KEY POINTS:
The economy just keeps getting better and better for business and the Government. Oddly, for a left-winger, Michael Cullen, Labour's Finance Minister, hasn't put a foot wrong for business. He proudly announced on Wednesday another bumper year for Government revenue.
Once more we are swimming in surplus cash.
The Treasury boffins we pay a fortune to draw up our country's budgets have again got their forecasting spectacularly wrong.
This year, our Government has taken $8.7 billion more from us than they needed. Not quite as breath-taking as the $11.5 billion we were overcharged last year, but pretty spectacular when you consider it amounts to a cool overcharge of $20,000 per household in just two years.
I can't quite get rid of the sneaky suspicion that throwing a dart at a dartboard and recording the scores would have as much accuracy in our county's economic forecasting as we are currently dished up by the 20-something-year-olds employed in the Treasury.
Anyway the point is, our Doctor Cullen was embarrassed enough to admit that there was a surprisingly high amount of cash that he has to consider what to do with.
Of course, like all financial reports we receive, it reads as interestingly as a phone book. But what is clear is that while Inland Revenue tax was up $1.2 billion, business and self-employed taxes were down by $1.4 billion. This seems strange until you see that wage earners are paying 6 per cent more than last year and a whopping increase in the GST take makes up the rest.
Overall, it shows the trend in this country that, whether National or Labour is in government, there's been a systematic transfer of the tax burden from the wealthy to the wage earner.
To be fair, Labour has spent 7 per cent more this year, most of it in health and education. But what is disturbing is the extra bill is being in the main paid by workers already struggling.
Apart from taxes, interest rates on homes have increased by 4 per cent since Labour took power. For a $200,000 mortgage that adds an extra $153 a week on expenses. Take into account the 25 per cent to 30 per cent increase in power and petrol over the last three years and you get to understand why workers in New Zealand work more weekly hours than any other country in the world.
It seems inevitable that Cullen will now have to announce tax cuts in the election year budget. Business lobbyists and until recently the National Party have predictably argued for tax cuts at the top. So it was pleasing to see National's finance spokesman, Bill English, demanding Cullen aim tax relief at the moderate earner.
The challenge of course to National is that it has to keep ownership of the tax cut debate or Labour will get the kudos in the election campaign next year. Labour has prided itself on fiscal responsibility over its three terms in office. But given its poll ratings you can be damn sure there'll be a tax cut and a big spend-up in the next budget and there won't be anything left for National to promise anything more.
But despite the Labour Government being the World Bank's number one choice for being business friendly in the world, they won't be getting any votes or support from the business or the wealthy elements in our society. Therefore what they need to focus on is giving relief for people on modest incomes rather than any more welfare for corporates.
United Future leader Peter Dunne is right when he says it's unfair that the threshold at which workers move into a new tax rate hasn't been adjusted since its establishment in 2000. That means the people earning more than $1200 a week having to pay 39 cents tax has moved from 5 per cent of the workforce to 14 per cent. It's even worse for those lower down the earning stakes who go from 19.5 per cent after earning $730 a week to a 33 per cent tax rate. It's not that these people have got richer. It is because inflation naturally moves them up the scale. These tax thresholds should automatically move by inflation each year. That would at least stop people going backwards.
It always outrages me that past tax cuts frequently go to the top earners. I hope for once any tax cut goes to the lowest paid. I've always supported the Green Party initiatives to have a non-taxable amount for all income earners. If in the next budget we even made our first $200 a week tax free it would give everyone a $2000 cut. It's true that it won't be noticed by the top earners but for someone on the minimum wage it reduces their weekly tax from $88 to $48, which would make a huge difference. And before the bureaucrats in Wellington go into meltdown, its total cost is less than half of our current surplus this year, which we weren't even expecting.
Even on top of giving everyone an extra $40 a week in their pay packet there would still be ample left over to cut GST on items such as food, education, electricity and even our council rates. That would appeal to the local politicians elected yesterday who have been promising not to raise rates and now will have to deliver on that promise. For too long, this country has been run on the basis of what's good for business and overseas investments. It's about time our two main parties realised that the economy should work for the people and not the other way round.
