The Dim-Post

May 15, 2014

Tax cuts from the surplus!

Filed under: finance — danylmc @ 9:21 am

Apparently:

Prime Minister John Key said one of the choices that today’s Budget surplus would present was the possibility his party could promise tax cuts in the campaign for the September 20 election.

He even suggested any tax cuts could be aimed at middle New Zealand which “pays a fair bit of tax and often doesn’t get a lot in return”.

Key and English promised ‘tax cuts for middle New Zealand’ in 2008 but went back on that promise as soon as they were elected and in 2010 they bought in tax cuts for high income earners and increased GST for everyone, the great ‘fiscally neutral’ tax switch that cost a billion dollars a year and boosted growth to a staggering 1%. So I’m not going to get too excited here.

Also, when English stopped paying into the superannuation fund back in 2009 – a decision Treasury estimates will have cost the country about $50 billion dollars by 2050 – he promised that payments into the fund would resume when the books got back into surplus. So which takes priority: tax cuts or payments to the super fund? My guess is that Key thinks the idea of paying into the super fund is absurd. Where’s the political benefit to him if some future politician has more money to fund superannuation in a couple decades time? So it’s gonna be tax cuts.

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15 Comments »

  1. in 2010 they bought in tax cuts for high income earners

    Freudian slip?

    Comment by Ross — May 15, 2014 @ 9:29 am

  2. tax cuts could be aimed at middle New Zealand which “pays a fair bit of tax and often doesn’t get a lot in return”.

    Can we please just compare that quote from the very generous Mr Key with this post from DPF last year?

    http://www.kiwiblog.co.nz/2013/07/net_tax_in_nz.html

    I had a grumble about this on Twitter this morning. I’d love Key to give a clear explanation of who he thinks qualifies as Middle New Zealand, given that last years messaging was all about how little tax most New Zealanders actually pay.

    Comment by @simonpnz — May 15, 2014 @ 9:36 am

  3. The “Middle New Zealand”of the imagination John Key and our establishment media is what they see in the mirror – white, earning at least $50k in a two income household and “aspirational”. All in all, about the top 20% of the population. In that cultural sense at least, New Zealand is now a third world country, with a third world tunnel vision in our ruling class that would do Chile proud.

    Comment by Sanctuary — May 15, 2014 @ 10:03 am

  4. “pays a fair bit of tax and often doesn’t get a lot in return”.

    Except New Zealanders don’t pay a lot of tax. If you want to live in a developed country and pay less tax, move to Chile.

    http://polity.co.nz/content/nats-tease-promise-tax-cuts

    Otherwise, your options are non-existent.

    What you get for that tax payment is pretty good. Mostly-free health and education, universal-superannuation, a botched Christchurch-rebuild, police, roads, defence, and Statistics New Zealand.

    Comment by George — May 15, 2014 @ 10:04 am

  5. “… If you want to live in a developed country and pay less tax, move to Chile…”

    I been to Chile three times. It is a great country, but it is not a developed country. at the moment the country is having a resources led boom but outside the main cities it is still a grimly third/developing world place.

    Comment by Sanctuary — May 15, 2014 @ 10:16 am

  6. Isn’t the surplus estimated at about $86 million? I guess we can look forward to about $20 each.

    Anyway, given the tax revenue shortfall in the first half of 2013-2014 I’m not going to get too excited just yet.

    http://www.nbr.co.nz/article/nz-govt-6-month-operating-deficit-bigger-expected-tax-take-trickles-bd-152265

    Comment by Hayden — May 15, 2014 @ 10:34 am

  7. Key mentioned the possibility of tax cuts. Bill English was asked about it. He said, “No. No. No.”
    Asked again later after he had checked with Key, and it became, “Yes. Yes. Yes. PM is always right.”

    And “...he promised that payments into the fund would resume when the books got back into surplus.” A broken promise then?

    Comment by xianmac — May 15, 2014 @ 10:41 am

  8. Technically if the surplus is blown away by tax cuts, there is no surplus. Bill’s nose stays the same length.

    Comment by Phil — May 15, 2014 @ 10:58 am

  9. A) the desicion hasn’t cost $50b, that is the difference in the fund size based on contributing vs not contributing over a long period of time. The money had to come from somewhere. The question is, what is the best use of resources?

    B) Is there evidence of this so called promise?

    Comment by Swan — May 15, 2014 @ 11:33 am

  10. the desicion hasn’t cost $50b, that is the difference in the fund size based on contributing vs not contributing over a long period of time.

    So you don’t view forgone opportunities as being a “cost”? Meaning that your advice to young people is “don’t bother saving anything, because if you don’t that all that will happen is you won’t have money in the future, meaning you haven’t lost anything”. Which is … silly.

    The money had to come from somewhere.

    Right. It could be borrowed, using the Crowns lower cost of borrowing to invest in higher returning things. Because as the article Danyl helpfully linked to (so that people can check it for themselves) states:


    The $1m a week figure takes into account interest on the extra money the Government would have needed to borrow to keep contributions as they were.

    As for evidence of a “promise”, I do think that wording is too strong. But it is something English specifically mentioned as a “choice” once surpluses are regained.

    Comment by Flashing Light — May 15, 2014 @ 11:50 am

  11. Oh fair enough I missed the last sentence. It contradicts the first part a bit.

    The decision to make contributions should not be on the basis of whether the books are currently in surplus or not. It should be about what ratio of debt to financial investment the government should run with. Agreed that the talk of tax cuts is also strange. Tax cuts should be because spending cuts not cyclical conditions. It’s a shame elections in NZ have become lolly scrambles of one sort or another.

    Comment by Swan — May 15, 2014 @ 12:44 pm

  12. “Prime Minister John Key said one of the choices that today’s Budget surplus would present was the possibility his party could promise tax cuts in the campaign for the September 20 election.”

    Eek. Why is he acting so desperate? I thought “everyone” was in agreement: pay down debt. Maybe ACT are polling well somewhere, somehow?

    Comment by Clunking Fist — May 15, 2014 @ 1:29 pm

  13. Turns out they are increasing spending now. Makes the surplus tax cut super fund argument all a bit academic

    Comment by Swan — May 15, 2014 @ 3:32 pm

  14. Look, this stuff is simple. For most purposes, it is not an and/or question. In the last 20 years when we run a surplus National spends more on the public sector (health,education etc), pays back debt and cuts income taxes. When we run a surplus Labour spends more on the public sector (health,education etc) and pays back debt. Thats it. The proportions and magnitudes change but that’s all. Take your pick.

    Comment by Tinakori — May 15, 2014 @ 7:01 pm

  15. Yup. John Key, very successful guy on the markets you’d have to say. Some guy (Flashing Light) on a blog says “but the govt could use it’s low cost of borrowing to borrow money and invest in the markets, they’d make a killing.” I’m gonna believe John Key on this one. I’m pretty sure almost any economist will tell you that you’ve got rocks in your head if that’s how you think things work.

    Comment by PaulL — May 19, 2014 @ 4:56 am


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