Click photo to enlarge
Dunedin property investor and Otago Property Investors
Association president Cliff Seque stands outside one of his
student flats in Hyde St. He expects rents to increase
after Prime Minister John Key's economic statement in
Parliament yesterday. Photo by Linda Robertson.
Big personal tax cuts for middle and high-income earners
are likely to be announced in the May Budget and take effect
from October this year.
The tax cuts of up to $4 billion will be funded mainly by
increasing GST from 12.5% to 15%, and cutting depreciation
tax breaks on buildings.
In his statement to Parliament yesterday on his plans for the
year, Prime Minister John Key pledged to give
across-the-board tax cuts.
There would be upfront increases in social welfare benefits,
superannuation and Working for Families payments to
compensate for the GST rise.
He acknowledged that higher-income families would benefit
more from the tax cuts, because they paid more in tax.
Lower-income earners would be no worse off - unless they
owned rental property - and he expected them to be better
off.
He said the Government would not increase GST "unless it saw
the vast bulk of New Zealanders better off".
"GST is a very difficult tax to avoid, no matter how people
structure their financial affairs. As David Lange once
observed, even drug dealers pay GST."
His plan also set new priorities in science and innovation,
and in exploiting the financial gains in gas and oil
exploration and mining minerals - on conservation land.
"We are not magicians," he told reporters. "We are not a
government that has spare cash, so we are having to move
things around to make sure we can invest in areas we think
are most critical for our growth."
Referring to comments by Reserve Bank governor Alan Bollard
on Sunday about New Zealand's gap with Australia, he said:
"Alan Bollard might be satisfied with the crumbs off
Australia's table - I want the entree, the main course and
the dessert."
It is thought that the Government's present aim with the
October tax cuts will be to align the top personal tax rate
of 38c and trust rate of 33c with the corporate tax rate of
30c.
But there is still more work and modelling for officials to
do before that looks like a certainty.
At the very least, there is an expectation the top personal
tax rate will drop to 33c.
The Government may want to keep something in reserve in case
it has to match a cut in the Australian business tax rate
from 30c.
The measures will have the effect of broadly reinstating the
tax cuts that National cancelled because of the recession,
and funding them from elsewhere.
Yesterday's statement was the Government's response to the
tax working group, which urged reform of a "broken" tax
system by lowering personal taxes, and steering investment
away from residential property to more productive sectors.
Herald calculations on the basis of one of the scenarios in
the tax working group report (cutting personal tax rates to
30c, 19c and 10.5c) would see someone on $50,000 get about
$12 extra a week net, taking into account higher prices with
the GST increase.
A person on $90,000 would get about $50 more a week.
The Government rejected a land tax, which was unpopular; a
comprehensive capital gains tax on realised property because
it would take too long to get revenue from; and the risk-free
method of taxing residential investment properties because it
was too complicated.
- Audrey Young of The New Zealand Herald.
Key points
- Closing tax loopholes allowing property investors to avoid
tax; details in Budget.
- Consideration of GST increase up to 15%.
- GST increase balanced by "across-the-board" personal tax
rate reductions.
- Ruled out: Land tax, comprehensive capital gains tax,
risk-free return method for taxing residential investment
properties.
- Consideration of how to stop rich families getting Working
for Families tax credits.
- Changes to how Crown research institutes are funded.
- Business research and science capability to get boost in
Budget.
- Proposed changes allow mining of some conservation
land.
- New Conservation Fund, with some royalty from mining on
Crown land.
- Removal of regulatory barriers to water storage.
- Development of policy on how national standards information
is used after concerns about league tables.
- Shake-up of tertiary education sector.
- Development of whanau ora policy changing how government
funds, co-ordinates social-service contracts.
- Continued reforms including tighter checks on sickness
beneficiaries; tougher reapplication for unemployment
benefits, getting people on the domestic purposes benefit
into work or training.
- Changes to Residential Tenancies Act aimed at better
management for owners, more security for tenants.
Do you support a rise in GST to 15% if personal tax rates
are lowered? Contact us on our teletopics line (03) 467-7123
(Dunedin calls free), email reporters@odt.co.nz or fax
(03) 474-7422.
Big income gaps are bad for everyone
Fungus Pudding, the prevention of further income inequality or even reducing it has nothing to do with making everyone poor.
Many may know that poverty is related to poor health and a range of social problems, but less widely understood is that in the ‘developed’ world of rich countries like New Zealand it is relative income disparities rather than average income levels which are important. In these countries the bigger the income gap between the top 20% and bottom 20% of the population, irrespective of average incomes, the higher the rates of both physical and mental illness, violence and crime in general, and the lower are the levels of educational achievement and social harmony.
It is just as much in the interests of the 'rich' as the ‘poor’ to minimise income differences. See, for example, this link to an interview with Kate Pickett in the UK who recently coauthored (with Richard Wlkinson) a book called "The Spirit Level", which deals very comprehensively with this issue: http://bigthink.com/ideas/18461
Widening the gaps
Something like twenty years ago, when Roger Douglas raised GST from 10 percent to 12.5 percent, Douglas received an unprecedented avalanche of extra 'readies', which surprised even him. Our stated intention is to achieve parity with Australian living-conditions. The cynicism of this is exposed by Government moves here, which cannot do other than widen gaps even-more, firstly between ourselves and Australia, secondly between the sectors of our own society.
G.S.T. goes right down to the roots of our society. While superficially, it may appear to be a tax to curb excessive consumption and re-direct resources into sectors more necessary to our growth than property-speculation, this iniquitous tax is added to everything you pay, goods or services. So, it becomes an extra impost upon keeping your teeth in working condition, doctor's visits and the medication called for by most of them, the dubious pleasure of paying your city rates, not to mention the double-whammy of having to then turn round and do it again to appease the Regional Council. Of course, those things react worst against those least able to afford them. They may be 'peanuts' to those at the top end of the scale, those who 'National' Governments traditionally schmooze up-to, but they are matters of treatment-deferred for many of those who most need it, compromises made with regard to winter-warmth, adequate nutrition, and so-on.
To take an extra 2.5 percent on the one hand, and penalise a population across-the-board on the other, because speculation in property etc. has diverted resources away from investment in things more vital to the country, is side-stepping the issue of where the fault lies. So, let's round up those who pig-out on the exchange of property and sort them out with a capital-gains tax-system. [Abridged]
Inequality to increase
"He acknowledged that higher-income families would benefit more from the tax cuts, because they paid more in tax." So the gap between rich and poor will widen....further and again.
Bring on inequality
And what a good thing that would be; for the only way to make us all equal, is to make us all poor.