Jim Flynn’s alternative budget and Progressive Tax Rated
By | Aug 28, 2008
Alliance Alternative Budget 2008
Given a just and equitable revenue system, New Zealand would have all of the funds it needs to turn our society around and give everyone access to a decent life. Alliance policy would raise an extra $6.12 billion of which $1.545 billion will come from income tax, $2.375 billion from other taxes (including the new Capital Gains Tax), and $2.200 billion from not making Superfund payments. Our income tax schedule is presented in Section IX. As for additional taxes:
Capital gains tax 1,000 million
Death duties 385 million
Land tax 495 million
Carbon tax 275 million
Gaming duty 220 million
GST (on food) [-1,950 million]
Financial Transaction Tax [+1,950 million]
NETT $2,375 million
Note that the Financial Transaction tax is not counted as extra revenue because it is entirely dedicated to removing GST from food.
I. Health & child poverty
At present, our gross domestic product is $185.33 billion of which 6.8% ($12.6 billion) is to be spent on health. The Alliance pledges to increase that to 7.55% immediately to rise to 8% by the third year and urges that this 8% of GDP be adopted by all parties - as a set health vote for the foreseeable future - to take the funding of health out of politics. This would add $1.4 billion dollars to the projected health vote for a total of $14 billion, an increase of just over 11%. We invite all parties to unite on this as a Towards first world health plan in order to end the disgrace of third world diseases in our country and to allow for new technology and our aging population.
As for ending child poverty, we make no apology for listing this as an expenditure relevant to health. However, it is additional to the 8% of GDP mentioned above.
Extra expenditure
(1) Making doctor’s consultations free $440 million
(2) Remove prescription charges 165 million
(3) DHBs & Hospitals (meet debt - salaries) 242 million
(4) DHBs & Hospitals (cut waiting lists) 165 million
(5) Mental health, Plunket, water, etc 88 million
(6) Ending childhood poverty 300 million
TOTAL $1,400 million
II. Transport
(1) Upgrading New Zealand railways $200 million
(2) Other such as subsidies to urban transport 100 million
TOTAL $300 million
IV. Those on Super and benefits
The Alliance tax scale gives greatest help to those at $25,000 and below by raising their after-tax income. However, Super and benefits are calculated by a formula based on after-tax income and that formula has to be altered if those receiving them are to benefit from our tax cuts. This would involve a cost of $300 million
V. Education & housing
(1) Making tertiary education free $1,200 million
(2) No repayment on student loans 1,000 million
(3) The teachers who want to teach plan 300 million
(4) New secondary posts 30 million
(5) New tertiary posts 30 million
(6) Smaller classes first three years 10 million
(7) Abolish school fees 70 million
(8) Early intervention special needs 10 million
(9) State houses 1,470 million
TOTAL 4,120 million
The teachers who want to teach plan recognizes the crisis in NZ education with heavy teacher drop-out and an aging and demoralized staff. It would give every teacher a paid year off every ten years to upgrade credentials or merely to refresh ($300 million is about 10% of the total teacher salary bill). Those who want to leave the profession would have two years at half pay (and of course free tertiary education) to train for some other job. The aim would be to have only those in the schools who really want to teach including those who see it only as a first career - and do not want to face a life sentence.
The huge state housing program would end the disgrace of New Zealanders living in sheds. The sum above would provide an additional 7,350 state house a year for a total of 22,000 over three years. It may be that some of this should be allocated to other good things I have omitted. For example, $1,000 million per year would provide 15,000 houses, leaving $470 million for things like better funding of scientific research, the arts, and so forth
GRAND TOTAL $6.12 billion in extra spending balanced by our $6.12 billion in extra revenue. In addition, the balance in the super fund is $14.7 billion (June 2008). This is not income but “savings” and could be used to buy back assets as a better investment. How about forestry as a first step?
VI. Alliance Income Tax
NOTE: The incomes in this Table refer to individuals not families. For example, a family with two earners that each make $41,000 would pay no extra tax.
MARGINAL TOTAL TOTAL TOTAL
INCOME $ MARGINAL INCOME $ TAX % TAX $
TAX %
0 - 10,000 nil 10,000 nil nil
[No tax on the first $10,000 means that all on that income will keep the $1530 they pay at present; super and benefits will be adjusted to give those receiving them the full value of our tax cuts plus some extra for married couples]
10 - 20,000 24 20,000 12.00 2,400 841,000 kiwis will average $1400 less tax
——————
20 - 30,000 26 30,000 16.67 5,000
373,000 kiwis will average $984 less tax
——————-
30 - 40,000 30 40,000 20.00 8,000 339,000 kiwis will average $428 less tax
[The 67% of New Zealanders under $41,000 will pay less tax]
40 - 50,000 40 50,000 24.00 12,000
314,000 kiwis will average $232 more tax
——————-
50 - 60,000 42 60,000 27.00 16,200
225,000 kiwis will average $1009 more tax
——————-
60 -70,000 46 70,000 29.71 20,800
146,000 kiwis will average $1794 more tax
——————-
70 -100,000 50 100,000 35.80 35,800
205,000 kiwis will average $4943 more tax
——————-
100,000+ 54 200,000 44.90 89,800
138,000 kiwis will average $16,717 more tax
VII. Comparing our table with Labour’s tax cuts promised for 1 Oct 2008
By how much will annual after-tax income increase
Income Under Labour Under Alliance Difference
10,000 + 280 + 1530 + 1250
20,000 + 624 + 1230 + 606
30,000 + 624 + 729 + 105
(Up to $34,000, Kiwis benefit more from the Alliance: 60% of those who pay tax earn that much or less;)
40,000 + 832 + 700 - 132
50,000 + 832 - 630 - 1462
(At $50,000, Labour begins to offer significantly more: only 24% of those who pay tax earn that much or more)
60,000 + 832 - 1530 - 2362
70,000 + 1456 - 2226 - 2682
100,000 + 1456 - 5530 - 6886
200,000 + 1446 -11800 -13246
(So Labour thinks those who earn 200,000 a year need an extra $1500 to spend; we believe they could spare an extra $12,000 to help those who have a fragment of their wealth)
NOTE: See next page for how our tax table would raise extra revenue (an extra $1.545 billion) we could spend for the public good.
VIII. Tax calculations
Incomes No Tax MR OR-top AMR AOR-top Atax Differ-
1000’s Mil$ % % % % mil$ ence mil$
0 239 0 —– —– —– —– 0 0
(7%)
1-10,000 442 248 15+ 15.30 0 0 0 - 248
(14%)
10-20,000 841 1968 21 18.15 24 12.00 706 - 1262
(26%)
20-30,000 372 1592 21 19.10 26 16.67 1226 - 366
(11%)
30-40,000 339 2,191 23.4 20.175 30 20.00 2046 - 145
[(1) At 41,000, total tax is equal at $8,040, so everyone under that
pays less tax;
(2) Equals 2/3rds of those who actually pay any tax; (3) Lower 67% paying a total of $2.021 billion less; (4) This equals almost $1000 (998) per person and those under 10,000 of course are exempt from their present tax of $1,530]
40-50,000 314 2,895 33 22.74 40 24.00 2,968 + 73
(10%)
50-60,000 225 2,814 33 24.45 42 27.00 3,041 +227
(7%)
60-70,000 146 2,338 39 26.53 46 29.71 2,600 +262
(4%)
70-100,000 141 4,541 39 30.27 50 35.80 5,238 +697
(6%)
100,000+ 138 7,786 39 34.635* 54 44.90* 10,093 +2307
(5%)
(* Refers to an income of $200,000)
[(1) The top 33% will pay $3.566 billion more, which better than balances out the loss for the bottom 67%; (2) This equals $3,567 per person]
NET GAIN: + 1.545 billion dollars
IX. UNDERSTANDING AND DEFENDING OUR TAXES
(1) Death duties: We should adopt an inheritance tax suggested by the Fabian Society. When an estate passes to a successor, or when someone benefits from a non-charitable trust whose major donor is a relative and over 50, then the successor pays the tax. The wider the estate is distributed, the less is paid. Say the threshold is $500,000 and the applicable rate 20%. If an estate of $1,000,000 is left to one person, he pays 20% of $500,000 or $100,000. If the same estate is left to two people at $500,000 each, no tax is payable. In other words, the tax is designed to achieve a more equal distribution of wealth. Rates would be progressive: Under $500,000 NIL; 500,001 - 1,000,000 20%; above that 40%.
(2) Land tax: This would be introduced by restoring the legislation removed in 1992. There are exemptions for residential land, farmland, Crown’s Conservation estate, Maori Customary land, etc. The threshold of $500,000 means that most small businesses would be exempt. Marginal rates on unimproved property value: Under $500,000 NIL; 500,001-750,000 1%; 750,001-1,000,000 2%; 1,000,001-2,000,000 2.5%; above that 3.0%.
The purpose of the land tax is to discourage speculation on rising land values in urban areas. Present policy inflates the value of land and houses. Just holding land promises a tax free gain and for entrepreneurs, interest payments on loans are tax deductible. Under the land tax proposal, unused land would tend to be developed so as to gain income from rent - and thereby provide more housing or business premises. In the Auckland area, businesses would prefer to locate in more distant suburbs as the lower value of land there would attract less or no land tax. This would help relieve traffic congestion.
(3) FTT: A Financial Transactions Tax only to replace GST on food would have to yield between $1.6 and $2.1 billion - say $1.95 to be fairly safe. GDP is $185.33 billion and we think that a year’s financial transactions (counting only those that qualify as withdrawals - because that it is what we tax - not deposits) are 60 times GDP or $1,112 billion. So a rate of 0.02 % or 2 cents per $100 would raise at least $2 billion and be enough. We might raise more than required, so the rate should be monitored after the first quarter of the fiscal year.
As for how FTT works, putting money in your bank account to give you a credit card balance would not be taxed. But each purchase or cash withdrawal on your credit card would be taxed. If you spent $500 in a week that way, you would pay a tax of 10 cents. The store would pay nil when depositing the money but pay another 10 cents when they withdrew it to buy more stock. The store could add that on the price of goods. You could not - nor could those buying bonds or speculating in currency. If you buy a KIWI bond for $100,000, the FTT of $20 is essentially a tax on the interest (about $6000) - as if we had added to the top marginal rate of income tax.
So FTT for an average family (spends $29,000 per year) would be 11 cents per week. Compare that to GST on the family’s weekly food bill - 12.5% of $200 or $25 a week. But as above, some of the cost of FTT would be passed on as higher prices (up by about 1%). So this family would lose about $6 per week thereby and their real gain is $19 per week - pretty good.
Labour always claims that FTT would be evaded by sending money offshore. In fact, that would be true mainly of currency speculation and there is no harm in that. A NZ business that did its banking in Australia would have to convert its takings into Australian dollars, and convert its withdrawals into NZ dollars, at rates that would cost more than the FTT.
(4) Carbon tax: Levied at the gate of a refinery, mine or factory on the amount of carbon they produce (the government already measures this). The carbon tax would raise petrol prices by 3 to 4 cents per liter.
(5) Gaming duty: The $220 million is raised by an extension of the 20% tax on expenditure at horse races to casinos. Expenditure is the net amount left - after wins paid out are subtracted from the gross amount wagered. This would raise an extra $110 million. Another $110 million would be raised by more intensive policing of tax payments by casinos. Our taxation of casinos is one of the lightest in the world. At present, our rate is only 4% tax on net, while Australia taxes gross at 21% to 26%.
(6) Company tax: Do not be fooled by those who say we must reduce corporate tax from 33% to 30% to compete with Australia. Australian companies lay several levies such as payroll taxes, so pay more altogether to the government than companies in NZ.
(7) Capital Gains Tax: Since this is a new tax, some detail.
An Alliance government would introduce a Capital gains Tax modeled on that of Australia with certain exceptions. It would cover income on sales of assets such as property and stocks that are not part of normal goods and services.
Purpose: To shift investment from property and share trading, which are relatively unproductive, to investment in the small businesses that are New Zealand’s principal source of growth and jobs. It is also unjust that “profits” from wages are taxed and profits from the sale of assets are not.
Exemptions:
(1) The primary exemption is profit on the sale of the family home up to a limit of $1 million for a given transaction. Some New Zealanders plan for their retirement by moving into and upgrading a series of family homes with the object of selling the last of these, moving into a modest home, and living on the proceeds. They need not worry. If their last home is sold for $3 million of which $1 million is profit, they would pay no CGT.
(2) Other exemptions include leaving the family home to heirs, transactions on which there is normally a loss (the sale of cars), personal use assets up to $10,000, and collectables up to $500.
Calculation of CGT:
(3) To calculate the profit subject to tax, take the example of selling house bought as an investment. It was purchased 10 years ago for $150,000 and associated costs (legal fees, etc) were $10,000 for a total of $160,000. The current CPI would be divided by the CPI of 10 years ago to allow for inflation, so that would be a figure of about 1.25. That times $160,000 equals $200,000. You sell it for $250,000, so you have a $50,000 profit. Any money spent to upgrade the house would also be counted as a cost and deducted from your profit. We would not allow the Australian option of declaring only half of your profit for tax. That was introduced by a conservative government to benefit the affluent - they are the ones that usually make a substantial income from capital gains.
(4) The profit would simply be added to your income from other sources and be taxed at the normal income tax rates.
Revenue from CGT:
Based on Australian revenue, and given the enhanced revue from taxing family home profits of over $1 million and not allowing a 50% exemption, the NZ government would gain an extra $1 billion per year.
X. MEETING OUR SIX CRITERIA (used to evaluate our budgets).
Equality: Progressive tax, lifting benefits, greater equality of educational credentials in general (and for women and Maori in particular) will reduce inequality of disposable income.
Employment: Many programmes (state houses, extra health and education spending, better transport) create jobs.
Growth: Education and health are the best long-term investment in growth you can have.
Environment: The carbon tax, urban transport, monitoring water quality, and less inner-city congestion (see land tax) all make a contribution.
Inflation: The extra revenue we raise matches our extra spending.
Balance of payments: Our mix of extra revenue/expenditure provides extra spending power to the poor. Compared to the rich, they spend more on domestically produced goods than imported ones.
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