Fiscal drag is part of the Government's fiscal strategy

Keith Ng has done a good post on the budget, analysing the Governments tax cuts. Go and read it. In short, if you`re earning more than $47,000, you've just had a pledge that your overpayment - or is that an interest free force d loan to the Government - is to be repaid back to you but over three years. This, in an attempt to win your vote this year. Here's the cheat sheet:

* Fiscal drag is the increase in the average tax rate (*not* the amount of tax paid) caused by the tax system failing to keep up with wage increases.

* Fiscal drag is not a right-wing conspiracy. It is real. It is significant. It's a part of the Government's fiscal strategy.

* Fiscal drag means people pay a greater proportion of their income in tax. That does not mean that people are worse off, since income is rising, too.

* Labour's tax cuts will negate the fiscal drag of the last eight years for everyone earning over $47,000 per year (22% of tax payers). For those earning under $47,000 (71% of tax payers), it will be greater than the amount lost to fiscal drag.

It is noted that WFF payment is not included in this analysis. If you're earning a more than $47,000, you've just paid for your tax cut. Congratulations, you don't really get a tax cut at all.

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Bang go the tax cuts - one day after they are announced. No one with a mortgage is better off

Bollard has announced that the Reserve Bank is to delay lowering the OCR until at least after the election because of the tax cuts in the budget. Or was it because the IMF said to. Or was it because he doesn`t want to lose his job for repeatedly exceeding inflation targets.

The economy is now in a pot hole and now no one with a mortgage will be better off as a result of tax cuts purely because Bollard wants to keep his job.

That's because what many homeowners get in one pocket from tax cuts may be cancelled out by a delay in reducing interest rates. So although the Government is spending all the money, we're no better off. Except, of course, if you are a pensioner and you've paid off the mortgage.

Michael Cullen supports the IMF report. He is more concerned about trumping a National tax policy than he is for the struggling average Kiwi bloke trying to stay afloat paying their mortgages, putting food on the table and clothes on their children's backs.

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"The Doctor" - The official Budget 2008 song

On a warm autumn arvo with a Budget bound for nowhere,
We tuned into the Doctor; we were almost put to sleep.
So we took turns a starin', out the window at the darkness,
til boredom overtook us, when he began to speak.

He said, folks, I’ve made a living out of keeping people’s taxes,
And knowin' what their costs were by the cold stare in their eyes.
So if you don't mind my sayin', I can see you’re out of patience.
For the sake of the party vote, I’ll give you some ad-ons.
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So I handed him my ear and he drooled on most of Thursday.
Then he kept on talkin' but no more came to light.
And the night news got deathly boring, and his words were all depression.
Said, if you’re gonna stick with us, folks, your money’s gonna stay awfully tight.

You got to know when to hold em, know when to fold em,
Know when to walk away and know when to run.
You ever count your money when you’re sittin' at the table.
There’ll be pretty much the same amount, with this Budget done.

Now every Member knows that the secret to survivin'
Is knowin' what to throw at you and knowing how to speak.
Cause every Budget’s a winner and every Budget’s a loser,
And the best voters can hope for is to not fall asleep.

So when he’d finished speakin', he turned back towards his Leader,
Crushed out her long career that was landing in a heap.
And somewhere in the darkness the Doctor’s Budget may've broken even.
But in his final words we saw that Labour wouldn’t keep.

You got to know when to hold em, know when to fold em,
Know when to walk away and know when to run.
You ever count your money when you’re sittin' at the table.
There’ll be pretty much the same amount, with this Budget done.
source

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Is that it? Will most Pacific Islanders still not realise it is an election year?

Michael Cullen today announced a three-year tax cutting package, with workers on the average $45,000 wage taking home an extra $16 a week from October - the price of a movie ticket.

The first stage would see the new 12.5% rate apply on income up to $14,000 from October 1, rising to $17,500 on April 1, 2010. The 33% threshold would rise to $40,000 from October 1, and the top threshold to $70,000.

Will that make me vote Labour? Not likely. On the April 09 figures, I`d get more than three times as much as much of an increase through WFF if I had another child. And, the price of chewing gum has increased...

For those on the top tax rate, it doesn't even compensate for inflation since 2000. The 33% threshold has been raised from 38,000 to 48,000. This 33% threshold has been adjusted to about what it should be if the threshold had been inflation adjusted.
It's crumbs today, jam lightly spread in two years time. Cullen will be toast in November.

Here's the pathetic pittance you get (thanks to DPF).


And if you want to be more specific with your own income try this calculator. It calculates your current tax and your increases over the various stages.

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