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.

 

 

Labour ridiculed over plan to increase top tax rate

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.

@PeterDunneMP

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:

Labour’s City guru savages Ed Balls for 50p tax pledge

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.

@NW_Cross  points to a Treasury Working Paper from 2012 The Elasticity of Taxable Income in New Zealand

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.