Monday, February 11, 2008

A third of working families effectively do not pay tax

After announcing tax cuts, Finance Minister Michael Cullen has the audacity to ask employers to pay their staff more so he can get more tax to fund these tax cuts in order to curb the reduction in his surplus - a surplus generated by overtaxation in the first place.

Ironically really.

A third of all families in this country who don't receive benefit income effectively pay no tax anyway, because they get more from Working for Families. Lindsay Mitchell has blogged the figures
. Families who receive some benefit income: 164,400,
Families who receive no benefit income, but receive more than they pay in tax 66,500,
Families who receive no benefit income but receive less than they pay in tax 125,900.
Total 356,800.

I am assuming that the other two thirds includes families without kids, and those who get just the In Work Payment for going to work, so of working families who do have kids, well over a third do not effectively pay tax. So any tax cut for theses families is effectively a handout.

When Cullen cut the company tax rate, did he want employers to use it to increase productivity, leading to higher salaries and more tax for the Government?

Didn’t work, did it?

So instead the Government wanted to have more people on lower incomes rather than fewer on moderate incomes. Its called increasing the participation rate. More people are in work - collectively paying more tax on low incomes - but because interest rates are so high, these people were forced to work or increase their hours to make ends meet - not to increase their disposable income. The Government is saying that fewer people are collecting benefits - meaning a lower proportion of tax is paid on welfare.

So Cullen has already got the money off us all. So why can't the scrooge cut taxes and increase WFF payouts for low-income families - particularly as there is no incentive for businesses to grow the economy and lift wages. There is no incentive for families to work longer hours unless they have another child as any increase abates WFF further.

UPDATE Matt McCarten agrees Read it all. Hers a snippet
Until now, government initiatives have arguably let low-paying employers off the hook and have institutionalised a poverty trap. For example, rent subsidies paid to low-income workers make no difference because rents have increased in response to soaring house prices. Although the heralded family support is a welcome relief to low-paid parents, it helps sheet in low-paid wages. This comes about because any increase in wages a parent may get is then deducted from their family support, neutralising any benefit.

Employers have used this contradiction to persuade their workers that paying them more money is pointless.
my initial story is here




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