Tax rate & tax take

Critics of tax cuts always say they’ll be matched by spending cuts on the assumption that the tax take mirrors tax rates.

Obviously they’re related, and one affects the other, but they don’t necessarily move dollar for dollar nor in the same direction.

Ruth Richardson showed charts at a public meeting in Oamaru before the 1993 election which clearly demonstrated that while tax rates had fallen the tax take had risen. Among the reasons for that was a decrease in tax avoidance and an increase in productivity.

When Labour put up the top rate with its envy tax in 1999, among the immediate beneficiaries were lawyers and accountants as people hit by the new 39c rate on earnings over $60,000 sought to minimise their liability so the rate rise wasn’t met by a corresponding take rise.

National will announce its tax package on Wednesday and it’s sure to be met with accusations that every dollar gained by tax payers will be one lost from social services.

That won’t be the case because National has already made it clear its priority will be front line service delivery and that any savings will come from sorting out the bloated backrooms.

Unfortuantely there will be no miracles regardless of which party wins the election. But if it’s National, better economic management than the profligate spending of the past nine years should boost productivity and growth. That means more businesses and individuals making more which ought to generate a greater tax take from lower rates.

One Response to Tax rate & tax take

  1. Well said Homepaddock.
    Cullen’s increase in the top rate of tax simply fuelled investment in property for the various tax benefits.
    That had the impact of pushing up house prices.
    For those still to get onto the ladder like me, it made housing unaffordable.
    For existing homeowners it gave them the chance to borrow and spend more, which they did, fuelling a consumer boom.
    As interest rates rose, we saw many householders struggle with huge mortgages and those with consumer releated debt also suffered.
    Thus, over the past year or so, the extra high interest and mortages rates have put many householders under pressure. This has worsened with recent high food and fuel prices.
    There has been no cushion for the impoverished New Zealander.
    Our low productivity growth kept wages low and it did not help to have a government taking so much of their money.
    Thus we suffered more than other countries as people have no surplus to spend. Thus businesses cannot spend and neither can consumers so tax revenues suffer.
    Thus, by his tax policies over the years, can Cullen take the blame for the hardship New Zealand is in.

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