Fact check on tax

Some people think the tax rate and the tax take are linked so if the rate increases or decreases the take follows.

That isn’t always the case.

A cut in tax rates can lead to less effort put into avoidance so productivity improves, a cut can also lead to more spending and both feed into a higher tax take.

Some people think more is better when it comes to taking tax and spending it.

That isn’t always the case either.

The quality of the spend is often, maybe always, more important than the quantity.

Some people are confused about the relationship between tax and services. For example, Associate Health Minister Julie Ann Genter says tax cuts would come at the expense of the fight against measles.

Is she right?

17 Responses to Fact check on tax

  1. Roj Blake says:

    “A cut in tax rates can lead to less effort put into avoidance so productivity improves …”

    Please explain. Productivity increases when more goods are produced with a lower input cost. How does reducing income tax affect productivity?

  2. Andrei says:

    Roj one way productivity increases is that when tax decreases disposible income increases

    Thus I have more money to either invest or use to buy goods and services that improve my quality and enjoyment of life

    For example we recently remodeled our bathroom which provided employment for a joiner and his apprentice for 10 days, an electrician and his boy for about half a day, and a plumber./ gas fitter and his apprentice for two days

    In addition there was work provided for the manufacturers of the bath, shower and califont (which was manufactured in NZ) and other sundries – the foresters who grew and harvested the trees that provided the wood for the joinery, the sawmills and their workers, the timber merchants…

    One of the ironies of lowering tax rates is that it can actually lead to increased revenue for the Government – though this seems to go over the head’s of the left,

  3. Roj Blake says:

    Roj one way productivity increases is that when tax decreases disposible income increases

    You do not seem to understand economic terminology.

    Disposable income comes AFTER productivity, not before, also, YOUR increased disposable income does not add to the productivity in the supply of goods and services.

    Your “example” does not show an increase in productivity. It may show an increase in economic activity, but you have not shown how your increase in disposable income improves the productivity of those whose labour you hire. Have they invested in training? Plant and equipment? Or did they do your job the same way they did the last 100?

    One of the ironies of lowering tax rates is that it can actually lead to increased revenue for the Government – though this seems to go over the head’s of the left,

    We understand your “argument”, we just refute it because the empirical evidence does not show what you claim it shows. Tax cuts for the lower paid usually translates to increased economic activity, but tax cuts for higher incomes usually just sees money removed from the economy. When Jeff Bezos is sitting on US$150 Billion, that is money no longer circulating in the economy. It reduces economic activity. When Charlie Hohepa gets an NZ$15 a week tax cut, all that money is returned to the economy, increasing economic activity.

    But, and I repeat, BUT, economic activity is not the same as productivity.

  4. Roj – most of NZ’s economy is agriculture and it’s downstream manufacturing and it can’t control the price it receives. Therefore lower tax rates leave more for investment in the business which leads to productivity. Also, good environmentally when talking specifically about farms. Literally, lower tax means more trees are planted.

  5. Andrei says:

    “you have not shown how your increase in disposable income improves the productivity of those whose labour you hire.”

    Its simple you dolt –

    If the Government in its wisdom thinks my money is better spent on teaching pre-pubescent girls how to fit condoms onto the end of sawn off broom handles rather than on a bathroom rejuvenation…

    … then bathrooms will not be rejuvenated because the money that would have gone into bathroom rejuvenation has been usurped by the Government in the form tax…

    …to pay the old crones who teach pre-pubescent girls the art of fitting condoms onto the end of sawn off broom handles…

    …and those who earn their daily bread rejuventing bathrooms have no bathrooms to rejuvenate…

    … because the money that would have gone on that has gone onto what the Government in its collective wisdom deems more important..

    …and the bathroom rejuvenators go out of business because the money that would have gone into their business has been frittered away by the Government…

  6. Roj Blake says:

    Jesusonawaka, Andrei. Didn’t take long for the name-calling, and you still have failed to make your case.

    I’ll try to help you out.

    productivity

    n.
    The quality of being productive.
    n.
    The rate at which goods or services are produced especially output per unit of labour.

    So, if the “old crones”, to use your term, establish a method whereby more condoms can be fitted to more sawn-off broomsticks in the same amount of time, then that is an improvement in productivity.

    Whether or not you rejuvenate your bathroom is economic activity, NOT an improvement in productivity.

    You have not so much brain as ear-wax.

  7. Andrei says:

    No Roj if the joiners don’t have work and manufacturers of califonts don’t have orders because the money that would have been spent on those productive activities has been diverted into essentially useless endevours such as fitting condoms to broom handles productivity has declined.

    Furthermore a $10,000 item actually costs $11,500 with GST included

    But to spend $11,500 requires earning $17,500 at the top tax rate of 33% – see how rapacious they actually are?

    But of course there is tax included in the original $10,000 as well – the business that manufactured the item has to pay business tax and the paye of the people who made it and so forth as well as fuel taxes and the utterly stupid ETS all of which has to be factored into the original before GST price.

  8. Roj Blake says:

    Away, you mouldy rogue, away!

    You STILL cannot work out the difference between economic activity and productivity.

    You are now sailed into the north of my opinion, where you will hang like an icicle on a Dutchman’s beard.

  9. Teletext says:

    Roj,

    Haven’t you been able to work out that when Andrei paid his tradesmen and for the bath, califont (haven’t heard of one of those since I was a kid and we had one) and all the other things, that part of the payment (13.0434%) is GST which goes back to the government via IRD. If people have more money to spend then more GST is paid and the GST component of the tax theft of the government increases, thereby off-setting an awful lot of the amount lost on the tax cuts.

    Economics 101

  10. Roj Blake says:

    Teletext, are you an Andrea sock puppet?

    I am challenging Ele’s assertion that A cut in tax rates can lead to less effort put into avoidance so productivity improves,

    No one, not you, not Andrea, not Ele, has been able to prove this contention. You all confuse economic activity with improve productivity. There two things are not the same.

    THAT is your Economics 101. Leave it to a Marxist to see the holes in your theory.

    Away, you three-inch fool!

  11. homepaddock says:

    Roj, Several accountants have told me that when taxes are lower businesses accept they are paying a fair share, stop trying to find ways to avoid paying more and invest both their mental energy and the extra money they have in building their businesses. Their efforts go into productive initiatives instead of tax minimisation.

  12. Roj Blake says:

    That’s all well and good, but you still haven’t shown how a decrease in tax leads to increased productivity.

    Do any of you understand the terminology here?

    How does a tax cut for a Barista lead to increased productivity? They can only make coffee as fast as the machine allows. Replacing a single, old school Espresso machine with 10 automated coffee makers WOULD increase productivity. But a tax cut for the barista won’t pay for that.

    How about a hairdresser? How can a hairdresser become more productive? Not by getting a tax cut, but by inventing a new way to remove hair. A bit like shearers’ productivity was increased by the introduction of wide comb shears.

    How about we give Graeme Hart a huge tax cut. How much will that increase productivity at Carter Holt Harvey? Not a jot or a tittle.

    You STILL can not see the difference between economic activity and productivity. No wonder Capitalism is eating itself alive.

  13. homepaddock says:

    My reference was to businesses paying less tax and investing more in their businesses rather than wasting their efforts on tax minimisation. But as the others have pointed out lower taxes for individuals can lead to a higher tax take.

  14. Roj Blake says:

    No Ele, your exact words were A cut in tax rates can lead to less effort put into avoidance so productivity improves,

    It was this that I challenged, and neither your or the other economic illiterates have been able to explain how this happens.

    But as the others have pointed out lower taxes for individuals can lead to a higher tax take.

    That is true when the tax cuts are given to lower-paid workers. They spend all their money just to get by, so yes, there will be an uptick in GST take. But, if we eliminated all tax on incomes up to 48K, the GST increase would not make up for the lost PAYE.

    However, tax cuts for the wealthy do not mean a greater tax take on GST; they already have more money than they could ever spend, so that extra money will sit idle, removed from the economy.

    There are numerous examples from the uStates where states have driven tax rates lower and lower, and the state’s infrastructures are crumbling as the magical increase in alterbative taxes nevear appears.

    We have suffered 40 years of this bullshit voodoo economics, “creative destruction”, and are now paying the price. Our nations are becoming poorer, or our children are growing up without hope, simply becoming slaves to the gig economy.

    Kiwi farmers pat themselves on the back about how “efficient” they have become, that they are brave warriors taking on the world. But just like grandad’s war stories, they only talk of the good bits, the ones who survived and prospered. Don’t talk about all the destruction and devastation suffered along the way, the ruined lives left behind.

    Now, back to the point – do you actually understand what productivity is? Because you have done a poor job of defending your assertion. So poor, in fact, one could almost call you a Nat.

  15. Andrei says:

    Let me give you a real world example of tax regimes having a perverse outcome on “productivity” Roj

    The British “horsepower tax” introduced about 1909 on motor vehicles

    The “horsepower” tax rating for a car was calculated as N*D^D/2,5 where N is the number of cylinders and D is the bore diameter. The formular wasn’t derived for tax purposes but for consumers to get a hndle on the power of a car they were considering buying.

    Back in the day it did serve as a good proxy for HP

    But British car makers started to build cars with narrower bores and longer strokes to minimize the tax burden on the owners – this also had the effect of making foreign cars more expensive because their engines were not designed to minimize the tax under the British regime.

    The problem is though narrow bore long stroke engines are not optimal engineering wise and after WW2 when the Brits tried to export modest mass produced cars to the USA they fell to bits on the freeway trying to maintain the speed limit – in some notorious cases they couldn’t even acheive the speed limit on American freeways

    And nor could you easily fit overhead valves to narrow bore engines, which are far more efficent

    On the other hand after WW2 the Japanese were building short stroke engines with overhead valves, which were more fuel efficent, more reliable and more powerful than the British stock motors of the day

    Result today there are no real British cars – the premium brands s like Jaguar are owned by Tata an Indian company and they are still shoddy

    That’s why you see lots of Toyota Corollas on the road and not any Triumph Heralds which are now long extinct,

    This is also why this focus on emissions for farmers is so pernicious, instead of concertrating on the core business of producing more produce of higher quality for less cost (productivity), time, money and energy is diverted into a fruitless exercise in Governmenal virtue signaling for quasi religious reasons.

  16. Roj Blake says:

    Andrea, putting productivity in scare quotes proves my point that you don’t have a clue.

    The rise of Japanese auto makers had less to do with bore and stroke and more to do with W. Edwards Deming, you may have heard of him. The Japanese adopted the ideas Americans ignored and were also very early adopters of robotics, a method that does increase productivity, the topic at hand.

    Whereas American dealers had massive options to sell, Japanese automakers kept the options minimal, ensuring more efficient and productive use of their plant.

  17. Andrei says:

    Roj I do have a clue – I heard William Deeming speak at an engineering conference way back in the eighties, 82 or 83 I think it was. I was in awe of the man, one of the twentieth century’s great thinkers – a genius of Einsteinian proportions

    This is a post about tax and its negative impacts on productivity and I can promise you that British car makers persisted with long stroke small bore engines long after it was apparent that this was sub optimal because of tax regimes and because of protectionism which made far better imported cars much more expensive,

    It wasn’t until 1947 the Horsepower tax was changed but developing new engines but developing new engines an retooling to manufacture them is not something that happens overnight,

    And if he was still with us William Deeming would tell you th same thing, he was all about finding the optimal solutions to build the best and most reliable products for the cheapest price

    And Governmernt meddling whether it be by taxation schems that favour certain solutions over others, tariffs which protect poor local products or subsidies that allow expensive but poor products to survive always comes back to bite eventually

    Right now we have this fad for “renewable energy” but all that is going to get us in the long term is more expensive electricity and quite possibly an unreliable grid into the bargain

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