      The low and middle income working population was where the majority of the National tax cuts were going to go, offering some semblance of help to enable people to be more self sufficient. This has been taken away with the promise of extra costs to come and Government handouts to the least productive.

      Reply
      • Could this be why more people voted National than Labour ?

        The only consolation is that the Labour voters will be stung and be worse off as well as the rest of us.

        Reply
        • Blazer

           /  30th October 2017

          could this be why more people did not vote for National than did…probably why we don’t have another National Govt.Thank…goodness.

          Reply

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