so the government's books are going to show a blowout. what a surprise. not.
the latest cuts in tax & the previous ones, particularly at a time when unemployment was going up, were always going to deliver that result. had the last 2 rounds of cuts been focussed on lower income earners, they would have had a greater impact on economic recovery (as those at the bottom would spend on necessities) and they would have cost a lot less. not only that, businesses would be paying more in tax overall, as they would have been more profitable from the extra consumer spending.
the rise in GST has made the problem worse, as prices have gone up way beyond 2.5%. especially prices at the supermarket, where many items that should have gone up say 13 cents have gone up by a dollar. i know i've cut back on things just in sheer frustration of unfair price rises. i refuse to give unethical companies my custom.
yet there was a piece in the waikato times last week, which i won't bother linking to, by some expert writing about what small business owners wanted. and wouldn't you know it, the first thing he wrote about was the desire for more tax cuts. even while acknowledging that rates had gone down significantly and that even the company tax rate was going down. the latter will have gone down 5% over about 3 years. and the top tax rate has gone down 6% in 2 years.
there are 2 things about this attitude that really annoy me. first, where do these people think the money will come from for the services they want to see - faster internet, better roads, more public transport, support in times of hardship (disease-stricken kiwifruit growers, drought-stricken northland farmers, earthquake-stricken canterbury businesses), and much more? i guess many of them want to see beneficiaries starving, even though there aren't the jobs in the economy for to employ them.
the second thing is that many small businesses don't operate as companies, so they aren't subject to the company tax rate. in which case, they aren't subject to the highest tax rate until they hit $70,000 of income. and if there are 2 of them in partnership, that goes up to $140,000 in income. exactly how many small business owners are earning more than that? not a whole lot.
and even the small businesses who do have a company structure or a trust structure allocate out income to shareholders/beneficiaries by way of a shareholder salary or a beneficiary distribution. which means, again, that they aren't going to be hitting the top tax rate until over $140,000 of income.
so who benefits most from the drop in the company tax rates? large businesses and particularly foreign businesses. we are basically allowing our tax base to be eroded for the benefit of overseas shareholder. we are going to have cuts in services forced on us in the next budget, for the benefit of overseas shareholders. how is this sensible?
what's more, i'm surprised by the number of small business owners who don't even realise that only income they earn over the $70,000 is taxed at the top rate (or over $140,000 if a couple). they seem to think the whole lot is taxed at the top rate. which is, i suppose, why the tax cut message seems to sell so well to this demographic. except that many of them are never going to earn the kind of income that will give them the benefit of tax cuts, while every single one of them will suffer as public services are cut. even with the 6% cut in the top rate, a person earning $80,000 pa will have gained $600, but have lost a lot more than that in things like early childhood cuts, cuts for home help for the elderly, cuts to adult education, etc etc. who knows what will go in the next round of public service cuts.
and yes, these people will also suffere from any cuts to benefits. because when beneficiaries have less money, small businesses get less business and are less profitable. as small businesses reduce in profitability, medium size businesses suffer. and so it goes on. when you expect beneficiaries to starve, the end result can only be that businesses will starve - at least, local small & medium enterprises will.
the best way to balance the books is to raise the top tax rate & the company tax rate back up. it'll have little impact on the vast majority of nz'ers, but will have significant benefits for the country as a whole.