Friday, May 21, 2010

ZenTiger And After the Budget?

My take on the GST rise
"GST should only be increased if it were accompanied by comprehensive tax reforms that saw all tax rates dramatically reduced. It is lower Government spending, coupled with dramatically lower tax rates that would best encourage productivity.

"Just like the Maori Party, ACT must support the increase in GST as part of our Confidence & Supply Agreement with National - but, that doesn’t mean we like it," Sir Roger said.
[Roger Douglas - ACT Party]

In theory, I'm in favour of increasing GST in return for lowering income tax rates. And this is what the budget has done, but like ACT, the Maori Party and the Greens I'm suspicious that taking on a bigger GST is really going to stress the lower incomes once other factor kick in. One of the big factors would be the ETS. Unless it too comes with radical tax reform, I'll be fighting hard against an ETS.

And why start the GST increase in the middle of the tax year? Small businesses will struggle with additional transition costs. For those on a 2 monthly payment cycle, it even comes right in the middle of the cycle. I would have liked to see some transition support for moving to the new rate.

My take on the Income Tax Cuts
Generally, I support a flatter and simpler income tax structure. National have made a clear move towards this, and that is good. However, the reasons I support such a system was not achieved. Differential rates on business and income tax increase accounting costs over things like FBT, and they still exist. The tax bands (the thresholds, not the rates) are still too low.

Given the nature of New Zealand politics (only able to grasp socialist theory) it may have been politically astute to create a "rich prick" upper tax bracket of say, $300K and leave that at 38% for a few years. It would define the envy tax in a way more distinct and clearer way than a 70K threshold ever has, and subtly change socialist discourse.

And given that Labour will keep the GST (possibly stuffing it up by exempting food) and wind the income taxes up whenever they get back in, it would have been a nice preemptive move. A tax free entry threshold would have been a nice left wing move too.

And in looking at the tax package, as good as it is, National Blue looks little different than Labour Red to me. John Key demonstrated why in a brilliant way. Goff popped a vein ranting about the terrible tax package, in a speech he had probably written a year ago because it had little relevance to the actual budget. Key's reply was devastating. Turns out that everything National had done, so had Labour. GST up 2.5%? Check. Business Tax cuts to gain productivity? Check. And so he went, quoting Goff from years gone by to completely negate Labour's complaints. The only problem is, his argument also illustrated that blue = red.

When the parties are effectively both so close to each other in the scope of policy, even with National always slightly to the right of Labour, then we may not get the kind of reform we need to actually change the rules and change the outcome. If we keep doing what we've always done, we'll pretty much get the same results. Of course, National might have a three term plan. Strangely, that thought does not fill me with comfort.

Closing the loopholes around property investment
I think these changes are good. Probably don't go far enough. I'm going to need to read some expert commentary because my first thoughts were that there seem to be ample room for new loopholes, commercial property investment might be negatively impacted and mums and dads investors with a single property relying on this to build a superannuation scheme might be hit. The latter doesn't seem to be the case, so this is one area I'm not fussed over. Will it bring in the required revenue though? I'd be pleasantly surprised if it does.


What else? Haven't really had time to absorb it all. Haven't even read the blogs on this yet. Might have to revise my opinion completely (blogs are great for helping with that).

My summary is that this budget looks OK, I can even see why many will like it, but I don't like it. I think this is mainly because it feels only like part one of a two part story. That story ties in with the proposed ETS, and the impact of GST+CPI on low incomes. The budget discussion will not be over until we see what happens after the budget.

2 comment(s):

Lucia Maria said...

Yes, the ETS.

Eeeee Teeee Esssss.

Big bada BOOM!

Yep, I've gone mad.

I think it was that momentary excitement when I read the Dominion Post Editorial this morning.

Followed by deflation - they can't possibly mean that!

I'll have to do my own post.

Lucia Maria said...

Oh good, comment posted.

For now.

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