Bridges botches tax plan accouncement

Simon Bridges launched an economic plan today that was high on rhetoric but low on specifics. The lack of detail left a vacuum that has been quickly filled with a focus on a sloppy (at best) statement on average earnings tax rates.

In his speech:  National’s economic plan for 2020

We will announce our full tax plan that will see people on the average wage better off and keeping more of what they earn.

People on the average wage shouldn’t be paying almost 33 per cent in the dollar.

People on ‘the average wage’ have little or none of their earnings taxed at a rate of 33%. Many others have pointed out that average wage earners are taxed closer to 17% overall on earnings.

Alex Brae at The Spinoff:  Good news for Simon Bridges: his big tax idea is already happening

Bridges said during the announcement that in a future announcement he “will announce our full tax plan that will see people on the average wage better off and keeping more of what they earn.” So let that be announced.

And then he declared: “People on the average wage shouldn’t be paying almost 33 per cent in the dollar.”

So what is the average wage then? Stats NZ figures from last year put the median weekly income at $1016, which added up per annum comes to a shade under $53,000.

So what is the effective tax rate for someone on the median wage? Fortunately, IRD has a calculator which can tell you exactly this information. Here it is:

Calculated out, someone on the median wage ends up paying about 17% of their income in income tax.

There is another potential way of calculating it though, which could bring it closer to the mark. Stats NZ’s latest Quarterly Employment Survey shows an average income of $1,243 a week, or $64,650 a year. The difference is over ‘medians’ or ‘means’ – either the middle number selected in a set of numbers, or the sum total of a collection of numbers which is then divided by the number of numbers, which can be heavily skewed by upper outliers.

Such a figure would create a whole new share of tax being paid – you can see that here:


So in either case no earnings are taxed at 33%, let alone all of them.

This is either highly ignorant of Bridges, or the alternate assumption is that he has tried to deliberately mislead.

The National media release:  National’s economic plan for 2020 and beyond

National Leader Simon Bridges has today outlined National’s economic plan heading into election 2020.

“National understands the economy and how it impacts on New Zealanders day to day lives.”

Big whoops.

Either way it looks poor, and is an embarrassing way to try to present National as competent on economic matters.

Here are their bullet points.

Only National has a strong economic plan. This includes;

  • Keeping taxes low
  • Keeping debt low and being responsible managers of the economy
  • Growing incomes and lowering the cost of living
  • Investing more in core public services
  • Creating more jobs and opportunities for all New Zealanders.

The Measures we will use to hold ourselves accountable include;

  • Lifting New Zealand’s economic growth back to at least three per cent per annum
  • Lifting New Zealand’s GDP per capita growth to the top ten in the OECD
  • Reducing the after-tax income tax gap with Australia
  • Reducing the number of New Zealander’s who feel they have to leave for opportunities overseas
  • Reviving business confidence so that businesses feel like they can take more risks and create opportunities for you and your family.

“National will release a full package of policies leading up to the election which will address tax, regulation, infrastructure, small business and families.

A lot more care will need to be taken over the full package, but today’s announcement has set things off badly for Bridges.

Labour opposition leaders have been slammed in the past for fluffing economic policy announcements, by media and by National.

Bridges deserves similar scrutiny and criticism on this performance.

 

 

Treasury forecasts

Bill English will have a sound financial foundation to build his government on.  The latest Treasury forecasts were released today (by English).

  • Economic growth – 3% average over the next five years
  • Unemployment to drop to 4.3% by 2020/21
  • 150,000 jobs to be created
  • Average wage to increase by $7,500 to $66,000

Treasury forecasts solid growth, stable finances

Treasury’s latest forecasts show the Government’s programme of responsible economic and fiscal management is delivering benefits for New Zealanders, Finance Minister Bill English says.

“Economic growth is expected to average around 3 per cent over the next five years – considerably stronger than forecast in Budget 2016 – supporting more jobs, falling unemployment and higher incomes,” Mr English says.

“The more positive outlook for the economy is driven by high levels of construction activity, exports (particularly tourism), a growing population and low interest rates.”

The 2016 Half Year Economic and Fiscal Update forecasts unemployment to  drop to 4.3 per cent by 2020/21. Over the same period Treasury expects another 150,000 jobs to be created and the average wage to increase by $7,500 to $66,000.

“While the recent Kaikoura earthquakes have had a major impact on affected families and businesses, they are not expected to disrupt the overall momentum of the economy,” Mr English says.

“However, the earthquakes do highlight the importance of paying off debt in the good times so that the Government can support New Zealand communities in challenging times.”

Treasury estimates the total fiscal cost of the earthquakes will be about $2 billion to $3 billion, some of which will be funded by insurance proceeds or existing funds. Net costs of $1 billion have been included in this year’s forecasts.

The operating balance before gains and losses (OBEGAL) is forecast to be $473 million in surplus this year, rising to $8.5 billion over the forecast period.

The Half Year Update shows net debt peaked as a proportion of GDP in 2015/16 – a year earlier than previously expected – and is expected to fall to 18.8 per cent of GDP by 2020/21.

Mr English says the accompanying Budget Policy Statement confirms the operating allowance will remain at $1.5 billion for each of the next four Budgets.

The capital allowance for Budget 2016 has been increased from $900 million to $3 billion in Budget 2017 and to $2 billion in future Budgets to provide for a number of high quality infrastructure and investment projects.

Contributions to the NZ Super Fund are forecast to restart in 2020/21 once net debt falls below 20 per cent of GDP.

The Half Year Economic and Fiscal Update and Budget Policy Statement can be found hereand here.

What’s an average standard of living like in NZ?

A sentence from We need to talk about the one per cent by Josie Pagani at Pundit:

A family on an average income does not enjoy world class standards of living, and getting by is still a daily battle.

A comment in response from Alan Johnstone:

Here’s the thing, get  90%+ of the worlds population to look at the average new Zealander and ask them that question and they’d give you a very different answer.

People in this country enjoy some of the highest living standards in the history of mankind and do so with the protection of generous social welfare and universal health care and education.

Any one that doesn’t realize that we are incredibly fortunate to live here, now, has some serious expectation problems.

There’s obviously quite a few people people in New Zealand that find life tough. Would it have been better for them in the past?

Or do we (on average) live in one of the best countries in the world in the best era in the history of humankind?


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