Nicola Willis will soon an announcement about their timing and potential value, if they get back to the Treasury benches.
The good news out of yesterday's PREFU is that the books are out of structural deficit this year.
That means when the government borrows new money going forward, it will be for capital spending, not to keep the lights on.
We've essentially been borrowing money by issuing bonds to pay for day-to-day spending.
Fixing potholes with a credit card when the cost of borrowing is heading north is not a particularly smart way to run the books.
The books are helped by the economy growing. When the economy grows, our wages grow with it.
Inflation pushes our wages into a higher tax bracket.
It's what they call bracket creep.
You'd up paying more tax because the tax brackets don't change, even when our wages do.
So, the government's books are improving off the back of kiwis paying more taxes.
How much is that worth?
The PREFU reckons around one third of the extra revenue comes from bracket creep.
Patrick Smellie at Business Desk estimates $15b will be collected over five years.
That creates about $3 billion a year in a potential tax cut kitty created by wage inflation.
So, the question now is when might cuts happen and will Nicola's coalition partners allow them?
As the old saying goes, to the victor goes the spoils.
Taxpayers are the real victors here, the real heroes, and more money in the pocket to offset higher prices will surely be a welcome thing.
Ryan Bridge is a New Zealand broadcaster who has worked on many current affairs television and radio shows. He currently hosts Newstalk ZB's Early Edition - where this article was sourced.
2 comments:
Yes. Bracket creep is infuriating because it is a tax on a tax (I regard inflation as a tax because government has first use of freshly created reserve bank money).
For a full time worker, earning a bit more than minimum wage immediately puts one into the 30% bracket for marginal earnings.
Similarly, earning a bit more than the median wage puts you into the 33% bracket.
It is time for an amendment that indexes the brackets to wage increases or at least CPI increases. They manage it that way in other countries. Why not here?
Some countries - mostly Eastern European ones - have flat income tax rates (10% for Bulgaria and Romania). But there are compulsory 'social insurances' such as health insurance and old age pensions that may effectively be looked upon as 'taxes'.
'Progressive' tax rates are actually 'regressive' in the sense that they discourage people from working harder to make more as the marginal benefit from working harder is chipped away at by a higher tax rate. I remember a case put by an economist back in the 1960s when UK marginal income tax rates were around 90% showing that a surgeon would be better advised to fix his own leaking tap in his bathroom than engage a plumber and go to work to do overtime in the surgical theatre. This is an extreme case but people start thinking that way when marginal tax rates get around 50%.
Having compulsory 'social insurances' is a good idea because it means that each sector (health care, unemployment, old age pensions, etc) has to account for itself with regard to income and expenditure - no cheating or obfuscation by dipping into 'general revenue'.
A 'progressive' income tax scale is also unfair on single-income families as one income earner on, say, 100 Grand pays more income tax than two earners on 50G each.
NZ should take a hard look at bringing in a flat income tax rate and compulsory social insurances (and of course a mandatory contributory Superannuation system). The current system is well past its 'use by' date.
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