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Revenue Minister David Parker says demands for tax cuts aren't as 'realistic or responsible' as they might've been pre-COVID

Revenue Minister David Parker says demands for tax cuts aren't as 'realistic or responsible' as they might've been pre-COVID

Revenue Minister David Parker has talked down the possibility of income tax cuts.

He has also said the Government’s commitment to not introducing new taxes in this term of government, beyond a new top income tax rate of 39%, is what stopped him lifting the trust tax rate to this level.

And he has remained non-committal around what he will do in two years’ time, when the Inland Revenue completes the task he’s set it, to gather better information on the distribution of wealth and income in New Zealand.

Parker provided these insights when he appeared before the Finance and Expenditure Committee earlier this week.

Infrastructure prioritised over tax cuts

ACT MP Damien Smith raised the issue of income tax when he asked Parker when “middle New Zealanders” might enjoy the benefit of the COVID-19 recovery.

Parker responded: “When you increase debt to shield people from the consequences of COVID and to stop the economy from going into a downward spiral, your room for tax cuts is more limited than would otherwise be…

“I would reflect on whether demands for tax cuts that are the same as they were pre-COVID, are as realistic or responsible as they might’ve been pre-COVID.”

National MP Michael Woodhouse quizzed Parker on whether he believed tax cuts were stimulatory.

Parker said yes, but he favoured targeting the stimulus more.

“Our assessment is that we’re in the middle of a housing crisis. We’ve got some other enormous infrastructure deficits and they have to be funded. We think that will have a better long-term productivity effect, as well as better outcomes for fairness in society,” Parker said.

“Trickle down is dead.”

Woodhouse then said, trickle down never existed.

Asked by interest.co.nz to explain how trickle down was dead, Parker referenced the welfare payment increases in the latest Budget.

He said New Zealand’s monetary policy settings (the Reserve Bank lowering interest rates, encouraging debt creation and asset price inflation) didn’t “necessarily” reflect trickle down economics.

“Accommodating monetary policy in the face of a recession is necessary,” Parker said.

He noted the Reserve Bank had other tools, like loan-to-value ratio restrictions that limit retail banks’ mortgage lending, to address the side-effects of very low interest rates.

Question mark over what Parker will do with new info on the wealthy

Green Party MP Chlöe Swarbrick mentioned the $5 million over two years allocated to Inland Revenue in the Budget to “collect information on the level of tax paid by high-wealth individuals and their related entities”.

She asked what would happen when the data inevitably shows the wealthiest New Zealanders aren’t paying their fair share of tax.

“Perhaps nothing,” Parker responded.  

“It just gives us an information base upon which to base future decisions.”

Inland Revenue estimates the average “high wealth individual” pays 12% tax on their taxable and non-taxable income, including capital gains. 

Asked by National MP Nicola Willis whether Parker was just gathering the data he needs to campaign on a wealth, inheritance or death tax at the next election, Parker said he wasn’t planning to introduce any of those taxes, nor was he seeking advice from Inland Revenue on those issues.

Parker said the Household Economic Survey, currently used, doesn’t provide good enough data on the distribution of income and wealth. He said the highest net wealth of anyone surveyed most recently was only $20 million.

He referenced Thomas Pikkety’s book, Capital in the 21st Century, which details how surveys are often too small to capture the wealthiest members of society. Their finances can also be structured in complex ways that aren’t picked up in surveys.

Parker stressed the Government would honour its commitment to not introducing new taxes beyond the new 39% rate for income over $180,000 a year, in this term of government.

“That’s actually why we didn’t move the trust rate, despite somewhat compelling arguments for it to be moved,” he said.

Parker open to hiking the tax rate on trusts

Inland Revenue advised the Government to align the 33% trustee rate with the 39% top income tax rate, which became operative in April.

National MP Andrew Bayly noted this difference, as well as the difference between the top income tax rate and company rate of 28%. He worried people would use trusts and companies to avoid paying income tax.  

Parker recognised the matter posed an “arbitrage opportunity”.

He wasn’t phased by the difference between the company and income tax rate, but reiterated the Government would respond if it saw trusts being misused.

He noted there had actually been a decline in the creation of trusts this year, but couldn’t say whether the large number of existing trusts were being used more extensively to avoid tax.

He said new trust information disclosure requirements would give the Government an insight into this.

Below is a video of the select committee meeting:

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37 Comments

“Trickle down is dead.” but the "wealth effect" is alive & well.

So I guess that means heightened sales of luxury cars doesn't necessarily translate into jobs, etc.

OK. My thesis is that govts tolerate and implicitly support property bubbles in particular because of the 'wealth effect'.

I don't trust this cat.

Unrealistic? Bold statement to make when the PAYE burden on the median earner has increased by ~85% in the 12 years (7% per year) since the current brackets were put in place, outgrowing the wage growth. (39k to 56k)

"Trickle down is dead"
Is it though? House price inflation and net migration have run higher under Ardern's watch than Key's.

Wealth effect or wealth illusion? The other therapeutic effect of lower-for-longer interest rates is the wealth effect. By driving up the value of future cash flows with lower rates of interest, all manner of assets – stock, bonds, and houses – increase in value and, thereby, can stimulate our marginal propensity to consume. More simply put, the imperative was to make rich people richer so as to encourage their consumption. It is not so hard to imagine negative side effects.

There are the obvious distributional effects between those who have assets and those who do not. Returning house prices in California to their 2005 levels may be good for those who own them, but what of those who don’t?

There are also harder-to-observe distributional consequences that flow from the impact of lower-for-longer interest rates on the value of our liabilities. This is most easily observed in pension funds.

Consider two pension funds, one with a positive funding ratio and one with a negative funding ratio. When we create a wealth effect on the asset side of their balance sheets we also drive up the value of their liabilities. Lower long-term interest rates increase the value of all future cash flows – both positive and negative. Other things being equal, each pension fund will end up approximately where they started, only more so.

The same is true for households but is much more ominous, given the inequality of wealth with which we began the experiment. Consider two households: one with savings and one without savings. Consider also not just their legally-defined liabilities, like mortgages and auto-loans, but also their future consumption expenditures, their liability to feed and clothe themselves in the future.

When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures.

But just because we don’t trade our future consumption expenditures on the stock exchange does not mean that the conventions of finance do not apply. The family with savings likely ends up where they started, once we consider the necessity of revaluing their liabilities. They may more readily perceive a wealth effect but, ultimately, there is only a wealth illusion.

But what happened to the family without savings? There were no assets to go up in the value, so there is no wealth effect – real or perceived. But the value of their future consumption expenditures did go up in value. The present value of their current and expected standard of living went up but without a corresponding and offsetting increase in assets, because they don’t have any. There was no wealth effect, not even a wealth illusion, just a cruel hoax.
https://www.grantspub.com/files/presentations/FISHERGRANTSREMARKS15MAR17...

'Unrealistic' to think that living costs haven't changed since 2012 and your $1 as it was taxed then buys as much as it does now.

I'd love to be able to pay suppliers what the cost of today's inputs were 12 years ago too, but that's not how it works in the world beyond the wall. It's almost like stuff changes over time.

The simple fact is the tax take in 2012 was too low to fund the government to the level of services that NZers expect. That's why we ran deficits through most of National's term. The only way they made their tax cuts "affordable" was by inventing a "growth multiplier" that showed the economy would grow more as a direct result of the tax cuts. But they never did any subsequent research to prove it was true - because it was always a cynical mathematical exercise to justify a tax cut bribe, not a genuine outcome of tax cuts.

You should look at NZ GDP over the last 20 years. See if you can tell when Labour was strangling the life out of the economy.

Average GDP growth under Helen Clark: 3.61%
Average wage and salary growth under Helen Clark: 60.9% increase from 652 in 2000 to 1,049 in 2008
Crown debt under Helen Clark: Decreased from 22.6% in 2000 to 5.4% in 2008
Average GDP growth under John Key: 2.24%
Average wage and salary growth under John Key: 34.1% increase from 1,601 in 2009 to 1,423 in 2017
Crown debt under John Key: Increased from 9% in 2009 to 21.7% in 2017

Perhaps not the stats you were expecting. And those aren't even per capita stats, which would look even worse for John Key given the record immigration he presided over.

https://www.stats.govt.nz/indicators/gross-domestic-product-gdp
http://nzdotstat.stats.govt.nz/wbos/Index.aspx?DataSetCode=TABLECODE7480
https://figure.nz/chart/FfzTlACePvCPAS1I

And before anyone chimes in about the cost of the CHCH Earthquake, the PDF contained in the link below claims insurers picked up the tab for $26 billion out of the total $40 billion estimated rebuild cost according to the Reserve Bank 5 years on. So where did all this borrowing end up?

The Reserve Bank currently estimates the total construction cost of the rebuild to be about $40 billion (in 2015 dollars), comprised of
slightly more than $16 billion each for residential and commercial construction and around $7 billion for infrastructure.

Five years after the damaging February 2011 earthquake, insurance claims have yet to be fully settled. As at 30 September 2015, insurers had paid out $26 billion, with the median insurer having paid out around 80 percent of estimated final payout (figure 4).

https://www.rbnz.govt.nz/research-and-publications/reserve-bank-bulletin...

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For people who haven’t read this and as a person/family who voted for this government, I’m just really ashamed of all the spin spin spin.

https://www.rnz.co.nz/news/political/444459/bryce-edwards-jacinda-ardern...

There is no honesty and there is no transparency full stop. This government is more about glamourising themselves to everyone outside of NZ and stuffing everyone within NZ except for a select few of their friends.

Housing crisis
Water crisis
Mental health crisis
Underpaid essential workers
Average pay not catching up to inflation.

This is just scratching the surface. Baked beans or speghetti people? That’s more important right?

This very interesting well worth a read a great insight into this Govt

State service heads face much the same challenge as journalists – getting through to Ardern’s Ministers is a struggle
https://pointofordernz.wordpress.com/2021/06/10/state-service-heads-face...

It honestly doesn’t surprise me. They rather spend our hard earned tax payer dollars on spin than improving NZ or life in NZ. I’m however surprised to see that Robertson is listed as an exception. How can I get a job as an advisor to Robertson. I have a truck load of ideas for him.

Couldn't agree more and very well said

10
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Tried registering with a local GP in the Wairarapa. Not taking on any new clients at the moment, there's a waiting list, for all the GPs. Try going to a GP outside of my area, "Yes we have space but unfortunately we can only take on people who live in the area".

No wonder there's a Mental Health crisis, if people cannot be seen by a GP. Particularly if for example they are in the early stages of depression.

Early last year, ACC reported thousands of victims of violence and abuse across the country are on several month-long waitlists due to a shortage of mental health professionals across the country.

I suspect this service to have worsened with limited resources being spread in different directions during and post-COVID.

I heard the same with special needs kids and dental treatment. Because they won't sit in a nurses chair often they require general anesthetic so get referred to hospital. By the time they get through the wait often things like a filling have become an extraction.

This is really a sad state of affairs when you cannot even get to see a doctor. If you haven’t already it’s worth reading the post from Mike King and all the quotes published. It’s is heartbreaking to read. Labour is nothing but National in disguise coloured in red. Nothing to improve NZ. Instead cozying up to Xi and only looking after unions and their friends.

You seem to be expecting Labour to be spending more on government services without increasing taxes. Interesting.

That is kinda what Labour promised though. They would fix "Nine years of Neglect" with "no new taxes"

I am just very curious to know where in my comments I mentioned anything about taxes? You seem to be making assumptions without any basis.

Spending more does not equal better outcomes. Labour traditionally measure success as how much tax-payer money you can mis-spend.

This is the last thing we need right now.

This lot are probably the worst example. All they care about is being able to crow "We spend more now on health and education than National did", all while scrapping measurements that show fewer surgeries and kids going backwards.

If KPI's are falling, but those running the departments (health/education) don't change between governments and they are given more funding, yet produce worse outcomes with more funding, surely we should be pointing the fingers at the likes of the DHB's (and ministry of health/education) and not the government/ministers? The minister of health doesn't do the surgeries, nor does the minister of education teach maths to 12 year olds. There's only so much elected officials can do before you realise that those involved in the departments might be the problem, not those giving them $$.

Why would they bother doing overtime now the govt the people voted in decided to increase the top tax rate to 39%. Say they get about $70 / hr that's only another $48 / hour. Trades charge more! A complete disincentive to bother working harder or become specialized in something. So not only are doctors getting a larger tax bill this year (Pay cut) they are also being told that there salaries will be frozen for the next 3 years , even though inflation will continue to erode the purchasing power of the money they earn thus giving them another pay cut. Only incentive now is to become a business owner employing minions - don't pay yourself over 180k and keep as much profit in the company at 28%

You can’t find a doctor to see because, much like the tradies, they have moved to Australia. https://www.asms.org.nz/news/asms-news/2019/11/29/yawning-trans-tasman-s...

GPs aren't funded by the government so the pay freeze does not apply to them.

Bryce Edwards is a hack.

Here's a rebuttal to Vance's article that looks at some of the reasons for the things Vance criticised in her column, it really looks like she has an axe to grind and couldn't be bothered to do any research for her "opinion" article https://thestandard.org.nz/openness-and-transparency/

Well I can see their point - when Covid resurges because of their piss-poor vaccination progress (https://ourworldindata.org/covid-vaccinations), they might have a much smaller population to provide services to, so they won't need to reduce taxes. I understand all our vitally important MPs have received their vaccinations, so there'll be plenty of chiefs to go around for the indians that are left alive too - win-win.

Not sure how you expect the government to inject people with vaccines they don't have. Our schedule at present shows we're going to get down to only a couple of weeks supply in late June before deliveries ramp up in July. And we're also ahead of schedule.

More hypocritical cant from the Govt of spin. "No new taxes" of course excludes all the additional "levy's", brightline extensions, non deductible interest on rentals & significant income tax brackets creep.

Lies of omission are still lies.

National claimed no new taxes and added or increased 18 levies and taxes during their term in office.

simply "Whataboutism", distraction. I've also been equally critical of National in the past.

Just reminding those that are critical of Labour on this record that National are no better, and perhaps worse.

Many of the tax increases, levies etc are really open to interpretation when it comes to by definition being a "new tax" and whether it falls within the scope of what a political party campaigns on.

But nothing is more blatant than John Key being on record promising not to increase GST if elected, and then going ahead with it.

I have a trust. The reason for setting it up was to protect my children and grand children from the possibility of any if my children divorcing and the other half of the relationship availing themselves of a large portion of my estate possibly forcing my children onto welfare.

So I'm trying to provide for them and the government wants to penalize me for it.

I have no income earning assets in it at present.

Disincentivising achievements, incentivising non achievements.

Great way to go to increase productivity.

ACT MP Damien Smith raised the issue of income tax when he asked Parker when “middle New Zealanders” might enjoy the benefit of the COVID-19 recovery.

Wow, what a dim bulb. We've been enjoying COVID recovery in NZ for the last 12 months.

Maybe he's had his head in the sand, or just chose to stay at home in lockdown while everyone else got on with life.

Tax cuts are about as realistic as New Zealand trains being able to go over 50kms. When you are borrowing $110,000,000.00 per day propping up a bloated incompetent government that needs 8000 public relations spin doctors to sell their ineptitude. There lies the answer.
Where is the opposition to this madness?