Q&A on Tax Cuts
In tribute to Rob Hosking, this week's column is a Q&A on the tax cuts that were.
Bill English says the 2010 and 2011 tax cuts has been deferred. What does that mean?
It means they have been cancelled.
Are you sure?
So we won’t get them at some future point?
You may get tax cuts in the future, but when you do it will be a new package, not the package that was planned for 2010 and 2011.
So when might we get tax cuts again?
Once the government is running a surplus again.
When will that be?
2017 on current projections
Might we get them earlier?
Yes, Bill English said that they could look at tax cuts again, even if not yet back in surplus, so long as the economy is growing strongly enough that the deficits are reducing.
So we could get them by the next election?
No, Bill English all but ruled that out.
Does the government still want to cut taxes?
In theory yes, it says it has a medium term goal to align the top personal, trust and company rate at 30%.
So how long is medium term?
A good question. The government won’t say. Long-term would be a better description of the likely time-frame.
Okay, back to the cancelled tax cuts. I thought the government had costed them as being affordable?
The credit crisis inspired global recession is knocking $50 billion off our GDP over the next three years.
But didn’t they cut spending on KiwiSaver so that these tax cuts were fiscally neutral?
So Labour’s future tax cuts would have been cancelled also?
Why did the government not just cut some more spending, rather than cancel the tax cuts?
Because you haven’t had these tax cuts yet
What do you mean?
The government has generally maintained the spending promises and tax cuts already implemented, but have pulled back on future tax cuts and spending increases.
Why has it done that?
To minimise howls of outrage.
Won’t people be equally upset?
No. Ask yourself this. Would you be more upset with your employer if they did not give you a pay rise next year, or if they actually cut your current pay?
Oh I see what you mean. One would peeve me off, but the other would make me go postal. So the government wasn’t deciding between tax cuts and spending, it was deciding between things already delivered and things not yet delivered.
Yes. They did not reverse, for example, the 2008 or 2009 tax cuts.
Thank goodness. How much were they worth?
The October 2008 tax cuts represent around $1.5 billion a year of foregone revenue and the April 2009 tax cuts around $1.8 billion a year of foregone revenue. That is $3.3 billion annually of tax cuts.
And how much were the cancelled tax cuts worth?
Around $1 billion a year. So three quarters of the tax cut package was delivered and one quarter cancelled.
How much would the future tax cuts have meant for me?
If you are on $30,000 a year (and not on Working for Families), you would have got around $8 a week. On $50,000 you would have got $12 a week and on $100,000 you would have got $18 a week.
So what do I do if I still want my tax cuts?
Move to Hong Kong. They have just announced tax cuts of NZ$3.8 billion.