OnPoint: Spoonfuls of sugar
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I was going to give Kiwisaver a miss, as I'm in my 50s, but the thought of pocketing a healthy sum at 65, two thirds of which has been contributed by others, is too good to pass up.
Checkpoint interviewed 4 young people in Auckland, about their preference - Kiwisaver sweetner or tax cuts. They all said Kiwisaver.
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Yep me too. Would be mad to not get in on it now. I was pleasantly surprised by the replies on Checkpoint. Too good to miss out on
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yeah - I was feeling the same way - as the owner of a nominally non-profit corporation (ie I pay myself everything that's left over at the end after expenses and taxes) the idea of the taxes on my non-existant profit going down seems pretty useless - really I think it only affects people who get dividends (which are after all redistributed corporate taxes after profits) .... but if I can move money into kiwisaver instead I probably come out ahead.
On the other hand my income is all derived form overseas and my takehome has gone down 20% this year - anything that helps do something about the exchange rate is good by me
BTW the idea that the 3% reduction in tax (on profits) somehow balances a 4% (less tax = 3%) contribution on employees wages seems like comparing apples and oranges to me and is probably a red herring
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I'd guess that a lot of employees won't take up their Kiwisaver entitlement, so that reduces the overall cost of employer matching - maybe 1.5%. Which is a lot less than NSW payroll tax (6%) or British NI (10%) (neither of which build a fund that's as accessible as Kiwisaver).
Obviously cutting business income tax and introducing compulsory matching will hit companies that lose money and have high payroll costs. Conversely companies with a high profit/wage ratio will gain - usually those that have a large capital investment.
It's doubtful whether a small cut in business income tax will help the economy much. To do that we would really need to go to Irish style rates of 10% (tax haven levels). The trouble with that is that people would take any loophole to turn personal into business income - which in turn would require increasingly convoluted anti-avoidance measures (like IR35 in Britain).
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The only thing I really dislike about Cullen's economic stewardship is the overcomplication of the tax system. And while I understand there are reasons for going down this route, it only seems to make it worse. As a self-employed contractor it seems to be making it more and more tempting to setup my own company, because really, having the difference between everything I earn over $60k go from 6% to 9% is just getting to the point where I'd be silly not to.
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well that's true - one of the things I;m continually amazed by at running a small biz in NZ (comared with the same in the US while I was living there) is how wonderfully easy the paperwork is - maybe 20 minutes a month for me do do gst/paye/payroll - it's because the rules are so simple and a simple spreadsheet anyone can create will do much of the hard work for you - creating lots of new rules etc and special exemptions/exceptions will take this away - it's the bane of the US tax system and why my tax returns used to be 70 pages long (without even trying hard)
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Now you've done it, Paul. The accepted wisdom is that NZ business is drowning in red tape, and is strangled by compliance costs.
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oh that's silly, but also understandable if you've only ever done business in in one place.
It's kind of like moaning about NZ's high marginal tax rate (in the California I was paying 33% Fed, 10% state and 6% social security - 49% compared with the 39% here, and healthcare not included - those 70 pages and several days of work had to do various tax rebates I could claim to hopefully reduce some of that)
Honestly, people love to winge about taxes, I understand that but "you don't know how lucky you are mate"
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(I should add before I'm accused of comparing apples to oranges that US social security tax is only on the first 90k odd of your income and California sales tax is 8-9% compared with GST of 12.5 and is only on the sale of things - last time I tried to do an apples to apples comparison NZ came out ahead by very roughly 6% and that wasn't including the healthcare benefit)
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I don't know mate... we'll all end up doing manual labour in back alleys soon. Hope there'll be enough tourist custom by then.
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well that's true - one of the things I;m continually amazed by at running a small biz in NZ (comared with the same in the US while I was living there) is how wonderfully easy the paperwork is - maybe 20 minutes a month for me do do gst/paye/payroll -
I'll always remember talking to someone who worked for a company that made, among other things, payroll software. The most complex employment environment they had to deal with, by far, was the US one.
New Zealand is one of the more lightly regulated economies in the developed world.
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BTW the idea that the 3% reduction in tax (on profits) somehow balances a 4% (less tax = 3%) contribution on employees wages seems like comparing apples and oranges to me and is probably a red herring
Yeah - I think the way Key analysed it was good. Take the cost of tax reduction in a year ($1b?) and the cost of the payroll tax when it gets up and running ($2b?). There'll be some fiddling with the payroll tax counted as an expense (like wages) and lowering taxable income (and hence tax), but I'd have thought that would have been factored into Treasury Costings.
And it'll be worse for employers with high-earning employees - in full flight they'll only get tax credit on their contributions toward kiwisaver of the first $30k per employee. They can lower (or raise more slowly) wages to make up for it, though.
I still quite like the idea. And have some problem with Key's statements on Closeup that Kiwisaver is now somehow complex. But the raw numbers don't add up for business.
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You can't "squander" a surplus, and you can't "waste" a surplus, because if you did, it wouldn't be there, and it wouldn't be a fucking surplus. The whole point of a surplus is that they still have it.
Well you can actually, if you don't get too pedantic. Cullen announced the regional petrol tax [RPT] as a mechanism to fund electrification of Auckland Rail. They had hoped to have it electrified by 2011 in time for RWC but Cullen said that was a squeeze so it will be done by 2013. Two years after the RWC - what a frikkin joke, and blardy typical of bureaucrats.
Since we've been running significant surpluses for a number of years; why didn't they introduce the RPT 2 years ago? I think that's what people mean when they say Cullen has 'wasted' the surplus - he's wasted many opportunities to use it earlier.
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On another front, the Government is backing my loathing of houses (well, the insane property market, at any rate) by specifically targeting property speculators for auditing.
I had to chuckle at the TV News tonite. About how an average couple on $50+k a year will have a $300-400,000 lump sum when they retire, courtesy of Kiwisaver. My friend in Sydney bought a 2 bedroom cottage in Arch Hill in 2002 for $275k, with a mortgage of $250k. He sold it at the weekend for $550k. He now has a $300k lump sum courtesy of the property market. How is Cullen going to fight basic mathematics?
[FYI - he wasn't a speculator either, just another kiwi forced overseas to stay in their estrablished career]At some point, they're just going to have to shoot them.
Ah yes, that ol' favourite of marxists everywhere:__ "When the revolution comes you lot will be lined up and shot!"__ Funny though, how both Stalin and Mao went after the intelligencia.
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I was looking at the Herald's readers' comments, and there were a few claiming that this budget would send people migrating to Australia. But, really, who wants to live in a country racked by drought?
This might explain why there were others threatening to move "overseas". Oh, where would that be? Botswana? Poland? The Czech Republic? Tuvalu?
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Yeah Robin. I was also quite amused by the filtered comments the Herald decided to post on their readers comments page. The usual whingers claiming:
'It would be more helpful if the Govt redirected the surplus as a tax credit blah blah moan whinge blah'...It's all going to hell in a hand cart..... blah moan blah....I'm soddin' off to live in Austrlia..blah blah' signed 'Incandescant [sic] of North Shore'Now my calculations maybe way out of kilter but even I could figure out that a $6.1b surplus ain't going to make that much of a difference spread amongst NZ's 2.1m workforce. It really will only translate to an extra few bucks a week and once its spent ..thats it its gone.
Maybe I should put it in terms that some Herald readers understand
'TAX = BETTER HOSPITALS, BIG NEW SHINY SCHOOLS, BETTER ROADS TO DRIVE THE 4x4 ON AND IMPROVED SOCIAL SERVICES FOR THOSE PESKY POOR PEOPLE TO USE'... Pictures may also help. -
Tom,
The drought aint so bad yet, you'd hardly notice it in the actual inner city. They still manage to somehow water everything and restrictions only affect you if you get caught, 3 times. Not that I moved here for any alledged tax advantage.
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I just have to ask: How many people who receive tax cuts will put it into their savings, and how much of it will they put?
Hum... fair question. Then again, the largest items of capital expenditure in our house over the last eighteen months was replacing an elderly car - with something siginificantly more fuel efficient, so we did your bit for mitigating climate change - and my partner's private by-pass surgery. Not even a sniff of an imported widescreen TV with a Wii on top. (Though I guess I should stop screwing the country by buying imported books and DVD. Mea culpa.)
Of course, if Doctor Cullen really wanted to address the "debt-financed non-productive consumption spree" there'ssome politically unpopular questions I don't see anyone asking, let alone answering.
Could there be a regulatory response to make it a damn sight less profitable for banks and finance institutions to peddle debt like fiscal P?
And, serious question seriously meant, how many folks around here actually finance their consumption old skool: You know, saving rather than putting it on a credit card or HP? At the risk of sounding a tad Grinchy-y. I find it hard to muster much sympathy for a chorus of 'poor, poor pitiful me'from folks who have serious debt monkeys and very little to show for it. And I'd be eternally thankful to Doctor Cullen and Mr. Key if they even began to deliver a reality check on the downside of easy credit.
And I just have to ask how many people - yes, you and me - -
Aaargh...
And I just have to ask how many people - yes, you and me - are going to trot off to the bank, reduce our overdrafts, get the credit cards shredded, and run the fiscal responsibility rule over our own spending.
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As someone who is going to have to fork out on mainly high earners' retirement funds I think this is a pretty good budget for its time.
In fact, Bill English and his successors must be rubbing their hands with glee. Cullen has done all the hard stuff for them now, foregoing potential political gain now and structuring the economy so that the Costellos of the future can hack away at income tax without giving the economy a swift kick in the nuts.
I should also point out that there should, in theory, now be a lot more money in our economy to invest in businesses, such as Rod Drury's Xero, which has got to be a good thing.
Finally, it is not really property speculators slamming up house prices, it is cheap easy money coming in from overseas. Running high interest rates here only encourages that flow.
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Just to echo Paul and RBs comments
When I worked in the US as an employee, I actually could not understand the tax form instructions. Seriously my wife and I sat and tried to figure it out but there was one question int eh form that we could not figure out if we were meant to answer yes or no. The rest of the form took about half a days hard work to get through. And we were simply employees with no kids!
NZ tax system is wonderfully simple, and probably saves the govt a bunch in staff costs at the IRD.
cheers
Bart -
Don: I mostly agree - whenever he quits Cullen's going to leave things in a decidedly better state than when he arrived - because he mostly didn't hand out candy when it was in his pockets .... better to save it for a rainy day ....
The economy has cycles - ups and downs, largely out of the control of the govt - when things are good like now the govt becomes flush with extra tax, but when things are bad it needs more, both to cover the drop in it's revenues and to cover stuff like higher dole payouts etc etc. Arguably the best time to give tax cuts are when the economy's down and needs some stoking - but that's when you can least afford it. And when things are going well now you maybe even want to raise taxes to slow things down - unlike interest rates though tax changes take years to kick in so you really don't want to make wide swings but instead make gradual changes.
So what Cullen's been doing - the ant vs. grasshopper thing - in good years paying down the govt debt so it has head room when things go bad is probably the next best thing to do - I'm honestly glad he didn't run around sprinkling money everywhere (but we'll see about next year)
As many pundits have been pointing out the economy's still in a strange state and maybe heading for a fall, if we're lucky the govt will engineer a soft landing, I'm not holding my breath though - that means that some politician's going to get left holding the bag - English may not want to win since he'd get blamed when things crap out - and Cullen could snipe from across the house about how he'd kept it all together .....
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Two years after the RWC
Why is the RWC the only reason to build a decent transport system in Auckland. It only goes on for a month - Aucklanders have to get around the rest of the time.
It's a sporting event - why can't the fat gits going to the game get some exercise and *walk* to Eden Park - it's only 45 minutes from the city centre!
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And, serious question seriously meant, how many folks around here actually finance their consumption old skool: You know, saving rather than putting it on a credit card or HP?
Hey, I do! I always pay off my credit card by the end of the month and I save up for big purchases (but I haven't actually needed to buy anything big lately).
It's a lot easier than it seems, but perhaps these days it requires something akin to a Zenlike state of being freed from desire.
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And, serious question seriously meant, how many folks around here actually finance their consumption old skool: You know, saving rather than putting it on a credit card or HP?
A good friend of mine has just finished chemo treatment, and one of the things that struck a chord for her while interacting with other patients was the number who were hit with their own diagnosis at about 90% of the way to saving up for that something big. So you do the hard yards, you save, you scrimp, you're nearly to your dream . . . then *bamm!* Terminal disease. All of that hard work, all of that sacrifice . . . for what?
She's now converted to fully into the 'buy now save later' crowd. This isn't to say that she's irresponsible with her money - rather, she's the type that won't stray too far into the red - but to some degree, why wait until you've accrued enough money for something before you get to enjoy the fruits of your labours, when something like this could just be around the corner . . ?
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