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Controversy over National tax cuts: clarification

Controversy over National's tax cuts: a clarification

by Keith Rankin, 12 December 2008

In my Scoop article Controversy over National's tax cuts (http://www.scoop.co.nz/stories/HL0812/S00214.htm) I inadvertently suggested that the fiscal cost of extending the Independent Earner Tax Credit (IETC) in 2011 into the $14,000 to $24,000 income bracket would be only $5 million.

The correct estimate is $100 million. If the IETC is incorporated into the independent earner tax scale that I suggested, there will be about 250,000 persons affected. On average they would be about $400 per year better off. Multiplying these two numbers gives $100 million.

In Parliament on Wednesday, Michael Cullen suggested (and Bill English conceded in National admits tax package costs Kiwi workers) that it would cost $730 million to ensure that nobody was worse off in 2011 under National's Tax Cuts than they would have been under Labour's tax cuts. Only $100 million of that $730 million relates to persons defined as 'independent' who will earn less than $24,000. The remaining $630 million relates to persons not defined as independent and who will earn less than $50,000 in 2011.

There are ethical and semantic problems in trying to separate 'independent' persons from 'dependent' persons. However these problems are not nearly as great as the problems faced by the previous government in deciding who was 'in work' and who was 'not in work'.

Currently, as a result of Labour's Working for Families programme, people working 29 hours per week who live with a non-employed partner are defined as 'not in work'. People not employed at all but supported by a partner working 30 hours per week are defined as 'in work', but not if the supporting partner is providing that support via the Child Support scheme.

Ideal solutions will avoid separating citizens into distinct sub-categories of citizen (such as 'in-work' versus 'not in-work'; 'independent' or 'dependent'). In the meantime, National can easily and affordably correct its egregious error in denying an Independent Earner Tax Credit to independent earners who earn less than $24,000 per year.

********

krankin @ unitec.ac.nz

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