Some households get so much back from the state that they're "effectively" not paying tax, says Bill English. Is that fair comment? And should we all be held to account for what we use in state services? Or just some of us?

At what point do the government-funded benefits and entitlements you gain as a citizien of this fine country amount to you getting off scot-free when it comes to paying your taxes? (And for those who are interested, it seems "scot-free" is the correct phrase as "scot" is an old word for tax). Are you one of Bill English's free-loaders "effectively" not paying any tax?

It's a question prompted by a press release by the Finance Minister in October, highlighted by Andrew Osborn in the thread on one of Josie's a recent posts. Here's the release. And here's the sentence that leapt out to me:

“At any particular time, a large number of households effectively don’t pay tax.

“The income tax paid by these households is exceeded by the amount they receive from welfare benefits, Working for Families, paid parental leave and accommodation subsidies. That’s entirely appropriate for those families genuinely in need."

It's a telling point; that is, it tells us a bit about Bill English. It's not the first time he has used this line, so I can only assume he genuinely views the world this way. And I imagine he'll use it again this election year. But it disconcerts me. "Effectively" is a word that hides all sorts of spin.

First, is it in any way fair or accurate to say that if you consume a lot of government services you're "effectively" not paying tax? And second, why does English pick out benefits, WFF, paid parental leave and accommodation subsidies as the four things that counter-act tax payments? It seems an oddly random group to select. Why not a university education? Roads? Health services? Superannuation? Legal aid? The Olympics? Emergency rescues and disaster relief? Or any other tax-payer funded activity?

The only thing that seems to link the four categories selected is that they are things that National governments pay reluctantly and are for those towards the bottom of society; they are labelled by some as government services for "bludgers".

Yes, English clearly points out that it's "entirely appropriate" to support those in genuine need this way. He says nothing about bludging, it's me raising the question as to where that line is. Yet isn't there a dog whistle behind that suggests something pejorative and that these people are getting more than their fair share? At very least the release is urging us to appreciate how much the wealthy contribute to our government services and consider how little the poor contribute.

So is it fair to say this large number of households "effectively" don't pay tax? Well, it's English and his peers who set the tax and benefit rates, so if he's suggesting some aren't paying enough or are getting too much he can and should do something about it. If there's something wrong with poorer households not paying enough tax, he should act. If there's not, what point is he making?

By the end of the release he seems to answer my question: his point is that Labour is wrong to call for "even greater transfers to low income families". Which implies that the settings he has are just right – bang on – and in fact these families effectively paying no tax are paying exactly the right amount. And they should thank him for that with their vote. And fair enough, this is politics, after all.

But why name only those government services?

By English's logic you could argue that the likes of Hamish Carter and Dean Barker at certain times in their careers have "effectively" paid no tax. Is that bad? What about some farmers in a drought year, who might minimise their tax return and at the same time accept state support? Do public servants who go on taxpayer-funded trips (English and his staff included) have those costs calculated and put against their tax bill? Why not add to the list the flash new tech start-up which gets a government grant and maybe some NZTE advice and promotion, which yet pays sod-all tax? Are they also case studies to use against a more progressive tax system?

English mentions accommodation subsidies. What about the landlords who use those to hike up their rents? Then there are those who individuals who spend longer in the education system, those who spend more time driving on the roads and those who get sick more often (many of whom would fall inside that "benefits" category). You can go on and on.

And of course there are the elephants in this room – retirees. The elderly especially tend to be net tax-takers, so why aren't they on that list? Perhaps because many vote National and English doesn't want us tsking at them? If those households were added to English's list, I wonder what it would do for his other numbers and underlying argument.

I'm intrigued by English's claims in the release – and if lower income households are paying a smaller proportion of net income tax than they did in 2008 then well done to him. And I've got no problem with him arguing that higher income New Zealanders are more than paying their share.

My concern is the pejorative nature of that list and the fact that only those few categories were selected, as if road-users and export-subsidised business-people and aid-assisted farmers and Phd-educated scientists and anyone else who uses taxpayer-funded services are more entitled, more worthy than beneficiaries and women going back to work after having had children.

More, my problem is that the poor will always be at the wrong end of this metric. The rich can always afford choices and elite private options the poor cannot and are less reliant on the public sector. But isn't the whole point of a thriving public sector so that even those with less can still themselves thrive in New Zealand?

So sure, let's have the argument about how much taxes should redistribute and how much those with plenty should be willing to chip into a society so that those with little can also participate and even flourish. But Mr English, either flesh out your list or put it back in the drawer, eh?

Comments (25)

by Graeme Edgeler on January 13, 2014
Graeme Edgeler

why does English pick out benefits, WFF, paid parental leave and accommodation subsidies as the four things that counter-act tax payments? It seems an oddly random group to select.

It's not random at all. Benefits (incl Govt Super), working for families, paid parental leave and the accommodation allowance are government spending that is directly deposited in your bank account.

The tax that goes to fund university educations, roads, health services, legal aid, the Olympics, emergency rescues and disaster relief are not depositing directly into your bank account.

by Frank Macskasy on January 13, 2014
Frank Macskasy

No surprises I gues, Tim, but I couldn't agree more with your analysis. A superb deconstruction of English's statements.

And we could add this to the list of taxpayer funded services from Mr English,

"English paid $1000 to live in own home"

http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10...

On top of it all, whilst low income earners may not pay much income tax, they pay a disproportionately more in GST, because they have less to start with.

The mai n point about a First World society is that we pay for the privilege of living in a nation with good infra-structure; schools, roads, hospitals, justice system, etc, etc.

I've heard so many Libertarian-type whinging that they don't want to pay for someone elses' child to be educated. Yet, they themselves benefit from a well-educated society and workforce. (Do they really want a cop who turns up on their doorstep to investigate their burgled house not to be able to read and write?)

Countries such as Somalia mnay have bugger-all taxation, but really, who the feck would want to live there?!

 



 

 

by Frank Macskasy on January 13, 2014
Frank Macskasy

@ Graeme,



"Benefits (incl Govt Super), working for families, paid parental leave and the accommodation allowance are government spending that is directly deposited in your bank account.

The tax that goes to fund university educations, roads, health services, legal aid, the Olympics, emergency rescues and disaster relief are not depositing directly into your bank account."

 

Seems a rather artificial distinction to me. After all, a business can have assets other than just the cash in their account.

by Graeme Edgeler on January 13, 2014
Graeme Edgeler

Seems a rather artificial distinction to me. After all, a business can have assets other than just the cash in their account.

It's not an artificial distinction. I'm not saying I agree with English's analysis - it's particularly woeful when he uses it with groups - but when talking about net tax, it makes perfect sense to use tax paid each week from you salary, and compare it with money deposited in your bank account each week from that tax.

Of course everyone gets lots of benefits, with value, from tax, but the argument being made about direct transfers to the government vs direct transfers from the government is simply not "oddly random".

by Andre Terzaghi on January 14, 2014
Andre Terzaghi

Seems to me this highlights one of the ways that we've become seriously f*****-up as a society: that we have a large part of our population working hard in honest jobs, and their pay isn't enough to make ends meet.

Frank, I'm curious about whether the poor do in fact pay more of their income in GST. Given that low-income earners pay such a high proportion of their income in rent (which is GST-free). I'm just quibbling here, overall I think a high GST rate is a sneaky way to extract more tax from lower income earners separately from income taxes. Then high income earners can bleat about what a high proportion of the (income) tax they pay is and conveniently neglect how much GST the poor actually pay.

by Richard on January 14, 2014
Richard

"...when talking about net tax, it makes perfect sense to use tax paid each week from you salary, and compare it with money deposited in your bank account each week from that tax."

Presumably Bill English himself gets his salary deposited into his bank account, and the money he is paid originates in tax. So, by this definition Bill English effectively doesn't pay any tax, and (one would hope for his sake) actually retains a considerable amount of what he is paid in by the tax payer. Which makes him a bludger? So is every government / tax-payer funded employee?

by Andrew Osborn on January 14, 2014
Andrew Osborn

Tim, thanks for the thought provoking post.

In a modern society there is so much interaction and cross subsidization of goods & services that trying to separate out the net value of an individual's contribution is nearly impossible. And what's the point? If we all do our best and contribute where we can then there is no problem. Bill's comment about "entirely appropriate" indicates he's not trying to beat up welfare recipients either. So in that respect it's a non-issue.

But taking this discussion further, what can we, as a society, expect from our welfare recipients? Much is made of their Rights & Entitlements but what about their Duties & Responsibilities to society? If they're fit for work but unwilling, do they have a lifetime right to welfare? Should we be paying welfare to fit, strong men who wear a gang patch and who openly flout the law?

Going back to the origins of welfare in NZ, the 1938 Social Security Act  said welfare was "payable to a person 16 years of age and over who has been in New Zealand for at least 12 months and is unemployed, is capable of and willing to undertake suitable work, and has taken reasonable steps to secure employment".

So the original intent of welfare contained a number of important caveats that seem to have been lost over time. Intergenerational welfare was not the original intention but it seems to be the outcome in some cases. Who'd have thought that the road to hell was paved with good intentions? ;-)

by Simon Connell on January 14, 2014
Simon Connell

“At any particular time, a large number of households effectively don’t pay tax.

“The income tax paid by these households is exceeded by the amount they receive from welfare benefits, Working for Families, paid parental leave and accommodation subsidies. That’s entirely appropriate for those families genuinely in need."


The first sentence needs to be read in the context of the latter two. "Effectively paying no tax" is OK for families genuinely in need, but not otherwise, says English. And effectively paying no tax means that the government directly pays you more money in benefits than you pay the government in tax.

As Graeme points out, we can distinguish tax-funded services that people use from tax-funded benefits which are paid into their bank account. Once the government's put money into someone's bank account, it's not easy to control what they spend it on. In the case of a family "genuinely in need", English presumably figures that they're going to use the money to meet their needs (because they pretty much have to) - and this might even be a more effective way of meeting those needs than the government spending the money to try to meet those needs. In the case of a family not "genuinely in need", this doesn't apply. Making the distinction doesn't seem as artificial in this context.

So, part of what English is getting at seems to be something like: if the government is effectively just giving people money over and above the amount necessary to meet their needs, to spend on whatever they want, then something's gone wrong. Redistribution gone mad, we could say. And Labour wants even more of this! Shock, horror etc.

Of course, if you're fine with redistribution and not a fan of inequality then this is not a shocking proposition, and the idea that the government might redistribute wealth over and above just meeting basic needs is not so horrifying. You might even think that there's some social good in the government ensuring that everyone has some level of discretionary income. And you might even want a more progressive tax system than the one English says we already have.

by Richard on January 14, 2014
Richard

"...As Graeme points out, we can distinguish tax-funded services that people use from tax-funded benefits which are paid into their bank account. Once the government's put money into someone's bank account, it's not easy to control what they spend it on.."

The government equally has little control over what a person does with many non-monetary benefits.

For example, a person might choose to use a taxpayer funded road to transport produce to a market and thus contribute to the local economy (legitimate), or a person might instead use a taxpayer funded road to go to the beach (bludger). Or a person might choose to use their taxpayer funded education to study engineering and thus contribute to NZ's manufacturing industry (legitimate), or a person might choose to study French surrealist literature (bludger).

In fact, it's much easier, if the government really wants to, to ensure that monetary benefits are put to "legitimate" uses, by merely inspecting receipts. It's much harder to confirm that somebody is using a road, their education, the postal service, or the public broadcaster in a "legitimate" manner. English is just singling out monetary benefits because it is a) easy to count, and b) what poor people tend to receive.

 

 

 

by william blake on January 14, 2014
william blake

Richard,

quel un chatte.

 

by Richard on January 14, 2014
Richard

Meow!

by Tim Watkin on January 14, 2014
Tim Watkin

Graeme, thanks for pointing out a distinction, but it seems a rather pointless and purely technical one. Is it really of any import in which manner you receive your taxpayer money? Is a direct payment somehow different in any material or philosophical way from a tax credit or, more extreme, a road? They're all a cost to the taxpayer.

Richard points to MPs' salaries as one payment missed off the list. Surely there are other government payments other then those four that go straight to your bank. A grant, perhaps? Say for an author or an academic prize winner. What if your business wins a government tender? Money's paid into your bank account presumably in return for building X or supplying Y. A young mum gets money in return for staying home to care for her baby. What's the difference?

Or more to the point, I still don't see the reason for English to spell out those four categories, except the political one.

by Tim Watkin on January 14, 2014
Tim Watkin

Andrew, I wasn't clear enough in my post, but I was giving English credit for pointing out that such payments were appropriate. And picking apart what that implied, ie that tax rates are set perfectly now. However... I was also asking why you'd specify those groups unless you were having a dig. It seems to me he was saying one thing in bald, plain terms, but dog whistling something else.

As for duties and responsibilities, I thikn we hear quite a bit about that. Benefits have always been dependent on those. I remember being on the dole in my 20s and having to sign the forms periodically confirming I was of age and looking for work etc. That hasn't changed... the problem now more so than in 1938 is a lack of jobs for the working age population.

In response to your question about paying fit men and intergenerational dependency, I always wonder about opportunity cost. Some will always abuse the system, but if they weren't catered for, what would they be doing instead? Starving? Begging? Beating up more old ladies?

by DeepRed on January 14, 2014
DeepRed

And what little tax cuts the bottom half got have been eaten up by living costs for essentials like housing and electricity. Living costs are driven up by industry cartelisation. And as an old-school Treasury man, Mr Blinglish happens to be in the pocket of industry cartels.

Tim W: "Some will always abuse the system, but if they weren't catered for, what would they be doing instead? Starving? Begging? Beating up more old ladies?"

Or selling drugs or their bodies. In extreme cases, warlordism or armed insurgency. The zero-welfare brigade really should be careful what it wishes for.

If you look at the most unequal parts of the Americas and South Africa, what's happened in practice is that the biggest winners have been vehicle bullet-proofers, bodyguards, and razor wire installers. It's no surprise that Communism made it big in much of Latin America, when during the Cold War it was used as a laboratory for US-based multi-nationals (the United Fruit Co popularised the term 'banana republic') and installed tin-pot dictators (Batista & Pinochet et al). Pablo at KiwiPolitico.com can explain the rest.

by Danyl Mclauchlan on January 14, 2014
Danyl Mclauchlan

English has been making this claim for years now, and every time he pulls the same trick: he precludes GST from his analysis. It's right there in the opening paragraph: 'net income tax.' But the message people take away is that lower income households are paying 'no tax'. They are, actually, paying 15% tax on almost everything they spend money on, because those demographics don't buy many properties or financial products. So English's argument relies on pretending that 1/3rd of the government's tax revenue doesn't actually exist. 

by Danyl Mclauchlan on January 14, 2014
Danyl Mclauchlan

AND! What really gets me about this scam is that English LOWERED income taxes and INCREASED GST! So his argument is: 'if you lower one type of tax and increase another, and then pretend that the second tax doesn't exist you see that lots of people aren't paying their own way.'  

by stuart munro on January 15, 2014
stuart munro

Bill's real purpose in raising the tax negative households is a red herring.

By asserting that households don't pay tax he obscures the rising costs imposed on them by his government. They get less support, and costs have risen. It's a serious regressive change.

But when have the right ever met their social responsibilities without a gun to their heads?

by Tim Watkin on January 15, 2014
Tim Watkin

Thanks for pointing that out Danyl, I knew I was missing something! So he's not only being selective on where the money goes, he's being selective about where the money's coming from as well! I wonder how progressive the system would look if ALL taxes were included...

Having said that, even if it's just income tax, it's still good that the system's more progressive than it was, right?

by Ewan Morris on January 15, 2014
Ewan Morris

I seem to be missing something here, Tim - how is the system more progressive when the top income tax rate has been cut and GST has been increased?

by Peter Brittenden on January 15, 2014
Peter Brittenden

here's another take on English's position... http://thestandard.org.nz/polity-english-lies-on-impact-of-tax-switch/

by Andre Terzaghi on January 15, 2014
Andre Terzaghi

 

English's numbers also leave out the key figures of what proportion of the total income is earned by the various categories he cites.

To completely fabricate an illustration, English quotes 6% of individual taxpayers earning over $100,000 paying 37% of total income tax "now", up from 29% in 2010/2011. But if the proportion of total income earned by this band went from say 30% to say 50%, then overall that's a regressive change, not a progressive change. Nor does he exactly spell out whether it's tracking the year to year change in the top 6%, or whether that "over $100,000" group was smaller in 2010/2011 than it is now.

by Tim Watkin on January 15, 2014
Tim Watkin

Ewan, it does seem counter-intuitive, but the figures are all there in the release for anyone to peruse... as far as they go. As Danyl and Andre have pointed out, for example, the numbers are selective.

by Andre Terzaghi on January 16, 2014
Andre Terzaghi

Rob Salmond's post, linked to by Peter Brittenden above, goes into the detail of the Treasury report used by Bill English. And comes to the conclusion that the changes Bill is using to create his positive spin are largely a result of an increase in transfer payments to the bottom end.

So it looks like what we have here is a system that has become more redistributive (take from the rich and give to the poor) at the same time as it has become less progressive (progressive meaning the rich pay a higher proportion of their income than the poor do).

Personally I'm all for a highly progressive tax system, up to a point. But being outright redistributive doesn't seem like so much of a good thing.

I gotta hand it to Mr English, he's put an outstanding polish onto this particular turd.

by Richard Aston on January 20, 2014
Richard Aston

I dunno but I struggle to take English's press release seriously. It just seems like election year spin, appealing to that type of voter who will think; welfare bludgers are also now tax bludgers , double bludgers ( would you like to super-size your prejudice). Firming up the conservative vote, hey why bother appealing to left leaning voters but lets make sure we don't lose our fringe voters.

Tim you are of course right to question the narrow focus and frankly the stats are so selective I'd question their usefulness.

 

 

by Lee Churchman on January 20, 2014
Lee Churchman

Once you account for the fact that people will draw on the public purse at some times during their lives and pay in at others (one of the former being your childhood) English's claim becomes a bit silly.

Secondly, since many of the products we purchase through taxation are insurance products, it's as pointless to complain about some people claiming more than they pay in to the public system as it is to complain about people who collect on private policies when their house burns down.

Thirdly, the idea that you can correlate the totals in tax you pay and income you receive with any moral entitlement is bizarre. There are so many externalities involved in human life that it would be impossible to calculate all benefits received and benefits paid for by any one person, and the whole idea is vestigiously religious anyway (it's the secular equivalent of God's Big Book of Lee Churchman's sins, etc.)

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