On Friday prices go up. Well, they go up all the time. But this time the government is raising them — with your best interests at heart. Maybe.
You will find that, all other things being equal, the price of something in this country will be 4.5 per cent more than in Australia, where GST is 10 per cent. Add this to the 30 per cent or more difference in the gross wage or salary you could get in Australia and ask yourself why you haven’t skipped westward.
Bill English could have avoided widening the trans-Tasman GST gap by levying a land tax, as some working group members urged, instead of lifting GST.
Next, look to your interest-bearing savings, especially if you are retired and depend on them. On Friday they will be worth 2.2 per cent less.
Nice fellow, English: tells you to save, then whacks you if you have done just that.
Actually, there is more to it. Income tax goes down on Friday, so savers will keep more of their interest to spend. And generally, English said last week, cranking up his propaganda machine, “New Zealand families will benefit immediately from tax cuts and they will benefit more over time from the lift in growth and jobs this package will create.”
English produced Treasury figures to show someone on average earnings will be $15 a week better off. But actually well over half of earners are below the average. English himself made that point at Budget time: 72 per cent of all earners would pay a top marginal rate of 17.5%, which goes up to $48,000.
The median wage, which is the halfway point — equal numbers of work-earners above and below — was about $38,000* in June, adjusting the 2009 June figure by the 12-month wage movement; average work-earnings were $50,245 (with overtime) in the June quarter. These two figures are calculated by different means but no one disputes that the median is lower than the average.
At $38,000, assuming a $100-a-week mortgage, the income tax/GST change is $10.20, according to the calculator on the Beehive website. With Working for Families and two children, it is $10.23. At $50,245 the changes are $14.43 and $15.28 respectively.*
At $100,000 with a $200-a-week mortgage, the change is $43.30. (Working for Families doesn’t apply.) That is around three times the cash-in-hand the median earner gets.
There are two ways to look at this. Revenue Minister Peter Dunne says two-thirds of the cost of the tax packages goes on the bottom two tax rate changes. That sounds fair and equitable to those on lower incomes — and, to be fair and equitable to the government, it went to considerable lengths to extend tax cuts to lower-income people to more than offset the GST rise.
The Labour party takes a different tack. It says a higher-income person gets more actual tax-cut money, net of the GST rise, than a lower-income person. That, says Labour, is unfair and inequitable to the less-well-off.
Labour should know: its 2005 election-bribe of waiving interest on student loans disproportionately favoured the better off because their children disproportionately go to tertiary education institutions, especially universities. Labour still backs this policy and National (so far) hasn’t dared change it: to do so would attack its own.
But isn’t Labour’s line just old-style socialist envy politics? Labour’s lower-income people are doing alright on tax, aren’t they?
First, set aside the other government-imposed increases, higher petrol and electricity prices driven by the emissions trading scheme and tobacco excise rises. That’s a separate story.
Then note English’s assertion that the tax switch will boost economic growth. The expectation is that some of the tax cuts will be saved and invested, especially by the better-off who don’t spend all they earn, which will over time create jobs and jobs are better than no jobs. Other elements of his tax reform aim to make investing in property less attractive, which also might nudge funds towards productive investment.
English is in effect arguing that the tax switch will make Labour’s people better off in absolute terms after a while. It is a dynamic argument.
But is that enough? Or is there an economic issue in the heightened inequality — even if it is just a small rise?
Much has been made of the rise in income and wealth inequality since the 1980s in our sorts of “Anglo” economies.
That may be an element in recent political volatility and might partially explain conservative parties’ failure in Britain and Australia to win majorities in otherwise propitious circumstances: the 1950s-60s upward socioeconomic mobility stalled in the 1980s. In turn it may be a factor in faltering economic growth, now the house-bubble-borrow-and-spend taps have been turned off.
Intriguingly, the Economist magazine, not noted for soggy leftism, several times directly linked inequality to growth rates in a recent survey of Latin America: the more unequal a country, the slower its economic growth.
Of course, Latin America is different. Isn’t it?
* These figures were actually for median household earned income in the original, not individual earned income.