Getting real on Goff's Bullsh*t

Phil Goff and Labour are liars. They lied to the nation on Tuesday when they said that Kiwi’s can have the first $5000 tax free. I say lie because when you look at some credible analysis like that from the NZIER it is clear that Labour and Phil Goff have had a rush of shit to the brains.

Labour’s proposed tax-free threshold for the first $5,000 of wages and removing GST from fresh fruit and vegetables will cost around $1.7 billion in the first year. This is to be funded by raising the top tax rate for high income earners. From an economic perspective, these proposals would be a big step backward.

One of the big concerns is what raising the top tax rate would do to New Zealand’s attractiveness as a place to live and work. For example, a new tax rate at $100,000 pa would have to be 53% – affecting around 131,000 people – to fund the $1.7 billion. Table 3 shows other combinations of tax rates at different income thresholds. A high marginal tax rate would just encourage efforts to avoid tax. Introducing exceptions to the broad GST structure would be inefficient as well.

Labour’s policy of soak the rich is destroyed with just one graph from IRD the department that is going to have to go after teh rich to pay for Phil’s folly.

Source: IRD

The problem NZ has is that there simply are not enough rich people to soak, and also that those same people are highly mobile and committed to not being tucked by rapacious politicians intent on spending other peoples money.

The NZIER notes that the numbers simply don’t line uop beside the rhetoric of Labour and their lickspittle cheerleaders.

Introducing a tax-free threshold by increasing the top tax rate would be harmful for the tax system. Labour’s proposed tax package would make the New Zealand tax system less competitive against Australia, which already enjoys higher wages. A highly skilled New Zealander earning $150,000 would become $150 a week worse off in New Zealand than earning the same income in Australia (from $17 a week better off in New Zealand currently). The removal of GST from fresh fruit and vegetables would cost nearly $250 million and only benefit the poorest 10% of households by a paltry $1.50 per week.

Labour’s balloons are getting popped all over the place. Of course skewing the tax system in this way might sound good to moronic new repeaters who just regurgitate the lines and the lies, but to any one with a modicum of intelligence can see that the arguments don’t stack up.

Paying for Labour’s folly is another yet again. When Phil Goff lies and accuses the National government of spending $200 billion per annum to fund tax cuts he forgets that National made some hard decisions (which Labour opposed) to make ttax cuts fiscally neutral – the borrowing is because of the previous Government’s unfunded and unsustainable hand-outs, which Labour now wants to extend, making them even more unsustainable and unfunded. In the breath as his lies he then commits to spending even more, which can mean only one thing, massive tax hikes. The NZIER knows this, Phil Goff doesn’t.

New policies need to be funded. Given Government borrowing is already beyond comfort levels, we have made estimates assuming the policies are fiscally neutral. We estimate that:

  • the $5,000 tax-free threshold will cost $1.5 billion2
  • a top tax rate of 53% starting at $100,000 is required to pay for the tax-free threshold and removal of GST from fresh food
  • the required top tax rate rises rapidly as the threshold is increased.

Note the following numbers do not take into account other potential adverse impacts of increasing the top tax rate, for example:

  • the exodus of more skilled labour to Australia will likely increase
  • there will be increased use of trusts/companies/PIEs to avoid personal income tax
  • incentives for high income earners will be to work less due to lower marginal rewards.

A 53% tax rate is something that only Muldoon contemplated. Trevor Mallard signalled a return to Muldoonism in his Summer Series interview with me but I don’t think he contemplated the return would look like this.

At some point good journalists need to stop repeating Phil Goff’s lies and start asking how he is going to pay for his rash promises. Soaking the rich and plugging loopholes National has already plugged isn’t going to work. Labour needs to start coming clean on how they are to pay for all their rash promises.

So far all Labour has come up with as a plan is how to spend even more money, while on the other side John Key has signalled that increasing borrowing must come to an end, that we need to be investing in our own country through our Kiwisaver accounts and other investments and reduce the increases in government spending. Labours solution rests upon Keynesian dogma. Unfortunately the piper must be paid. The piper cannot be paid by borrowing more.

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