Opinion: Bernard Hickey argues last year's tax package is failing to transform NZ. So far it has enriched the rich, blown out the budget deficit and slowed growth. Your view?

"Back in May last year when the government announced the biggest tax reforms since the mid 1980s there was plenty of hope in the air.

The theory looked good."

Rubbish!. It made no more economic sense last year than it does now.

"What was it all for?". Essentially so John Key could look good and his party would likely be re-elected.

In reality the tax package reflected his poor understanding of economics and an unwillingness to make tough decisions i.e. a lack of leadership.

John Key  is the Obama of New Zealand. 

Gee, no one would ever accuse you of rushing in where fools fear to tread, Bernard, would they? These tax cuts have been in place now for what, all of 6 months and you are already declaring them a failure? That’s very brave of you I must say. I wonder if we came back in 3-4 years time what we might find then? It wouldn’t surprise me at all to find your prediction ranking right up there with some of your other predictions, such as NZ house prices would fall by 30%.

And by the way, where is your proof that high income earners are using their tax cuts to leverage themselves into more expensive properties?  Just because a few more houses in the $800,000+ bracket are selling in Auckland and more loans have been written by the banks doesn't mean it’s the tax cuts of high income earners alone that is responsible. If you want to accuse somebody of wrongdoing, then you need to show the paper trail.

Or is that just your supposition?

The prudent savers out there must take note that the govt is using the Reserve Bank to debase the Kiwi$..stealing from savers to reward and bailout the indebted splurgers....the rate of theft is over 3% pa average...expect over 5% this current year....you are being screwed.

So what can you do?

First off pay down debts. Then get your money into silver or gold or aussie dollars or mining companies using the ASB online trading facility or quality NZ companies that will not be bashed about in a downturn and can raise their prices because the public must buy their stuff...usually this is means the utilities. Do not put your cash in long term bank deposits or bonds.

You should also expect a govt to pull the immigration lever to pork the property and building sector...count on that happening soon...under JK or whomever replaces the Goofy cunliffe klinger king farce. So if you can get good property now at 20% below 08 valuations..without becoming a debt prisoner of a bank...buying would be an ok thing to do.

Just don't expect policy from Key or Bollard that will support you if you are into saving and if you are debt free...they are focussed on protecting bank profits and debasing the debts.

It's working for me. I just got a slight pay raise and the new tax threshold means I keep more of it. We've reduced our spending as much as possible so aren't hit too hard by the increased gst. Since my hubby and I get zero money from the gov. for anything the tax cut was extremely welcome and one of the few gov. initiatives we benefit from. Also, my bank account is beginning to grow for a change. We are (as a family) better off for the changes.

Now if they'd just get rid of WFF and get students to pay back what they owe and implement some of Bernard's suggestions maybe we could finally have decent social programs for those who genuinely need them without breaking the bank.

Edit for spelling

"Firstly, it encouraged those on middle incomes to strive for higher incomes in the knowledge they would keep more of it."

Does it?

It made no difference to me........all it did allow was for me to knock my mortgage a bit more....

While Im sure there are some ppl who only work for, and think of, money, I for one want a work / life balance....I dont want to work 50 or 60 hour weeks for more money and as an aside even more due to a bit less tax....that is not why I am inNZ...

If money was it I wouldnt be in NZ.

regards

A comment about unemployment -There is little unemployment of skilled labour, even in US where it is at 2.5% for skilled labour.  But unfortunately the unskilled are a long-term structural unemployment isssue now.  In the likes of Portugal, where there is only 30% who have a High Schol graduation, there is large-scale unskilled structural unemployment and of course the economic situation reflects this.

A comment about immigration - if there is a flood of unskilled people from northern Africa, from the likes of Tunisia, Libya etc, expect  more Europeans to look to migrate to the likes of Canada, NZ, Australia.  Despite the negative nelly type comment we get from people on this site sounding off about NZ, we are a pretty attractive proposition, just as we have been to South Africans wanting to get out of there in recent years.

Just about everyone here is missing the point, and Bernard is expecting too much,  too quickly .

What we are actually experincing is a structural adjustment , and these things take time .

Firstly , many people are using the savings from lower taxes and lower interest rates to pay down debt, before investing . And they are correct to do this .

Secondly , ten years of Labour exploitation of the so called "wealthy'" had left us much, much poorer. It got so bad , they ran out of wealthy people tp tax , so they attacked the middle class.

Those with some capital and savings, have been using this window of lower taxes to save and re-build their wealth . 

Since National came to power , New Zealand has bumbled for one crisis to the next , the GFC , Collapse of Finance Companies, a mining accidents , two earthquakes, the collpase of our biggest insurer.

And remember its better and fairer  to tax someone's spending than tax their ability to earn, tax their ability to create wealth , or willlingness to work.

You cannot help the wage earner by destroying the wage payer 

You cannot help the poor by impoverishing the wealthy who pay most of the taxes

In the last few days Bernard has written an article suggesting the government print dollars to inflate away our debt, as he thinks the USA is doing.

Now he complains the "rich" are using the tax cuts to splurge on property.

Well, a clever "rich person, who pays attention to Bernard (now, that might be a oxymoron you may think) would be entirely rational to splurge on property if he thought Bernard had any influence on economic policy. 

Property would be a great hedge against Bernard's inflation.

You seem confused in your views Bernard.

Back to topic.

Bernard ponders why the tax changes haven't spiced up the economy.

In short, the Government fired all the bullets straight at their feet.  What they should have done is saved them for a harmless discharge during a property led spending boom. 

Why increase consumption taxes during a period where individuals reducing debt and saving was proving a drag on the domestic economy?  Perhaps in order to stifle the economy?

Why make inconsequencial changes (in terms of tax revenue) to property investment taxation during a period of near record low investment in housing and new construction?  Perhaps to create negative sentiment and stagnate the market, constrain new building, and make everyone depressed?

Why make changes to GST that severely impact on property developers (and their receivers!) in the midst of a downturn, devaluing their unsold inventory by 2.2%?  Perhaps simply because not all changes are thought through?

So what are they doing now that the economy is in the doldrums and Christchurch is in disarray?  They are sitting idly by, without any leadership, any decent ideas, and a one-eyed authoritarian view that by locking people out, then pulling down their buildings that they are creating a recovery.  Businesses are folding daily.  Very large numbers of shops in undamaged locations are closing, simply because uncertainty is stopping all but essential spending.  Uncertainty also is causing a mini exodus.  The PLT departures/arrivals figures for the next few months will be telling - their release is already delayed (I can't see why when StatsNZ ChCh is up and running and those numbers shouldn't be hard to collate). 

Easily before the next election unemployment will top 8%, growth will be subzero (not good) and confidence down in the mud.

Question: Does having a company tax rate mean that the tax burden is ultimately borne by the company?

Not sure if people saw this the other day, but I thought it was quite good.

http://www.ritholtz.com/blog/2011/04/must-read-apropos-of-everything/

Overall a good analysis. Only piece missing is the ill-conceived cut in the OCR that is fuelling the AKL realty bubble instead of helping Canterbury reconstruction.

However, all of this is by design not by mistake or due to incompetence. John Key is part of the monied "elite" and ensuring that he and his ilk continue to have a jolly good time. Simple as that.

Bernard - my concern with an article like this is that many of the uninformed will use it an amunition to hike the top personal tax rates again.

Do you honestly believe that high marginal tax rates on those paying PAYE will solve NZ's problems?

Don;t throw out the baby with the bath water.

A lower, flater, broader tax base is much better. In fact, the top income tax rate should have been reduced to at least 30%, preferrable 28%.

The mistake that National made was to increase GST instead of introducing a low, flat, all inclusive land tax. The beneit of a land tax is that it is inelastic income (i.e. it is pretty much guantanteed income, difficult to avoid). It is also progressive in that those who are wealthier, own more land and hence pay more tax. There are a large section of society, who pay no taxes but benefit from core Government services. A land tax, like rates, ensures everyone pays a portion towards the Government services they enjoy.

One other benefote is that the Goverenment would not have had to increase benefits to compensate for GST increases.

So in conclusion - be careful Bernard. The media and people listen to you and unless your propose valid alternatives, you will be taken out of context and used as a supporter of hiking the personal tax rates. Unless of course, you believe that this is the best solution.

Land tax, capital gain tax, higher PAYE tax, more tax… - it makes me cringe when I see “normal” ordinary people suggesting that even more tax is slapped onto them. The less tax you pay the better! The less tax you pay the less of your money if going to be wasted and the more money will be left for you (not the Gov’t, not an “independent” task force or “expert commission”) to decide what to do with it!

My vote is for a lower flat tax rate and cutting the Gov’t size and its services / expenses down to the what’s only absolutely necessary and leave people to spend / allocate their money the way they want to.

Bernard is right - Brian Gaynor's article on the weekend was good. The table he used clearly illustrated:

Govt spending up + Govt revenue down = huge fiscal deficit...and throw on top of that - 2 x earthquakes, leaky homes, AMI, SCF, middle class welfare etc. etc..

JK and Wild Bill are backed into a corner better come up with some good ideas fast.

Sell the Chathams to Beijing...or May Wang....flog off Scott Base and the NZ claim on the Antarctic. Rent out the Beehive and the RBNZ and Treasury buildings.   

30% of GDP in revenues and the Govt still doesn't have enough money.  I want to know 'who's arse to kick'

http://www.youtube.com/watch?v=CBKeB5tyigk&feature=related 

Wolly - re. selling the Chathams, did anyone see the report on how much the Chinese are "lending" to prolific pacific islands? And the islands naively think that the Chinese will forgive the debts - no strings attached!!!

And NZ is borrowing from Asian sovereign wealth funds to build plastic boats. 

Actually I like your idea Wolly - a lot of upsides.

Alternatively, as I have noted before, we would lease the South Island to Singapore for a 50 year lease. 

I was originally opposed to the Govt plan to reduce the top tax rate and, increase GST.

Re. the tax cuts... I get the impression that the Govt did have a plan. i.e. to equalise the tax rates between NZ and Australia, but to do so would mean a loss of revenue -  So to help pay for that, GST would need to be raised.

Prior to the Canterbury earthquakes, and post tax cuts, the Minister of Finance stated several times that the 'books' will be in the black by 2014 - 2015.  However, I could not understand how the Govt could bridge the $ 250 - 300 million budget deficit per week, post tax cuts, and  so called 'balance the books' by 2014. As the Gov't apparently pays some $70 million per year in welfare payments, and has been vocal in detecting/eliminating fraud and reducing welfare where possible, I concede that if one person in 6 could be eliminated or weaned from welfare, that may appear to solve the deficit. If such a theory were originally possible, the additional costs associated with Canterbury earthquakes would extend the 2014 date considerably - something that could not have been forseenr.  After all, the PM admitted on tv, after the quake/s  that had they forseen anything so disasterous, the tax cuts may not have happened.  The Question is:  where to now from here.... ?????? 

To save govt monies, tThe Govt should curtail some of the departmental Plant & Works programmes for the forthcoming year.  Where items are imported and have no NZ content, there would be nill detriment to the NZ economy postponing many items for at least a year. Many departments will 'defend to the hilt' the neccessity to replace their ''wish list' annually.  I previously worked for for Gov't Department/Ministries and vividly recall the Govt curtailing an annual works programme during the late 1980's when Bill Birch was a Minister. The Engineering Officer involved in the Plant replacement programme, bitterly complained that without the finance, he would have no work.  He then complained to the chief Accountant who subsequently sent a subordinate to interview him. During an hour of questioning, he managed to convince him that the place would virtually come to a standstill if the funds were withdrawn.  I recall immediately, after the accountant left, saying to the works Officer, Look......... you and I know that they could do without half of that stuff...... The reply:  You and I both know that, but they don't.

The moral.... Many Gov't departments are self serving and are not be realistic in their expenditure.

How about everyone getting some education about how their personal financial situation is impacting the country in general and do everything they can to improve their own circumstances?

We can only take the lead from the government for so long before we have to read how this applies to us and make steps and changes in our own lot for the better before we start blaming others.

A lot of blaming happens here on this site but very little reflection.

Mind you what do you expect when we are constantly drip fed 60-80% of the real story from the overly centrist moderator that runs this site.

"We have a higher budget deficit, higher debt, weaker growth, a weaker current account deficit and higher unemployment. But a certain section of New Zealand is now much richer in both income and wealth through a tax cut and higher property prices."

Given those facts, NZ cannot afford to have a "revenue-neutral" emissions trading scheme which puts no effective carbon price in the market.

The NZETS should either be reformed to bring in agriculture ASAP and to return the carbon price to the Crown's cofferes. This can be done by selling by auction ALL the emissions units to emitters instead of giving them ALL away to free to Comalco and other corporates.

Or alternatively scrap the NZETS and enact an all-sectors-no-exceptions carbon tax.

There was much talk about NZ Matching Australia in Incomes and Brash was given the job of investigating a strategy to catch up. But what was the Rationale of Increasing the GST to 15% from 12.5%, when Australia has a GST of 10%.  Yes --I know it would increase the Governments revenue---- But you don't have to be a Rocket Economic Expert to figure that it would raise the Price of Food and all Consumer Goods in NZ  --and therefore increase the attractiveness of Kiwi's to jump across the ditch to Oz where living costs may be cheaper.

If the National Government was serious about matching Australia --then National (if they were serious) would/should have reduced the GST.

Australia --though has future problems --and some experts think that Australia's future prosperity is  not looking that good. In NSW there have been some huge increases in the electricity prices --which is similar to what we have already been through, and it may continue.

If you shift to Australia -- the living cost will depend where you go --and you may not be able to get a job.  Jobs in Queensland are very tight ---- On the Gold Coast  the AVERAGE price for a section is A$300,000 ---- even their own young people are having great difficulty buying a section and building a house there. You will find most young people renting.

NZ'rs elected National on a wave that they were sick of the Nanny State perception and media hype of Labour/Greens. What we have now got is a bunch of dunder-heads that have no vision on how to create business or increase jobs.

So Bernard expects a small tweak to the tax code to bring about a dramatic change in fortunes of the country within one financial year?

This after decades of neglect and under performance.

It's a pity Key has taken over the reins during a recession because the time to act was ten years ago when the economy had the room to adjust and benefit from the global economic conditions prevailing at the time. As it is we're stuck in this long recession along with most other countries in the world and must just grind it out.