OnPoint by Keith Ng

So the top 1% of taxpayers pay 15% of the tax, and the top 3% pay 26% of the tax? Does it mean we overtax our rich?

No, and I'm sick of writing about it. So, here are some interactive pies I prepared earlier. The angle shows income distribution (the broader the slice, the greater their share of the total income). The area shows tax distribution (the bigger the slice, the more they contribute to the total pool of income tax). If this doesn't make sense to you, compare the NZ graph with the equal income and flat tax graphs. Under a flat tax system, it looks like a normal pie graph, so all the distortions show the progressive tax system at work.

You can also click on each slice to break them down further. (Click outside the pie to zoom back out.) You need Flash to see this properly. You can get Flash here

The points are:

* Rich people have a very big slice mainly because they have a very broad slice. That is, they pay a lot of tax because they make a lot of money. Duh.
* Rich people get taxed more on their income (their slice sticks out more). That's because we have progressive tax systems. Duh.
* How progressive? At the top end, New Zealand's tax system is less progressive than Australia. Rich pricks in Australia pay more than they do in New Zealand, both proportionally and in absolute terms.
* At the bottom end, New Zealand's tax system is *far* less progressive than Australia. If you zoom in to the bottom 50% (i.e. Click on it), you'll see that Australia curves in very quickly – that's because the first $6,000 of income is tax free, which means that poor pricks pay very little tax.
* On top of this, Australia's bottom 50% have a bigger share of the total income. This is not a tax issue, nor about the income disparity between New Zealand and Australia. Income is more equitably distributed in Australia, even before tax is taken into account.

It's not some kind of tricky accounting. Australia has a tax-free bottom bracket, and at the top end, it goes all the way up to 45% (New Zealand's top rate is 39%). Australia's tax system is simply more progressive. This means it's low income earners who have a tax incentive to move to Australia, and 'rich pricks' who don't.

This idea that the

brain-drain is all about (or anything about) tax is just crap.

The other claims about New Zealand having an uncompetitive tax system are tougher to unwrap.

Does NZ have the third highest rate of personal tax in the OECD? Sure, if you don't count social security contributions. What social security contributions? Oh, right, New Zealand doesn't have that because we just pay it – i.e. Fund the welfare state – out of normal taxes. People in other countries pay a separate social security “tax”, a bit like the way we pay ACC separately.

It's a big chunk of the bill – when you include it for some countries and not for others, it's an entirely skewed picture, and doesn't represent what people actually pay, and what they take up.

Likewise, when our corporate tax rate is compared with other countries, it's never really comparable. Sure, we have “the third highest rate of corporate tax in the OECD”, but we also give these things called imputation credits. They're coupons for tax that's already been paid, so that shareholders get credit for tax that the company has paid, and don't have to pay it again.

Other countries don't have imputation credits clip half the tickets on each end – once when the company earns a profit, and again when that profit is doled out to shareholders. Of course, when you just look at this system and count half of it, New Zealand's rate will seem high by comparison.

So, does it mean that we should have a more progressive tax system? No. It means we should stop drawing simplistic conclusions from one-line statistics in op-eds.

Grump.


Notes:
* The graph uses 2007 IRD data because I could only get 2007 data for Australia, so it will be slightly different from the op-ed,

which cites 2008 numbers, I think.
* I was going to put UK stats in there as well, but they've aggregated their stats into a handful of very large brackets, which means it's impossible to extract accurate information on a granular level. If anyone has it (i.e. UK income and income tax distribution broken down by percentile, or by small income brackets) and don't mind sharing, I'd love to chuck it up too.
* This was going to go up two weeks ago, but the visualisation took longer than expected, and then Google vs China kinda took over. Here's the interview with Wammo:

Current status @ 07:20 NZT, 02:20 Beijing time, 14-01-10: Still conflicting reports coming out. It could be that Google has already lifted its own censorship measures. Or it could be that the censorship measures are still up, but because of the intense interest generated (and click-thrus) on sensitive subjects, small holes in the wall are being publicised and magnified.

It doesn't matter any more: People are getting through the wall.

However, being visible on search results doesn't mean that they can access the sites. But it's still a big deal.

Status @ 23:30 NZT, 18:30 Beijing time, 13-01-10: Heaps of reports of uncensored stuff. My post below may not be accurate. The images below show massive differences between google.cn results and google.com.hk results. The difference may be just a residual effect of the censorship - because Google ranks stuff based on links, previously censored materials may still be poorly ranked, even though they're no longer censored.

And now, watching and waiting to see when the site will go down. Why *isn't* it down?

Status @ 22:30 NZT, 17:30 Beijing time, 13-01-10: Despite reports to the contrary Google.cn is still censored.

Here is the results of a Google.cn image search for "六四事件", or "6-4 incident", which refers to the Tienanmen Square massacre, which occurred on 4th of June, 1989.

And here's the results from Google.com.hk and Google.co.nz for the same term - WARNING: Disturbing images follow.

--

Remember about, oh, a decade ago? Before 9/11? After the Battle of Seattle, when everyone was talking about multinational corporations taking over the world, about corporate states and all of that?

Yesterday, we officially tripped over this point in history.

Take a step back and consider the situation: Google is threatening to embargo a superpower, in retaliation for an espionage campaign.

I mean... holy fucking shit.

Unlike, say, the East Indian Company, it doesn't have a navy or an army. It doesn't control the food supply, have significant land holdings, raw resources, or industrial base. It doesn't have vast numbers of employees, it can't hold the financial system hostage.

It doesn't even control the internet.

All our expectations for how these companies would project their power was wrong.

Only a small part of the threat is economic. Sure, Chinese businesses might not do as well if they couldn't deal with Google, but dealing with local search leader Baidu, or Microsoft, or Yahoo, that's hardly going to cripple the economy.

The truth behind Google's threat is best summed up by this line, which was floating around on Twitter:

"It's not Google leaving China, it's China leaving the world."
不是谷歌退出了中国，而中国退出了世界。

We've always thought of companies as having to buy their way to power. After all, they are defined by money. But multinational corporations have finally taken their place in the spotlight of world affairs (instead of pulling strings all the time), and it wasn't with money.

Google represents access to the internet. So by proxy, it represents Everything. When China had a full buffet of Google, and Yahoo and MSN and Baidu, it could maintain the illusion that people really had access to Everything.

If Google takes itself off the table, it will become clear that they don't, and that goes

to the heart of the social contract between the Chinese government and its people.

It's soft power of the abstract, symbolic kind.

--

A few quotes from Twitter:

"It's not Google leaving China, it's China leaving the world."
不是谷歌退出了中国，而中国退出了世界。

"Illegal flowers, illegal loitering, illegal web surfing. When the word 'illegal' is abused like this, that's the day when the dignity of the law is stepped on."
非法献花、非法逗留、非法上网. “非法”二字被滥用之时，就是法律的尊严被践踏之日

"Google withdraws from China, signalling the four big international websites' (Google, Facebook, Twitter, Youtube) complete defeat; anti-Chinese forces have met with huge failure in China, once again proving the undefeatable power of the great, glorious and correct Chinese Communist Party."
谷歌退出中国，宣告Google，Facebook，Twitter，Youtube四大国际网站全面溃败，反华势力们在中国遭遇了巨大的失败，再次证明伟大、光荣、正确的中国共产党战无不胜的能力

(Swear to god - that's an honest translation.)

Dear Dr Oliver Hartwich, research fellow at the Centre for Independent Studies: You, sir, are a grossly ignorant douche.

It's a nice concept for an op-ed, the idea that the pornography industry is a hotbed of innovation. It must have even seemed nicer, when you had the genius idea of attaching “social improvement” to the end of that sentence. It allows you to talk about porn, *and* about how every slither of capitalism is awesome.

Shame that you don't know what you're talking about.

On Monday the [Sydney Morning] Herald reported from the Consumer Electronics Show in Las Vegas where 3D porn was the hot issue for technology geeks this year. A porn actress, who had just starred in one of the industry's first 3D films, was quoted as being ''very excited'' to pioneer this new field. She should be. Once again, the porn industry turns out to be a force for good - unintentionally.

Schools will use new 3D television techniques to teach. Imagine how geography lessons will come alive if classes can virtually wander in faraway places using 3D glasses. Physics and chemistry experiments too dangerous or complicated for classrooms could also be shown on a 3D screen.

You know that 3D television is just an optical illusion, right? If there's a 3D porn star facing you on the 3D television, you can't go behind the TV and see her ass. Likewise, 3D glasses won't allow you wander virtually in a 3D world. An ability to explore in the third dimension requires the information to be stored in 3D. Such technology won't be available until well into the distant future, in a world where America has a black president, and where electricity is as common as running water.

Did you even Google “3D maps”? What decade are you living in that 3D maps have to be “imagined”?

And have you even been to school? What kind of physics or chemistry experiments are better understood with 3D video than with 2D video? Is looking at a beaker in 3D more informative than seeing it in 2D? Are you going to illustrate projectile motion experiments with “OMG – it's coming right at you! (thus making it virtually impossible to see what it's actually doing)”?

If experiments are too dangerous to perform in schools, how can students see them? WITH VIDEOS!! BECAUSE THAT'S WHAT 3D VIDEOS ARE. **VIDEOS**!!

Christ.

Before you and your thinktank declare 3D television to be porn's gift to children, you ought to have a clue about what it actually is. 3D television adds fake depth perception. So does drawing shadows and shades. It's pretty cool as an experience, but it adds very little information.

Should the parents of the future wish to thank the brains behind these teaching improvements, they would be surprised. Far from being the result of some philanthropic engagement, the new technologies will have been conceived not in an ivory tower but as a byproduct of the sex industry.”

You, sir, are just plain making shit up.

Do you have any factual basis to claim that 3D television is somehow there because of the porn industry? That it was even developed by the porn industry?

The porn industry buys 3D equipment. Great. But rather than crediting people who use the technology with its development, perhaps you should credit the people who developed the technology for its development? Maybe? Just a little?

You've given porn credit for a technology that it didn't invent or create, you've claimed that the technology can do things that it can't (while other technologies have been doing those things for a decade), and then you've claimed that because porn brought such miraculous gifts into the world, and because it's greedy, therefore greed is a bringer of gifts into the world.

No, I think you've just made a case for greed being 3D.

And then, you said:

That lazy government officials could be preferable was demonstrated nicely in Hong Kong. When it was still a British crown colony, its financial secretary, Sir John Cowperthwaite could not be bothered collecting extensive statistics; he just kept taxes low and regulation to a minimum. Whether this was genius or just plain laziness, it definitely helped to make Hong Kong one of the most prosperous places on the planet.”

Maybe the massive influx of capital, skilled and unskilled labour was significant too? Maybe people didn't move to Hong Kong for the low taxes and the liberal regulatory regime, but for the absence of a civil war and a cultural revolution? Maybe? Just a little?

Dr Oliver Hartwich, research fellow at the Centre for Independent Studies, you and your organisation claim to champion innovation and enterprise, but you show utter indifference to the science, technology and reality on which innovation and enterprises is built.

Or, you're a mole who've just done a fantastic job of discrediting the CIS.

It's been a year of quiet catastrophes, greeted with vacant smiles.

Just a month ago in the Long-term Fiscal Statement, Treasury painted a business-as-usual scenario, where New Zealand continued on its previous course and indentured the next generation into backbreaking, unsustainable debt – 223% of GDP by 2050.

The half-year update released this week shows we're still going to run deficits for a while, but we'll get debt back down and maintain it at the long-term target of 20% of GDP by 2024.

The two are completely different scenarios, of course. The Long-term Fiscal Statement scenario is a hypothetical one which excludes the massive cut made in the 2009 Budget. It is this cut that made our debt problem disappear, it is this cut that shapes our long-term fiscal position, and it is the consequences of this cut that we will struggle to live with, and struggle for the foreseeable future.

It looks dry on the books: $650m off the new operating expenditure allowance from 2010/11 onwards. But with the release of the Long-term Fiscal Statement, we have a clearer picture of what it actually means:

Spending on public services per person real terms will be reduced each and every year for the next fourteen years. It will not return to present levels for almost forty years.

Over the same period, superannuation per person will grow by 66%. That's not an effect of the aging population. The population will age, and the number of people getting superannuation will grow massively, *and* each one of them will receive 66% more in inflation-adjusted terms.

And even as spending on public services stagnates over those four decades, more and more of it will be spent on services for the aging population. This means that spending on schools, police and other services will be hit with a double-whammy.

Babyboomer will take a bite from both ends: They will draw down an increasing amount in superannuation. They will eat up an increasing share of a stagnant pie.

And why is the pie stagnant in the first place? Because they demanded for four years that the Labour Government give up its “excessive” surpluses, and it caved with more Working for Families and massive tax cuts. And then they voted in a good-times National Government which gave them another set of tax cuts, and promised not to cut their future incomes or their present benefits.

This is not the worst possible scenario. It would be worse if National continued spending and left nothing but debt behind. That'd be worse. If we carried all the costs now and made deep cuts to services or steep hikes in taxes, that might be fairer, but it would be more painful. And perhaps the stance on superannuation will change at the next election. I hope it does – any party that fails to support a change to superannuation entitlement will be downright irresponsible.

Given how far we've wandered down this path, National's choice at the Budget might be reasonable. But the point is, this is the year it's finally bubbled up to the surface. It's time we wake up and smell the shitty coffee – we're in for a decade and a half of public sector decline.

Perhaps National can cut enough fat off the civil service to find enough money to get through next year without reducing services. But once they cut all the fat, are they going to cut all the fat again? And again? For fourteen years? “Do more with less” might work the first time, but it won't be long before it just turns into punchline.

It's downright farcical to talk about us going into surplus, as if it was just a function of economic forecasting. Like some Treasury boffin tweaked some numbers and poof - billions of dollars materialised.

All these numbers are just chalk outlines showing how deep the cuts will need to go. The knife will come next year, and the year after that, and the year after that...

Update #6: Morgan wants a flat 25% tax, a $10k univeral allowance, 1.25% capital tax (not CGT, but tax on capital). Conceptually wonderful idea. Clean and beautiful. So's communism.

Update #5: Gareth Morgan: "The biggest suckers in the tax system are PAYE earners. Suckers. So the government lets them have rental property, just as a sop."

Update #4: $213 billion invested in rental property. 5 times the size of our stock market. Recording a tax loss of $500m. Negative tax (subtracted from other taxes) of $150-200m. ZONK!

Update #3: Really picked up with Norman Gemmell from Treasury. First, he pinpoints the issue that right-wingers have been saying since 2005 - that Working for Families creates a high marginal tax rate and reduces incentives to get into work. It's particularly salient since WFF is high on the list of things that'll be reviewed.

It's split into two parts - there's the "100% marginal tax rate" that's often cited, but that's just one point for people earning around the $20,000 mark. Even Susan St John says that this is a poorly-designed part of the system, though noting that it only affects about 3000 families.

Gemmell's more interesting part was about abatement: That the whole problem of high effective marginal tax rate (EMTR) is caused by abatements (getting less in benefits) as you climb up in income. The way to lower EMTR is to lower abatements, but that means more people on higher incomes getting more benefits. Conversely, if we stopped high income people getting benefits, people on the margin will get hit with a very high EMTR.

Getting rid of the first bump in the EMTR is quite doable - but the trying to smooth out or wind up the boundaries in who gets WFF is going to be a fundamental struggle.

Update #2: Oh, right, nearly forgot. Alignment to 30% is going to cost $1.65b. Roughly. Ch-ching!

Update #1: Dull morning so far here at the TWG. Where's Don Brash to spice things up when you need him?

Bill English make a dig at government spending, saying that the productivity for the rest of the economy is sound, it'the productivity of the public sector that needs to be scrutinised more.

Stuck will ruling out capital gains tax, but remained coy on other options like land tax.

Made a point that fiscal drag will put the average earner into the top tax rate by 2022, if nothing changed, and this was unacceptable. Which means that something had to give.

Bob Buckle and Rob McLeod basically laid out the aims, which is to find a way of paying for an alignment of the personal/trust/companies rate to 30%. It's about ironing out the kinks in the tax system, which is fairly apolitical stuff. But with to lower the personal rates, they've got to put in something else, which wanders back into political territory again.

Yawn. Hope this gets more interesting.