Craig Can't Count

Blog: Dr Jamie Whyte, ACT Leader
23/06/2014

The tax policy Colin Craig announced yesterday will increase income tax for everyone who earns more than $36,000. That is almost everyone in full time employment.

Craig’s policy is to make the first $20,000 of income tax free and then impose a flat rate after that. But, astonishingly, he doesn’t say what that flat rate would be. Perhaps he hasn’t worked it out.

Well, we have. The flat rate applied above Craig’s $20,000 tax-free threshold would have to be 33.6%. That’s higher than the current top rate of income tax which kicks in at $70,000.

The fact that ACT has had to calculate what Craig’s own flat rate would be reveals the frivolity with which Craig and his Conservatives approach public policy. They want you to vote for them on the basis of their tax policy. But they do not bother to tell you what rate of tax you would end up paying.

For those who are interested in the real implications of Craig’s tax policy – which apparently does not include Craig or his colleagues – here is how it would work out.

Income tax now contributes $29.8 billion to government revenues. Since Craig proposes no changes to other taxes nor any specific changes to government spending, we must proceed on the assumption that income tax will still raise $29.8 billion. All the income above $20,000 earned in New Zealand totals $88.7 billion. $29.8 billion is 33.6% of $88.7 billion.

As mentioned above, with a $20,000 tax-free threshold and a flat rate of 33.6% thereafter, everyone earning over $36,000 will pay more tax than they do now.

Nor will this policy do any good for marginal tax rates: that is, the rate of tax people pay on their next dollar of income, which is what affects economic incentives. The marginal tax rate will increase for anyone earning over $20,000. For those earning between $20,000 and $48,000, it will increase dramatically: from 17.5% to 33.6%.

Contrast the Conservative’s efforts on tax with ACT’s. In our Alternative Budget, published in May, we showed how the company tax rate could be cut from 28% to 24% and the top rates of income tax from 30% and 33% to 24% by eliminating $4 billion of government spending on corporate welfare and middle-class welfare. Our tax proposal reduces marginal tax rates for anyone earning over $48,000 and increases them for no one.

Our alternative Budget also treats our audience with more respect than the Conservatives do. It provides the rationale, details and calculations that anyone would need to understand and evaluate our tax policy. The Conservatives’ policy is so half-baked that we have had to work out their flat rate for them.

Craig should be embarrassed. And voters should steer clear of this man and his party. Politics shouldn’t be a game for wealthy buffoons.

ends

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