OnPoint: Updated: GST compensation: Can be done?
65 Responses
First ←Older Page 1 2 3 Newer→ Last
-
Who needs to worry about the maths if they think they can pull the wool over enough voters eyes?
And what about the 'north of $40' for anyone on the average working wage that was promised during the election campaign, canceled in favour of last year's tax cuts for the top 10%?
How is increasing GST going to close the wage gap with Australia?
National must have some very powerful sedative if they think they can pull this sort of bulls**t off.
-
Sorry, don't follow? You're saying raising GST will receive $2.89b. And you'd have to give $1b back through the tax system.
Where's the issue exactly?Edit: Sorry, I follow now - the across-the-board cut required to give a $1b back to the lower 50% would cost a lot more than $2.89b as the cut would also extend to the upper 50%.
Interesting...[Keith: My bad. Edited to make it clearer.]
-
"Key has ruled out changes to Working for Families. But tax cuts have a smaller impact on people with low income, so to deliver $1b via the tax system, it'd require a much bigger tax cut across the board."
He has said he'll change WFF and benefits with regards to the increase in the price level stemming from higher GDP.
As a result there are two ways to view his compensation claim:
1) It is on a lifetime basis - which would imply that some low income people now will be high income people in the future and it will wash out, or more directly ...
2) Most of the compensation will simply occur through the increase in benefit and WFF thresholds and rates.
By increasing these thresholds and rates, and by lowering income taxes so they retain the some level of progressivity then we have people paying the same amount of tax - if we ignore borrowing and saving.
If we then assume people only borrow or save on the basis of future income, and given that we are shifting the tax from income to consumption, the tax burden falls the same way it did before - on an intertemporal basis.
-
Matt:
I see what you're getting at, but I'm not sure if I'd be comforted by an intertemporal tax refund. There's probably a time value of money argument in there, but mostly, it's the fact that not even economists can pay rent with it.
Re:Benefit level changes, I've been trying to make sense of the compensation section in the GST paper I linked to. It didn't have an estimation of the cost of compensation via the welfare system (though Goff's speech put it at $200m less than the revenue increase), but at any rate, compensation through CPI-linked benefits is only relevant to people who're on benefits.
-
2) Most of the compensation will simply occur through the increase in benefit and WFF thresholds and rates.
And those of us working for low-ish incomes who haven't sprogged are compensated....how, precisely?
I'm lucky enough to be moving into a well-compensated graduate job; if I was in the situation I was in last year, I'd have got an effective tax increase through the rise in ACC levies *and* a cost of living increase through GST rising (well, I still have both of those, but mitigated by my higher earnings.) And I wouldn't be getting compensated one iota, although if I was very, very lucky, they might have let me borrow slightly more for living costs on my student loan.
-
Oh, and since GST comes off expenditure regardless of whether it comes from benefits or earned income, if GST compensation comes exclusively from benefits, it'd disadvantage workers.
-
I think I'm losing my mind...
-
Keith: I would be very surprised if they used the tax system to compensate all of the bottom 50% of the population.
The easiest way to do it for most of them is by altering benefit levels in advance of the CPI flow through of a 2.5 point rise in GST,
I think StatsNZ have calculated that a 2.5 point rise in GST would result in a 2% rise in the CPI, it is easier to lift NZ super and other benefits to compensate for this, rather than trying to lower the bottom rates of tax,
-following Keith's next comment: Low income families can be assisted via WFF levels, so the only ones left are those without kids, but yes I agree it will be interesting to see how they address this group without screwing the rest of the tax scrum.
-
Gary: Yes, I'd be very surprised too, because it'll cost a lot to do it. But, if they only compensated via the benefit system, then signifcant parts of the working poor will get nothing.
-
Gary: Most of the income supplements are income-tested, and I'm not sure whether the thresholds are CPI-adjusted as well. Whether changes to WFF will adequately compensate for GST increases depends on more things than I can squeeze into my head right now, but all I can say at the moment is that it's not quite that simple.
-
Hi Keith,
If we move away from borrowing and saving - which should only be on the basis of "lumpy consumption" (damn it I need to buy a dishwasher, but once I've got it I've got it for 5 years) and future income changes (I'm a student, I will earn more, I can borrow based on that) - then in a static sense we can fully compensate the poor by changing benefit rates and thresholds and tax rates/thresholds.
So by not assuming borrowing or saving we have that consumption=income. The GST tax could be treated like some increase in the price level. Moving thresholds up by that amount (so their real value is unchanged), changing the size of benefits by that amount (so their real value is unchanged) will leave them the same.
When people don't get benefits, we know they are paying tax. It doesn't matter whether we tax consumption or income (as we have no borrowing or saving) we know that a given person will be paying X% in tax - as a tax on income lowers real income, while a tax on all prices also lowers real income. We can lower these tax rates, such that the effective rate of tax is still the same.
As a result, if we have no borrowing and saving, there is no real difference between using a GST rate or using a FLAT rate of income tax. (Note this is why the reduction in income taxes also needs to be flat to keep people indifferent.)
In this sense, it looks like the change in tax has no point, but we know:
1) GST rates are cheaper to enforce,
2) GST doesn't create inefficiencies in the credit market - so when borrowing and saving "reappear" we know that the trade-off between future and current consumption won't be impacted by tax.However, because GST isn't on interest, we know the base rate must be slightly higher (in a static sense). They must be aiming to make that up through the tax on depreciation.
-
"And those of us working for low-ish incomes who haven't sprogged are compensated....how, precisely? "
Lucy,
The decline in income taxes will be sufficient to compensate those who are not eligible for any benefit - as the goal is to set the GST rate + income tax rate to the same level as it is now anyway, so that labour income is taxed in exactly the same way.
-
Am I the only one who thinks that a lot of retailers will use a GST hike as a chance for a price hike over and above the increase in the rate of GST?
-
The decline in income taxes will be sufficient to compensate those who are not eligible for any benefit - as the goal is to set the GST rate + income tax rate to the same level as it is now anyway, so that labour income is taxed in exactly the same way
So they're going to halve the bottom tax-rate?
-
The decline in income taxes will be sufficient to compensate those who are not eligible for any benefit - as the goal is to set the GST rate + income tax rate to the same level as it is now anyway, so that labour income is taxed in exactly the same way.
Your clairvoyance is truly impressive.
(More seriously: I'll believe that when I see it, especially for very low income earners, c.f. Keith's figures.)
-
Matt:
But GST isn't a fixed proportion of income across the income spectrum. People on higher incomes spend more of their money on things that don't attract GST, so GST is at least mildly regressive. Right?
Sure, if we ignore this, *and* we had a flat tax *and* flat welfare system (say, universal benefits), then I can see how a 1:1 shift from income tax to GST would be beneficial.
But we don't. The point I'm trying to highlight is...
Wait. Are we even disagreeing? My point was that any attempts to compensate for GST via the tax system would reduce the revenue gain so much that there'd be nothing left with which to fund rates alignment.
You seem to be saying (if I understand you correctly) that a revenue neutral shift from income tax to GST is possible and desirable.
Is that correct?
--
Oh - and re:regressivity of GST, try this:
* According to the IRD income distribution data (so income tax only) the top 10% earn 33.5% of income.
* According to the TWG's GST paper (which was supported by analysis from Treasury, which did GST impact analysis based on HES data), the top 10% of households paid 19% o f GST.I know the two aren't directly comparable - individuals vs households, personal income vs all income types, etc. But that's a pretty big gap.
(Actually, I'm pretty sure % of income going to GST broken down by deciles can be readily extracted from the data that they have there...)
-
Oh - and re:regressivity of GST, try this:
* According to the IRD income distribution data (so income tax only) the top 10% earn 33.5% of income.
* According to the TWG's GST paper (which was supported by analysis from Treasury, which did GST impact analysis based on HES data), the top 10% of households paid 19% o f GST.I hope all those people who voted for National but aren't in the top 10% of income earners understand that.
-
Retracted! See post.
-
Oh, I doubt it. They still think they got a tax cut from them.
-
Ah, now I follow even more so after your Retracted. I was labouring under the un-researched rough assumption that rate alignment would be paid for by depreciation/LAQC changes and therefore GST changes could be neutral with compensation.
If they do that - 30% rate alignment paid for with depreciation changes and ringfencing of losses, with a rise in GST matched with a $5-6000 tax free income threshold I'd actually be pretty impressed (sorry, that may not go down too well here*). But after the massive overestimate, underdeliver of today I don't feel like they're going to go that far. But perhaps I'm being negative without even giving them the chance.
*Although my rough guess is that most people would pay about the same total individual tax under that model, just in slightly cleaner, more transparent ways and it would remove weird property and trust distortions
-
Also, don't you realise this is the internet? Specifically the NZ blogosphere? You don't admit that you may have been working under false assumptions - you grow increasingly hostile and tangential to the mounting body of evidence.
-
Although my rough guess is that most people would pay about the same total individual tax under that model, just in slightly cleaner, more transparent ways and it would remove weird property and trust distortions
One hopes that'd be the point; and if this - or any - government achieves that I'll be moderately happy. Once the picture is cleaner in a "revenue neutral" manner then politics about tax cuts / tax brackets / tax credits will both make more sense and be more debated more sensibly. One hopes...
-
All those people in the upper income bracket will be able to enjoy their increased net income after tax in the comfort of their recently insulated homes. I hope the formaldehyde doesn’t give them respiratory problems.
I am sure that when John Keys talks about hard working NZers being able to keep more of their earnings he was referring to the party faithful and not the wider community.
The scapegoat for the “proposals” that are leading to the upcoming budget is the low-level mum and dad property investor – who now as it appears are responsible for the NZ’s economic malaise. Gosh they all should have invested in financial markets and finance companies they after all are as safe as houses and well regulated (not).
The tragedy of the last 9 years of the Labour Coalition is the present lot.
Lets all eat cake.
-
"The scapegoat for the “proposals” that are leading to the upcoming budget is the low-level mum and dad property investor"
How many "mum and dad" (btw, who cares about whether they're a nuclear family?) property investors are out there that earn (through PAYE-taxed income) less than $48k? Hell, less than $70k? They'll be "compensated" for losing their taxpayer handout by lower income taxes. -
The tax position on rental property provided there was a depreciation claw back operating.
The scapegoating of residential ppty investors (minor rentiers) is a wee feint to disguise that nothing is effectively happening as regard effective “tax reform”.
If the Nat (coalition) can manage the economy and bring about sustainable growth by year three of the term – that will be the acid test.
Other than that they are pulling the formaldehyde over our eyes. I do not say Wool, even though woollen based insulation products are better for everyone is not supported by the insulation subsidy even though NZ is sitting on a wool mountain.
Post your response…
This topic is closed.