Politicians love to tell voters they’ll change the tax rules so ‘ordinary, hard-working families’ will get more in the hand every week to pay their bills. They also love to promise voters that, if in government, they would waste less money on undeserving recipients, or even worse, on bureaucrats. And for good measure they’ll ‘cut red tape’.
But promising tax cuts, less wasteful spending and less red tape are the easy bits. It’s much harder to say exactly how you’ll do it, what you’ll spend less on to offset the lower tax receipts, and which regulations you’ll cut.
National Leader Simon Bridges did the easy bits in his widely self-promoted speech on Monday titled “National’s Economic Plan for 2020,” to the usual suspects at a closed door event on the rooftop of the Rydges Hotel in central Auckland. He set out the “five key planks” of National’s election offer: tax relief; regulation reduction; infrastructure; small business and families. But he didn’t specify the detail of those policies.
He will have to answer the tougher questions before the election on September 19.
Here’s the six things to know from the speech:
1. Tax cuts dangled – The headline designed to stick in people’s heads from the few seconds of television coverage and the snippets in the median voters’ Facebook news feeds was the prospect of tax cuts, and not just the ‘block of cheese’ ones to offset the ‘fiscal creep’ of the usual wage inflation pushing people into higher tax brackets.
“We have already announced our plans to index tax brackets to the cost of living, repeal the Auckland fuel tax, and introduce no new taxes,” Bridges said.
“But we recognise we need to do more. We will announce our full tax plan that will see people on the average wage better off and keeping more of what they earn,” he said.
“People on the average wage shouldn’t be paying almost 33 per cent in the dollar.”
2. You said what?
This was where a bunch of fact checkers smelt something was a little off. Does someone earning the average wage actually pay almost 33 percent of their income to the Government? Stats NZ reports the average ordinary time hourly wage rate in the December quarter was $32.76 per hour, and the average full time worker worked for 38 hours a week. Given 52 weeks in the year, that’s an annual gross pay of $64,733.
A quick check of the IRD’s tax calculator shows this average earner would pay $12,439 in tax or a tax rate of 19.2 percent, if they had no children, not 33 percent. The top tax rate of 33 percent does not kick in until the earner hits a threshold of $70,000. Bridges told me forecast growth in wages would see that earner get to $70,000 within a few years, and then they would start paying at 33 cents in the dollar for earnings over $70,000. He said that marginal rate was what he was referring to.
3. Yes but…
The trouble is that most taxpayers don’t have simple situations like the single earner referred to above. Often they have children and receive Working For Families, and the ones referred to by Bridges may also receive an accommodation supplement.
The measure regularly referred to as the ‘tax wedge’ is that share of income actually going to the government after tax credits and other payments back from the government.
The OECD measured New Zealand’s tax wedge vs the rest of the OECD last year and found New Zealand had the lowest for a family with two children.
“New Zealand had the 36th lowest tax wedge in the OECD for an average married worker with two children at 1.9 percent in 2018, which compares with the OECD average of 26.6 percent. The country occupied the same position in 2017,” the OECD said in this paper.
This chart shows the picture for the average tax wedge in New Zealand vs the rest of the OECD (We have the red arrow at the extreme right):
A slightly different measure showing the average tax rate also shows New Zealand has a very lowly taxed population.
Here’s the OECD again with the chart below:
“Taking into account child related benefits and tax provisions, the employee net average tax rate for an average married worker with two children in New Zealand was reduced to 1.9 percent in 2018, which is the 33rd lowest in the OECD, and compares with 14.2 percent for the OECD average. This means that an average married worker with two children in New Zealand had a take-home pay, after tax and family benefits, of 98.1 percent of their gross wage compared to 85.8 percent for the OECD average,” it said.
4. Cut the red tape?
Bridges then talked about extra regulation and how he said it was suffocating the economy.
“New Zealanders are doing it tougher, facing more tax, cost and red tape, our economy is slowing, and as a result New Zealanders are worse off,” he said.
“Jacinda Ardern’s Government has failed to deliver on its promises, has piled on the tax, cost and red tape, made things more uncertain domestically at a time of global uncertainty, and as a result New Zealand has become a country of lost opportunities.”
“On regulation – you can’t pile more regulation, red tape and more tax and cost onto business like Jacinda Ardern’s Government has and expect New Zealand to succeed. We have already promised to cut red tape and regulation. We will light a regulations bonfire in our first six months of government, and cut two regulations for every new one we create.”
He didn’t say which ones he would cut, but indicated in previous comments he would roll back some of the tougher regulation for landlords, and has pledged to reform the Resource Management Act.
5. But does New Zealand actually have a lot of red tape that makes it hard to do business?
Not according to the World Bank, which ranked New Zealand as the best in the world for doing business in 2020 in its ‘Doing Business’ report.
“For starting a business, for example, Georgia and New Zealand have the lowest number of procedures required (1). New Zealand also holds the shortest time to start a business (0.5 days), whereas Rwanda and Slovenia have the lowest cost (0.0),” it wrote.
Its rankings are in this chart, which shows the easiest at the left hand side:
6. More infrastructure AND less tax?
Bridges then went on to talk about what he said was National’s superior record on delivering infrastructure and how it would do more than Labour, while also keeping public debt and taxes low.
“On infrastructure, we not only need to build the roads to get you and your family home on time, but invest in the social infrastructure our country needs in world class hospitals and schools,” Bridges said.
“We won’t be afraid to use the private sector to partner with government to deliver projects that matter to us all. That means we can deliver more roads, more rail, more transport and more social infrastructure faster and better,” he said.
“We will have new thinking on infrastructure and you will see a clear vision – and plan – from us of how we see New Zealand.”
Bridges said he wanted to use Public Private Partnerships, such as the one currently building Transmission Gully between Wellington and the Kapiti Coast. It announced on Friday that costs had blown out by $191 million to almost $1 billion. The Government was forced to pay because it was judged the cost blowout was outside the control of the consortium building the motorway.
The issue with PPPs is they cost much more than public borrowing, given the Government can currently borrow at a rate of 1.2 percent.