Wednesday, May 14, 2008

How to help stop the outflow to Australia

Not PC has said much of what I want to say about the first Rudd government Budget in Australia.
Difficult to argue with tax cuts that are matched by spending cuts and a budget surplus. This is the sort of language that the National Party can't understand, and this is a Labour government using it. Just shows how far to the left mainstream politics in New Zealand has been dragged by Helen Clark and Michael Cullen, and how meekly John Key and Bill English have followed them there. The fact the Australian Greens are moaning that defence spending is 40x that on climate change shows the budget is still sensible.
Of course a fortune of middle class welfare and industrial pork is being spent too, as Australia squanders the good times, and the spending cuts are relatively modest, but nevertheless there is a lesson for National. How DO you close the gap in GDP per capita between Australia and NZ and how do you encourage NZers to stay?
Australia has a A$16,000 tax free income threshold. Adopting the Libertarianz (and now ACT) policy of a NZ$10,000 tax free threshold would be a start. However, what else does the Australian income tax regime show?
I used the Australian tax office and NZ IRD tax calculators to find out, using the 2007-08 year as my base.
A present it is as follows:
A person on A$180,000 (NZ$221,000) pay A$61,350 (NZ$75,258) in tax. In NZ the same amount (NZ$221,000) would see income tax of NZ$77,412. In other words you pay NZ$1,884 a year more in income tax in NZ compared with Australia.
The second tax rate is 40%, it cuts in at a threshold of A$80,001 (NZ$98,147) from this year.
A person on A$80,001 would pay A$19,850 (NZ$24,352). In New Zealand someone on NZ$98,147 would pay NZ$29,547 in income tax. You pay NZ$5,195 more in income tax in New Zealand compared to Australia.
If you earn A$40,000 (NZ$49,058), in Australia you pay A$7,350 (NZ$9,015). In NZ you pay NZ$11,059 in income tax. That's NZ$2,014 more than in Australia.
For A$20,000 (NZ$24,532) in Australia you pay A$2,100 (NZ$2,576). In NZ you pay NZ$4,784, NZ$2,208 more than in Australia.
You get the picture. That's BEFORE the current budget. That budget cuts the second highest tax rate from 40% to 37% in stages by 2010, and the raises the threshold for the 15% rate. Dr Cullen cannot even start to pretend that income tax in New Zealand is competitive with Australia. The left can go on about wages, but if wages increase in New Zealand so do the taxes - you are better off - dollar for dollar - earning the same wage in Australia compared to New Zealand.
So how DO the rates compare.
In Australia the first A$6000 is tax free, New Zealand has no tax free threshold.
After A$6000, Australians pay 15% until you get to A$34,000.
In New Zealand you pay 19.5% on every dollar up to NZ$38,000.
After A$34,000, Australians pay 30% until you get to A$80,000.
In New Zealand you pay 33% for every dollar after NZ$38,000 until you get to NZ$60,000.
After A$80,000, Australians pay 40% until you get to A$180,000, after which you pay 45%.
In New Zealand you pay 39% for every dollar after NZ$60,000.
Of course, the tax free threshold does mean that you have to earn more than A$180,000 before you pay more than you do in New Zealand. So you might wonder why tax policy in New Zealand is to penalise around 99% of the population, relative to Australia.
So while political parties wonder what might help stop the brain drain, they may look plainly at tax rates.
UPDATE: And the Dominion Post reports that someone on NZ$30,000 would pay 37% less in tax living in Australia compared to New Zealand following the Australian LABOUR budget. How wilfully blind can the left be that tax isn't an issue? It was also noted that with that budget, Australians have had ten years of continuous tax cuts, whereas New Zealand has had eight years of no tax cuts and one year previous of a tax increase. Nevermind, New Zealanders really don't know best how to spend their own money compared to Dr Cullen do they? That, after all, is what Labour and the Greens believe, do you?


john-ston said...

"Difficult to argue with tax cuts that are matched by spending cuts and a budget surplus. This is the sort of language that the National Party can't understand, and this is a Labour government using it."

Liberty Scott, while it is a good idea to meet tax cuts with spending cuts, what spending do we cut without angering the public? Remember, the public in New Zealand still remember the spending cuts in the 1990s and if Labour harnessed those memories and attached them to the National Party, they would almost certainly win a fourth term in office.

The Australians, on the other hand, do not have those bad memories of spending cuts and as a result, are more receptive to a leaner budget and tax cuts. While Rogernomics and Ruthenasia were beneficial for New Zealand, you cannot discount the psychological damage that it did to the New Zealand population - they associate tax cuts with spending cuts that resulted in the poor suffering.

I do agree though that New Zealand needs to re-examine the income tax structure. My personal opinion is that Working for Families can be replaced with a tax cut involving a tax-free threshold of $20,000; and readjusting the $38,000 & $60,000 thresholds for inflation (that would result in $50k and $80k thresholds)

libertyscott said...

Most of the public don't give a stuff about the money MED, and numerous small departments spend on all sorts of nonsense. Housing could go back to only paying housing supplements OR income related rents, not both. The boondoggle of rail could be stopped along with subsidised telecoms networks. Beyond that though, yes more needs to be done. I doubt the public would object to abolishing the Working For Families package in exchange for a tax cut, and welfare itself could have eligibility tightened significantly.

People worry about education and health funding cuts, welfare frankly doesn't bother most people unless it is national superannuation.