FT: New Zealand eyes income tax cuts

[SueDonim]

Financial Times: New Zealand eyes income tax cuts
http://www.ft.com/cms/s/0/f94ceef6-4...44feab49a.html

"New Zealand’s centre-right government is considering cutting income tax rates and increasing the goods and services tax when it releases its budget next month as part of its efforts to rebalance the economy and make the country more internationally competitive.

....

The Financial Times understands that the government will almost certainly increase the goods and services tax from 12.5 per cent to 15 per cent, to discourage excessive consumption, while cutting income tax rates.

“We have an objective of wanting to align the top personal rate with the trust rate, and that’s currently 33 per cent,” Mr Key said. The top personal income tax rate is now 38 per cent.

....

The government is also reviewing its corporate tax rate, currently 30 per cent. “Our corporate tax rate used to be at a competitive advantage to the developed world. We’re now above the OECD [rich countries’] average and for the Asian region it’s quite a high level,” Mr Key said."

I'm loving this country more every day.

[Kiwi Mac]

Maybe Mr Darling will read that and have an epiphany....!!

[Ngeru]

I'm loving this country more every day.

I would be interested to hear why you think this is such a good thing. It's just Government doing what they always do giving you more money in one hand and taking it out of the other. I'm yet to be convinced that the everyday man on the street will see any benefit, since we pay GST on almost everything cent we spend.

It also doesn't give the whole picture, as from 1st April we all became worse off with the ACC component of PAYE being hiked by almost 18% to $2 per $100 of earnings.

[SueDonim]

There's plenty of reasons to like this. First note that no tax system is perfect. Any taxation will distort decision making and will favor one person over another to some extent. Even more so, any change will tend to favor some and disfavor others. That cannot be avoided.

Your point is well taken, especially in not mentioning the increase in ACC. I would disagree with your statement that this is government "giving" you something in one hand and "taking" it from the other. I don't think this was your intention, but the phrasing pre-supposes that the money is the government's to "give" in the first place. It is not. It is yours. A tax only "takes", it never "gives".

All that said, the reasons to like this:
- The current tax rate is too high, and hurts a population with relatively low wages to begin with
- The lower tax rate will tend to encourage more skilled immigration (it does for me)
- A flatter tax structure will treat all dollars (more) equally
-- This encourages control in government spending as all will be billed (more) similarly
- A flatter tax will reduce the incentive to make economic decisions based on their tax effects (an incentive almost sure to encourage sub-optimal decisions)
- A progressive tax structure is not in place to "punish" the rich, but to make it more difficult to for the existing rich to have more join their ranks. Wealth is more about assets than income (and they are not the same thing). The wealthy can shift income to minimize the tax effect. The upwardly mobile middle class cannot.
- Lower tax rates will encourage saving, something sorely lacking in NZ (and in most Western countries)
- The move to disincentivise property investment will help reduce that distortion, help leak the air out of that bubble, and encourage investment in more productive assets
-- That should lead to more job opportunities
- A reduction in the corporate tax rate will help NZ to compete globally and encourage job creation

I can't say I am happy about the VAT increase, as it is a hidden tax. I'd much prefer one that was at the retail level, obvious to consumers, and make them angry about the rate (as it should). At least it is broad-based though, and so will not favor one type of spending over another as happens in the US.

So all in all, this does not strike me as a perfect move, but a big step in the right direction, and should encourage growth that will benefit all New Zealanders

[Daniel]

I would be interested to hear why you think this is such a good thing. It's just Government doing what they always do giving you more money in one hand and taking it out of the other. I'm yet to be convinced that the everyday man on the street will see any benefit, since we pay GST on almost everything cent we spend.

It also doesn't give the whole picture, as from 1st April we all became worse off with the ACC component of PAYE being hiked by almost 18% to $2 per $100 of earnings.

This is true.

The income tax tends to be a little more just from the point of view that anyone who earns more, pays more.

In the other hand, consumption taxes (v.g.: VAT) tend to be less fair since we all pay the same: when a poor peson buys a liter of milk pays the same as a rich one.

In addittion to this, consumption taxes are recessive.

The positive aspects for the governmentsare: easier to raise and adjust by itself due to inflationary effect.

[yslee]

Ouch, 15% GST. That might hurt more than you think.

[SueDonim]

In the US, there is no GST. Yet. But Obama has been laying the groundwork.

So with US taxes soon to be (even without GST)
- 39.6% Federal
- 7.75% State
- 7.65% Social Security and Medicare
- 8.5% Sales Tax (admittedly not as broadly based as GST)

the NZ's
- 33% Income Tax
- 2% ACC
- 15% GST

looks pretty good.

And that is before the coming tax increases to fund Obamacare and the $1+ trillion annual deficits projected for each of the next 10 years. And the VAT they are preparing to put in place. And the Cap and Trade tax planned (but probably delayed). To say nothing of what is needed to fund the $50 trillion (or $100 trillion according to some) unfunded liability for Social Security and Medicare.

Yeah, I'd say NZ is looking better and better

[yslee]

Wow, all that tax, and universal healthcare is a problem in the US? What've you guys been spending it on? :P

[SueDonim]

Interest on debt, transfer payments to non-working and elderly, defence, and most of all corruption and graft

[Ana&Steve]

Wow, all that tax, and universal healthcare is a problem in the US? What've you guys been spending it on? :P

We have very well maintained politicians.