OnPoint by Keith Ng

Newsflash: Tax causes cancer

Okay, I'm misquoting Brash terribly here. He didn't say that tax causes cancer - only that it was responsible for increasing the mortality rate of breast cancer. What is he, a fricking doctor? Oh, wait... he is. An economist-doctor, in fact, so I guess he'd know about death and tax. (Ba-da-cha!)

National's been doing a good job of screaming "tax cuts" and people are apparently listening. It's a good way to generate volume for their case, but in all the din, the case has become a mishmash of unconnected arguments. Time to clean up the strands.

1) High tax rates are driving Kiwis to Australia
Australia's GDP per capita is USD$32,686 (2006). New Zealand's GDP per capita is USD$24,769 (2005). Why can Kiwis earn more in Australia than in New Zealand? "Lower taxes" is the wrong answer here.

Tax rate is obviously a part of the income equation, but, you know, income is kinda important, too. Even if New Zealand's tax rate was lower than Australia's, Kiwis would still make more money in Australia (or any number of countries around the world).

New Zealand is never going to be the best place in the world for making money.


2) The rich are getting disproportionately taxed
For example, David Farrar cites the statistic that 12% of people pay over 50% of taxes, and that the top 3% pay over 25%.

First, that's as much a function of income distribution (aka "capitalism") as it is of the tax rate. In Hong Kong, for example, 2% of people pay nearly 50% of taxes. It's not because they're communists, it's because some people are really really rich.

Second, if the problem is income redistribution, then the solution isn't less tax. After all, if everyone pays less tax, then the rich are still going to be shouldering the same portion of it. No, the solution is to redistribute the tax burden away from the rich and towards the poor. Go on, let me hear you say it.

3) The government is wasting money
If the government wasted the money, then it wouldn't be in the "surplus" now, would it?

4) Because we can
We have an operating surplus of $8.5b, but it's not the real surplus, blah blah blah.

Put it this way: You've had a good year, and at the end of it you find that you've made $8,500 more than you've spent.

Of this $8,500, $1,800 is sitting in your bank account, $2,000 in your retirement savings. Your business has grown in value by $4,700.

Your business is going to slump for the next three years.

You're 45 years old (20 years from retirement).

Do you:

a) Take the $1,800 from your account, draw $4,700 from your business, and borrow another $2,000 against your savings - because you can?
b) Reinvest the money from your business, leave the savings alone and use the $1,800 to pay off debt - because you can?

[Gasp! That last bit sounded a tad sorted.org.nz-ish. And the correct answer is (a). Saving is totally uncool.]