KEY POINTS:
Imagine I came around to your place to do a job and overcharged you by $100. Then, after a long time and many loud complaints I eventually popped back and returned $20, explaining that I had given the remaining $80 to the bloke next door because he earned
less than you.
Chances are you would not be wildly happy with that outcome yet, I suspect, that is exactly how Michael Cullen plans to handle the tax "cuts" for many New Zealanders.
Last week he broadly outlined Labour's proposal to fiddle with personal taxes, generally seen as signifying his intention to introduce a three-year series of tax cuts. In fact, Dr Cullen intends a Robin Hood strategy of income redistribution.
The clue lies in one of the four preconditions he outlined for giving tax relief. "We will not allow tax cuts to lead to greater inequality in our society," he said.
If he gave uniform tax cuts to all earners or, for example, got rid of the top rate of 39 cents in the dollar, higher income earners would receive more money than lower income earners, therefore Dr Cullen's rule would be broken because there would be greater inequality between higher and lower income earners.
The most likely way he will make the changes is to adjust the thresholds for various tax rates, with the lower thresholds moving up the most.
Sadly, if you are one of the fabulously rich earning more than $60,000 a year you will not get back all the money that you are being over-taxed. Dr Cullen will concentrate on easing the burden in lower income thresholds, to advantage poorer people most.
You will get some benefit from lighter taxes on that portion of your income in those lower brackets but you will not get much relief on the dollars you earn above that level.
In effect, what Dr Cullen will do is take a large chunk of your income that he has over-taxed and pass it on to a lower income earner.
Dr Cullen giveth and Dr Cullen taketh away.
He claims the tax "cuts", on top of the $4 billion in business and family relief already doled out, are fair because they return cash not needed for the Government's programmes.
The trouble is they are in reality neither cuts nor fair. It would be fair if you got back what you put in, not just a portion of it. The "cuts" are simply a handout to some and a penalty on others. It is, of course, social engineering. This Labour government loves doing that.
Act leader Rodney Hide awoke from his long hibernation and indignantly pointed out: "The first tax that Dr Cullen should cut is the 39 per cent tax rate - an increase that was never necessary to begin with. The fact is that this envy tax serves no purpose, raises money the Government doesn't need and simply serves to punish people trying to get ahead for being successful."
National's John Key, however, seemed nonplussed by Cullen's move, accusing him of stealing National's policies. In reality, however, I'd presume Cullen's "cuts" would be wildly different to what John Key and Bill English have in mind.
Key seemed way off message when he tried to imply Cullen might try to weasel out of giving the cuts because he had set four preconditions.
As well as not increasing inequality, the Finance Minister said cuts must not make inflation worse, increase borrowing or lead to inflation.
But when I spoke to John Key he conceded that National's tax-cut programme would follow the same tests, effectively agreeing with Cullen. Not a great rebuttal. Indeed, National then lapsed into confused silence over the Cullen tax proposals.
In terms of political strategy it was a weak response by National, especially as Cullen went on to lead with his jaw.
An extraordinarily generous man with other people's money, having declared he was going to give much of yours to someone else, Cullen then told bosses to pay their workers more. This, he believed, could close the gap on Australian pay rates that were luring skilled Kiwis across the Tasman.
Actually, he has a point. New Zealand employers are notoriously mean, but record low unemployment and a labour shortage are likely to push up pay rates anyway.
From Cullen's point of view higher wage rates would be great because the more you earned, the more tax he could take. Taking more tax means he could give more tax "cuts", just don't expect to see it all come back to you.
