Posts by Christopher Worthington
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I'm going to make the quibble that around 24% of taxpayers (or 33% of Keith's 71%) pay most of their tax on their benefits or their super, so I always find that "who pays tax" table quite misleading.
Of that 24%, the beneficiaries get no benefit from the tax cuts, and the superannuitants only get a benefit to the extent that the tax rate on the average wage falls (not the tax rate on their benefit). By 2011 the average wage will be well over 47k, so that puts superannuitants squarely back in the category of those who are effectively no better or worse off from a tax-perspective (except that Winston got their payout rate bumped up a percentage point).
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The central problem with Hickey's analysis is using a population average for income and an average mortgage based on a sub-population of people with mortgages. He either should have used the higher income figure consistent with the sub-population with mortgages, or used a measure of housing costs that reflects the total population average. As to which is the better choice, it depends on whether the question is whether the average household is better off or whether the average household with a mortgage is a better off.
The 2007 HES has changed the way that housing expenses are treated so I'm a bit wary about the direct comparison, but according to table builder the average mortgage payment for those with mortgages was $314/week. Note that the housing group data Kyle has quoted include more than just rents and mortgages, and the 2007 equivalent no longer includes interest payments.
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Kyle, I'm sorry but that's how the results in the household expenditure survey are reported, and we were talking about the average household in terms of income, so average shelter expenses would be the relevant comparator.
Broken down by tenure of dwelling, households that own their property with mortgages (32% of the the total) spent an average of $247/week on mortgage payments in 2003/04; they also had an average income of $80,700 (versus an average of $50,700 for all other households).
Keith, the QES is the most timely measure (and a longer time-series is available) but you don't get any measure of incomes from self-employment, investments or benefits, so for most things the Income Survey is probably the better bet - especially as it breaks the numbers down by household type. As I said before though, the IS is biased in the way it treats government transfers.
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Both measures are averages Kyle, so you could say that the average household expenditure on shelter was rent+mortgage=$139/week. This might seem low but remember 37% of households live rent or mortgage free.
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Hickey's defence was that there aren't income numbers more accurate that the HES, and that it was probably a reasonable estimate.
I'm not sure about this. The income growth estimate that comes out of the HES is very low - 3.2%pa. Average wage growth from the Quarterly Employment Survey was 4.1%pa over the same period, and as the employment rate climbed over this period the average household wage income would have been increasing at a faster rate. The NZ Income Survey, which runs yearly, puts average household income growth at 6.3%pa over this period - the "typical" household (couple 2 children) had income growth of 7.3%pa. However both the HES and Income Survey are biased because they include benefits but not taxes, so Working for Families raised the average.
Although these are all official statistics the HES strikes me as the odd one out in terms of result; it's based on just two sample periods; and the survey was redesigned between sample periods.
Keith's main point is correct: on average, weekly household expenditure on mortgages was $81.40 in 03/04 (average rental expenditure was $58) - far below Hickey's assumed average mortgage of $225/week.
As a large portion of mortgage payments are savings it is quite misleading to talk about rising mortgages pushing families "into the red"; likewise, some of the interest component is a transfer between NZ households so, on average, immaterial.
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There's no doubt that Air NZ has had a remarkable turnaround but I'm not certain what specific role government ownership has had to do with that. It's clearly not the case that government ownership has forced Air NZ from profit-maximizing to pricing at marginal cost - obviously profits have gone up not down.
I didn't say that it was impossible that the railways will be a good investment, just that the existing subsidy is not an argument for making the investment. To justify the investment the case must be made that Toll was using its position to extract rents from the government and that there are externalities that justify the subsidy in the first place.
However, the long history of both the government and the private sector losing money on rail should make people suspicious that the rail network in NZ will never be economic. Instead we just seem to have a "pie-in-the-sky" hope that this time will be different, thanks to more investment/carbon taxes/peak oil.
I'd reiterate Libertyscott's point that this is not, by and large, a subsidy for an Australian company - it is a subsidy for New Zealand companies that use the railway for freight.
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Cullen has made the point that it makes more sense for the government to subsidise a public enterprise than a private one.
I know this sounds like it makes sense, but it really doesn't. This is the same fallacy as assuming that government ownership of a company is better because the government doesn't need to make profits. The true cost is the opportunity cost for all that capital, which in this case would be investing in a profitable non-subsidised company with a similar risk-profile. Owning the railways ourselves doesn't make us any better off unless the government can actually run the service at lower cost or higher quality, or if the subsidies are temporary measures needed while the business develops to a normally profitable level.
Libertyscott is worth reading on this.
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Although cutting food GST might seem simple, the "bang for bucks" is staggeringly poor, if the goal is eliminating food-related poverty. A quick play with numbers from the 2007 Household Economic Survey would suggest that removing GST from food would cost 1.4bn (that's omitting non-household food purchases too). Of that cost, 4.4% would go to decile 1, 16.2% to deciles 1-3, and just 33% to deciles 1-5.
A number of people have made comments about tax incidence. It is true that food producers/distributors would capture some of the tax cut and not pass it on (it's always hard to estimate how much). However this is a fact of life common to all taxes and subsidies - there's no escaping it.
Quick response to Terence W (from back on page 4)
1) The rich can choose to save but this doesn't change the fact that over their life-time they pay the same rate of consumption tax.
2) Point taken that we could make income tax more progressive in a revenue neutral fashion (you seem to be the only one suggesting this as an option though). The problem with this is ever-increasing marginal tax rates, which tend to be where the dead-weight losses come from.
3) Tax-free thresholds and minimum wages both still have targeting problems because a lot of households in poverty aren't working at all. Also a lot of minimum wage-earners are non-primary income earners so not necessarily in low-income households. -
The idea that GST is regressive is actually a bit of a canard. Yes, at a given point in time, the rich save a higher proportion of their income. But over their lifetime high earners still tend to spend what they earn, so they pay the same rate in the end (more actually, because they pay tax on the returns from saving as well). Those that die with massive savings have actually done the rest of us a huge favour by, in effect, working for free all those years.
Of course, as a flat tax GST is more regressive than the progressive income tax.
Removing GST from food would be slightly progressive: food is 19% of expenditure for decile 2 households versus 15.2% for decile 10.
However it is still a terrible idea. Leaving aside the well covered complexity aspects, there are still two big problems. Firstly, there's no reason to favour reducing the price of food over raising incomes (at the same fiscal cost). Secondly, a huge proportion of the fiscal cost still goes to people not in poverty.
The latter reason is basically why tax changes are not a good solution to addressing poverty issues - they're never targeted enough. The same criticism applies to a tax-free threshold, and to a certain extent to minimum wage increases (which have plenty of other problems to boot).
The fact that Labour has done little (but not nothing) to increase direct targeted benefits probably has less to do with the "entrenched new right establishment" lurking under their beds in Wellington and more to do with the fact that beneficiaries aren't swing voters and increasing benefits isn't a popular policy with the middle class. It certainly doesn't resonate in election-year the way "interest-free student loans" does.
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Gareth you are correct that the total cost is what's important, at least in terms of choosing between alternatives. But the spread is certainly important in judging how feasible implementing the package will be. As I noted in an earlier post, the individual tax take is projected to increase by $5.2bn over the next three years. A significant portion of a $3bn tax cut package over a three year period would simply address the fact that average tax rates climb over time if thresholds are not adjusted. To look at it the other way, over a three year period there is around $6bn of unallocated spending to allocate, which I suspect would be enough to fund the tax cut if other spending increases were held to inflation + demographic growth.