Thursday, August 25, 2005

Tax Cuts = Higher Wages. Yeah Right

An article in yesterdays Herald highlighted another good reason why ordinary working people will not benefit from National's tax cut plans.

Aside from the fact that 66% of people will see a tax cut of only around $10/week, the following comment from the Managing Director of the Times Newspapers, which co-incidentally publishes the H&P Times, shows that the benefits of tax cuts will not necessarily accrue to workers:

"Times Newspapers managing director Reay Neben says while the company won't benefit from the decision to defer corporate tax cuts, the personal tax rates changes will alleviate pressure to increase staff pay rates. "

In other words, the employer will hold off on giving pay rises that s/he would otherwise feel obliged to give, and argue that the employee has received a raise through tax cuts! Result, the worker is actually no better off.

This is actually an important part of the debate, for despite their public protestations that they want to see the incomes of New Zealanders increased, National has taken pot shots at any group of workers who have tried to win a decent increase this year (ie; the EPMU 5% campaign). If the strategy is to give workers a payrise through a tax cut, then where does it stop - most workers expect a pay rise each year.

Labour has delivered investment in skills and training like apprenticeships, and fairer labour laws. These are contributing far more to long-term wage growth than a measly $10/week tax cut can.


Too Right said...

Mikey - how can getting an extra $10 in the hand per week not make the worker better off?

In all my experience wages are negotiated at gross - tax status of the recipient is not discussed. The worker will always seek more and the owner will always seek to pay sufficent to maintain the businesses viability. No employees no business.

Get real on this debate is my advice.

What you need to admit is you will be better off under National. DINKIE MIKEY.

If you can negotiate a pay rise - well done - guess what, you get to keep more of it under National. Of course if you had kids, Labours abatement would consume +75% of your increase. Fair is it? You're just working harder for someone else?

Here's my challenge for you Mikey - I am sure you'll have no qualms about disclosure - tell us the difference in after tax weekly income for your family under Labour and under National's policies.

For me - I am sadly in the +$100K category so I think I am only getting to keep an additional $92 per week.

Anonymous said...

Michael, I when I am paid, and the IRD (on behalf of the government) doesn't take as much money out of my pay packet, how can this not result in higher wages?

Look at it this way, if the government steals less off you, you and your union mates could put up your affiliation fees.

Wouldn't you like a pay rise, remembering that the budget is in surplus, ie. there government is receiving more money than it spends/needs. Why not return it to those who earned it?

Anonymous said...

National would introduce Employments Contracts Act-style law that would try to deny unions access to the workplace, meaning that wages and salaries would increase by less, offsetting any tax-cut gains.

And because National wants to benefit from fiscal drag, it is doing away with Labour's inflation-based indexation of income tax thresholds. When those in the $40 000 - $50 000 do, eventually, and admittedly rather slowly under National, reach $50 000 they will be back to the 33c marginal tax rate.

CutFoldGlue said...

I'm sorry, but are people deliberatly missing the point?

Read the post: "...the personal tax rates changes will alleviate pressure to increase staff pay rates."

This is coming from an employer: I don't know your background but I'm fairly sure that the managing director of a company has a reasonable grasp on how pay and tax work.

Now with an elementary understanding of inflation then I'm sure you...

..hold on. I'm not even going to bother. The point is so obvious that it's not worth arguing.


On anon's reply: Labour is "return(ing) it to those who earned it". Just not - in your mind - to the right people. (Pun not intended... I crack me up.)

Too Right said...

CutFoldGlue and left nonies - the point is this - wages find a level determined by negotiation, supply demand etc (skill scarcity etc).

If the amount of tax removed by PAYE reduces then the in hand wage goes up. That bit we know for sure will happen once you vote in a National Government. What we don't know is how big a raise an individual employee might be able to negotiate. However whatever the increase is the employee will keep more of it under National than Labour - unless they are already on $100K or more in which case the take will remain 39 cents on all extra dollars.

This is simple stuff. Stop dancing on the pinhead.


The prevarications on the Left side of the blog (The empty of ideas side) tell me you know you are better off with National - but you cannot bring yourselves to utter those magic words - YES WE WILL BE BETTER OFF. And I acknowledge not one teacher, policeman or doctor will lose their jobs under National.

CutFoldGlue said...

*sigh* Once again, you've missed the point.


That wasn't what the post was about, but to answer: No, not really. We'd also be better off with take home pay if there was no tax at all. If that was all anyone was interested in, ACT wouldn't be dead in the water.

I don't think anyone is disputing that the majority of people will be taxed less under a National govt.. after all 'less-tax' sums up the complete and total manifesto of the party.

Of course, not everyone agrees with you that we [individually and collectively] will necessarily actualy be better off for it, if a tax cut comes at the expense of roading & infrastructure, schools, defence, law & order, the environment and so on.

spooks said...

(CFG, comment too long, couldn't be bothered reading it, have no idea of what you've said.)

Politics is like this. Michael has told us in consecutive posts that National's tax cut is $92 a week and that it is $10 a week. See how politics works. It is both, depending on the point you are trying to make. When you are making a point that needs it to be low, it is $10, and so on.

And here is another example. National's tax cuts supposedly relieve the pay rise pressure. But, wait a minute, doesn't Labour's WFF do the same?

As I said, it's $10 when you want low, and it's $92 when you want high.

spooks said...

But one thing it definitely is, whether $10 or $92. It is for everytaxpayer, and it is for every worker.

michael wood said...

Spooks, you have misunderstood me. Possibly I was unclear in earlier comments, so I'll make it simple here. Under National's tax cuts:

- 66% of wage earners would receive $10 per week or less.
- Someone on an MP's salary (over $100000) would receive $92 per week.

The essential point of this post was that employers are already clearly signalling that a tax cut would make them less likely to give a pay rise (read the Herald quote) - hence the argument that at the end of the day, workers, particularly those on lower incomes who would receive a minimal tax cut, would quite possibly receive no net benefit.

spooks said...

CFG, I owe you a big sorry. On the first page you see when you click this blog to see comments, the commenter's name is not very prominent. I actually thought comments 4,5 and 6 were all one post hence my "too long" remark above. (I should know better than to explain this - apologies on blogs usually just provide retalliatory ammo.)

Anyway, again sorry.

spooks said...

A Spooks senior moment. And before you call this "tautology", I'll do it for you.

Insolent Prick said...

Michael, you're showing your ignorance of how economics works, yet again. You say "The essential point of this post was that employers are already clearly signalling that a tax cut would make them less likely to give a pay rise."

What you and your communist union friends don't understand, Michael, is that in the real world, it's not a matter of employers "deciding" whether or not to offer pay rises. Pay rises are made simply on the basis of labour market conditions. When the labour market is tight--as it is now--wages rise so that employers can retain and attract staff. As much as you and your socialist Unionist and Labour Party friends would like to take credit for wage increases, wage increases only occur in a strong, growing economy where demand for labour exceeds supply.

Employers don't have the liberty of saying that they won't offer pay rises if taxes decrease: because workers will simply move to other employers who do offer wage increases. Lowering taxes does not dampen the labour market; hence, the conditions for wage growth are unaffected by tax decreases.

National's tax cut plans puts more money in the hands of every worker. That is fair and reasonable. It removes some of the disincentives to work harder. That is also fair and reasonable. By removing some of those disincentives, it raises productivity. That increases economic growth. That creates further impetus for wage growth.

Face facts, Michael. If you're genuinely interested in getting a better deal for workers--which would surprise me, as being a unionist your main interest is in lining your own pocket rather than helping out mainstream New Zealanders--then your principal focus should be creating a low-tax economy that encourages personal innovation and effort, and economic growth. National is promoting those policies. Labour isn't.