The left is wrong: poverty is falling and income inequality is not rising

"A Roy Morgan poll shows that the issue people are most concerned about is income inequality. This just goes to show how the persistent repetition of a lie bewilders the public. Income inequality is not in fact rising. And the child poverty rate has been declining for nearly 20 years, falling from 35% in 1994 to 16% in 2007 and recently returning to pre-global financial crisis levels in 2012” said Dr Whyte.

“Those who advocate socialism have exploited the public’s concern about a rising number of people being trapped into a cycle of dependency.  The Left’s repeated claims that New Zealand is getting more unequal are simply false and divert attention from policies that would help people out of dependency.

“Prior to the recent recession, there were 15 years of steady growth in median household incomes driven, in part, by the steady increase in the number of two-parent households where both parents are in paid employment (3% pa).

Figure 1: Real household income trends before housing costs (BHC) and after housing costs (AHC), 1982 to 2013 ($2013)

Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014).

 

“The net income gains from the mid-1990s to 2013 were similar for all income groups, so income inequality in 2013 was also similar to the mid-1990s” said Dr Whyte.

Figure 2: Real household incomes (BHC), changes for top of income deciles, 1994 to 2013

Source: (Perry 2014).

 

“The Gini coefficient – the most common measure of inequality – shows no evidence of a rise in income inequality since the mid-1990s. The trend-line is almost flat.

Figure 3: Gini coefficient New Zealand 1980-2015

Source: (Perry 2014).

 

 

“The Top 1% of income earners in New Zealand earn such a modest share of total earnings that the Occupy movement is left with nothing to protest about. The incomes of NZ’s top 1% of earners make up 8-9% of total incomes, as they have since the mid-1990s. It was only in the USA were the share of the top 1% continued to rise strongly, from 13% to 19%. New Zealand’s top 1% is performing so poorly that even the Swedish top 1% is set to overtake it”, said Dr Whyte

 

Figure 4: Top 1% income shares, USA, New Zealand and Sweden, 1970-2012

Source: The World Top Income Database at http://topincomes.g-mond.parisschoolofeconomics.eu/#Database

 

“Reducing inequality would not help to reduce poverty.  The causes of poverty are complex but failure to get an education is one.  Our one-size-fits-all education system has failed children from deprived homes for many years.  Charter schools have successfully lifted educational achievement for children in poverty in many countries. Yet the political left is against this ladder,” said Dr Whyte.

“Who doubts that if New Zealand had its own Bill Gates, the country would be both more unequal and more prosperous?  We need policies that encourage hard work, enterprise and success. ACT is the only party advocating such policies.

 “The last time there was a significant increase in income inequality was in the early 1990s and this spike in inequality was immediately followed by a 15 year long economic boom” said Dr Whyte.

ACT Party Opening Broadcast

 

Authorised by Garry Mallett, 809 River Road, Hamilton.

Green Party scores massive own goal as their own policy auditor criticises their fiscal plan

“The Alternative Budget released by the Greens does not even stack up in the eyes of their chosen auditor – Infometrics,” said ACT Leader Dr Jamie Whyte.

"Infometrics' review of the Greens' fiscal plan found revenue estimates to be very much on the high side and said it would be much more prudent to estimate considerably lower revenue from the party’s tax hikes.

"The revenue forecasts of the Greens simply did not take into account quite predictable behavioural responses to the massive increase in both the top tax rate and the trust tax rate that is paid by hundreds of thousands of small businesses and family farms in New Zealand. Infometrics had to call the Greens out on this."

To quote the relevant passages in full, so there is no mistaking the dodgy numbers in the Greens' Alternative Budget:

“Our second more substantial concern is that the estimates make no allowance for behavioural responses to the tax change. The type of impact is demonstrated in Figure 1, which presents the way that declared income evolved following the introduction of a 39% tax for incomes over $60,000 in the early 2000s. The majority of post 1999 income growth occurs at income levels below $60,000. In particular there is the development of an income spike precisely at $60,000 – a spike that did not exist prior to the tax change in 1999."

“If the incentive is large enough people will rearrange their affairs to reduce their tax exposure. The Green Party proposals to change the tax rate for trusts and to increase tax enforcement activities reflect an awareness of this propensity, but the revenue estimates do not reflect this awareness. Tax avoidance is not necessarily illegal, but usually reflects a combination of people perceiving that the system is not equitable and an overly complex tax system. The former creates the incentive, the latter the means, for tax avoidance. Taxpayers will be surprisingly fast at changing their affairs, and most changes will be quite legal."

"The Green Party tax revenue estimates take no allowance for a decline in the tax base and as such must be viewed as high-end estimates. We think it would be prudent to base fiscal estimates on considerably lower revenue estimates.”

The full review can be read here: https://www.greens.org.nz/sites/default/files/Appendix-Infometrics-Revie...

“The Greens cannot with any credibility claim that putting the top tax rate up to 40%, and putting up the trust tax rate to 40%, which affects hundreds of thousands of small businesses and family farms, will have no behavioural effects,” said Dr Whyte.

“The Greens cannot have any credible claim to a senior ministerial portfolio after putting out so naive an alternative budget.

"On one hand, the Greens' proposals for a carbon tax are pointless unless there are behavioural changes – people will buy less carbon intensive products. But the Greens then go blind to the obvious behavioural effects of large tax increases when trying to hide their ropey economic analysis and ideological hatred of success, choice and personal responsibility.

"The Alternative Budget of ACT explicitly took account of behavioural of responses of taxpayers to cuts in the top tax rate to 24% and cuts in the company tax rate to 12.5%. Some of the revenue offsets from these behavioural changes are immediate increases – to the order of 10% of revenue.

"The ACT party looks forward to a prosperous New Zealand.

"The Green party wants to tax and regulate New Zealand into poverty."

Subsidising failure

I’m new to politics. Until now, I never quite clicked how corrupt politics can be. I’ve learnt that most parties buy their votes. The election has become a bidding war.

Which party can use up the most of our money? Which party can make the most decisions for us? The left often reminds me of an adolescent girl with her mother’s credit card. It’s pathetic and irresponsible. With that attitude – and I don’t say this lightly – it’s no wonder we have inter-generational welfare dependency.

I’ve noticed that certain subjects make politicians uncomfortable. Race is one. Welfare is another.

I want to talk about the latter. I worked out why the left doesn’t want to touch welfare – ‘cos no one wants to be the bad guy, right?

The great Thomas Sowell once said, “Welfare is paying people to fail. Insofar as they fail they receive the money. Insofar that they succeed even to a moderate extent that money is taken away from them. We are subsidising people to fail in their own private lives, and they become reliant on hand outs.” Spot on.

It’s important to have welfare as a safety net – to help people out in their time of need, to help them get back on the horse. But the issue we have is welfare dependency. And it’s an issue that crosses generations. People choose to have children they can’t afford to bring up, both in financial and in emotional terms. These parents expect the state to take care of their children. Let’s think about these kids. What kinds of role models do they have? What kind of expectation and self-esteem do they have? Surely it can’t be a great life. Do they know discipline in work and study?  Do they have ambition to reach their potential and contribute to our community? Or do they resent others who are better off, but who are working hard to succeed because they’ve had the chance to learn how? Do these children then turn into repressed, frustrated individuals who are then likely to become criminals? These are questions we need to ask.

I am a 25-year-old woman, and sometime I would like children. I know and understand that bringing up just one child takes an enormous amount of time, money, emotion, energy and determination. I know that I only want kids at a time when I have these things sorted – because any time otherwise would be selfish. I don’t expect the state to bring up my child. I know how important it is for a young person to have strong parental role models in their lives – childhood is the peak of development, where attitudes are formed and learning techniques are developed.

What Paula Bennett has done is great. We’re moving in the right direction, but we still need strong incentives for people to leave the benefit. If you were receiving $400 a week from the government to sit on your couch and watch the Jeremy Kyle Show, and you were offered a part-time job with an after tax income of $300, would the work really be that appealling?

ACT believes reducing company tax to 20% will create more jobs with more hours of employment, encouraging beneficiaries to choose work over welfare. We understand we can’t change the way people think, but perhaps we can break the cycle of welfare dependency, and live in a country where younger generations will want to be responsible individuals, working in our society and reaching their maximum potential.  

ACT’s three point plan to respond to the coming global Economic Shock

Speech to ACT Party Members and supporters
Newmarket,
9am Monday 18 August
Dr  Jamie Whyte, ACT Party Leader

ACT’s three point plan to respond to the coming global Economic Shock

New Zealand is a small trading nation. This makes us especially vulnerable to global economic shocks or downturns.

How can we ride out the coming global economic shocks? How can we avoid being thrown into recession by international events over which we have no control? This is the big question for the country.

Not that you could tell it was by observing this election campaign. From the petty bickering and name-calling of our politicians and journalists, you might think that everything is plain sailing for New Zealand. There are no serious threats to the nation’s well-being, and the only question is who should get their hands on the tiller.

This impression is reinforced by the National government’s near perfect inactivity. In six years, they have done almost nothing to reform New Zealand’s economy. They thrive on the Prime Minister’s immense popularity rather than the success of any actions they have taken.

Well, I will make you a prediction. I predict that by the next election the gossip in Mr Hager’s book will be forgotten and the real issue affecting New Zealanders will be some global economic shock.  Journalists who today are fascinated by the Hager gossip will wonder why they were not asking our politicians about their plans to deal with global economic instability.

Being the bearer of bad news may not make me popular. Persian Kings used to throw the bearers of bad news down a well. That made the bearer go away but not the bad news. It won’t work in a democracy either. Voters who reject parties bringing bad news won’t prevent global economic shocks from occurring. They will just make effects of those shocks more devastating.

I am known as a “philosopher turned politician”, as the Herald recently put it. I was indeed a philosophy lecturer at Cambridge University for several years. However, I have spent a larger and more recent part of my career as a strategy consultant in the banking industry. About half of the projects I led involved advising global banks on how to measure and manage the risks they were taking.

I can assure you that the global economic situation will not provide New Zealand with plain sailing. Our bickering and steady-as-she-goes politicians are being negligent.  Those of us advising the banking industry are very concerned about the risks of another economic shock that could have devastating consequences, especially to small exposed economies such as New Zealand.

The global economy is today in a precarious situation. And, since the global financial crisis that started in 2007, developments in New Zealand have made us even more vulnerable to the next crisis.

Why is the global economic situation precarious?

The short answer is that the imbalances that have built up in recent decades and resulted in the financial crisis have not been corrected.

What is an economic imbalance?  It is jargon for an unsustainable position.  Your personal finances would be described as imbalanced if you have borrowed to the hilt on your mortgage and credit cards so that all of your income is going to repay interest and just a minor increase in the rate of interest would mean you could not make the payments. 

A growing number of countries have governments and citizens in just that position.  Interest rates today are at historic lows: the European Central Bank’s overnight rate is actually negative – you have to pay to deposit money with it.  But, as New Zealand itself has proved this year, interest rates must eventually rise and, if governments and populations remain highly indebted, we will see real carnage.

The global financial crisis of 2008 occurred because banks in the US and Europe lent excessively and recklessly. Why did they do that? 

Government regulations designed to make banks safe actually made them take on risks.  Deposit insurance and the implicit government guarantee created by banks being “too big to fail” meant they paid no price for excessive risk-taking. This created what is known as moral hazard. 

The policy response to the crisis has not solved this problem. On the contrary, necessary or not, the government bailouts of insolvent banks have only reinforced this moral hazard. The banking system of the world’s major nations remains a serious threat to economic stability.

The second underlying problem is excessive government spending and unfunded government liabilities. These problems are well-known in Europe. Governments there have spent so much on their various vote-buying programmes, and promised so much to future retirees, that they are effectively insolvent. Many already have debt greater than 100% of their GDP, and no prospect of honouring their promises to future retirees. If governments were held to the accounting standards of companies, they would be wound up.

The problem is just as bad in the US, where federal government debt is now $18 trillion and, according the American economist Laurence Kotlikoff, its unfunded liabilities created by entitlement programmes exceed $200 trillion. Not $200 billion. $200 trillion.

The government of the USA can continue paying its bills only because the rest of the world keeps lending it money.  We do that because the USA has the world’s reserve currency. But reserve currency status is not permanent.  Not very long ago Sterling was the world’s reserve currency. Some countries are trying to challenge the dollar’s reserve status.  It will not be easy but the challenge itself may lead to instability.

Then there is China. China’s explosive economic growth has been carrying much of the world with it. New Zealand and Australia have benefitted greatly from it. Much of China’s growth has been based on structural economic reforms – notably, on the shift from a planned economy to a market economy. The gains from these reforms are sustainable.

However, some of the growth has also been based on a reckless government-backed expansion of bank lending. Much of this lending has been to poor-quality businesses. The solvency of Chinese banks is imperilled and dependent on their government’s backing. Indeed, if Western accounting standards were applied to Chinese banks, many would now be declared insolvent.

Over the long run, the systematic misallocation of capital in China cannot be sustained. Chinese banks will eventually either fail or contract their lending or suck-up economic resources through more and more government subsidy.

Commentators used to say that Japan had found a new economic paradigm. Japan was going to be bigger than the USA.  Japan was different and its imbalances did not matter. Well, Japan has now been in recession for over a decade.

China must at some point tackle the imbalances in its banking system.  This will slow China’s economic growth. The knock-on effects for the global economy will be severe, especially when so many other governments’ finances are on a knife-edge. The knock-on effect of a recession in China for New Zealand will be severe.  China is now our most important market.

We cannot fix these problems from New Zealand. We can only manage our own affairs, making ourselves less vulnerable to the effects of a global downturn from these sources or the others that may blind-side us.

How can we do that?

ACT has a 3 point plan to prepare for the coming global economic shock.

1.       Reduce government debt

2.       Liberalise economic regulation

3.       Eliminate corporate welfare and economic planning.

Why will these measures make New Zealand more resilient to economic shocks?

Resilience to economic shocks is weakened by three things. The first, and most obvious, is debt. The more indebted you are when things go wrong, the harder it is to ride the storm. We all know this from our personal lives. If you lose your job, your situation is far worse if you are maxed-out on your credit cards than if you have savings.

The same goes for governments. A government that is highly indebted when a downturn strikes will find it expensive or even impossible to borrow the money it needs to keep functioning – to continue providing the education, healthcare, unemployment insurance and other services that governments now supply. This is what happened to Greece in 2011.

The New Zealand government’s debt has increased from about $30 billion in 2007 to $65 billion today, which is 36% of GDP. That is not high by comparison with the US, Japan and European countries. But that is nothing to be proud of. Those governments are outrageously over-indebted. What’s more, small countries have been shown to be able to sustain lower levels of debt, not just in absolute terms but as a proportion of their GDP.

Reducing government debt should be a priority. Even now that New Zealand has emerged from recession, the National government’s efforts in this area have been feeble. No debt will be repaid in 2014.

ACT recommends selling the government’s stake in all state owned enterprises, such as Landcorp (a government owned farming business), the energy generators and Air New Zealand. This would immediately reduce government debt by a third: that is, by $20 billion. And there would be no material loss in government revenue because the government’s portfolio of commercial assets delivers a return of less than 1% on capital – the kind of return that would get any portfolio manager fired.

Risk is also exacerbated by concentration: that is, by having all your eggs in one basket. Again, we all know this from our personal lives. Most of us have just one client: namely our employer. If our employer goes broke or turns against us, we lose our entire income. By contrast, a company with many customers can lose one or two of them without a dramatic loss of income.

The fortunes of a country that produces only a few goods, or supplies only a few services, is more vulnerable than one, such as the US, that produces a vast array of goods and services.

New Zealand’s economy is quite concentrated compared to the many other countries – most obviously, on agricultural output and, for now, on dairy in particular. Alas, such concentration is more or less inevitable for small economies. Divide the US into many little 4.5 million people regions, and you will find that most have more concentrated economies than New Zealand. Taking advantage of comparative advantage means that high-performing small economies will tend to be quite concentrated.

Which brings me to the third factor that exacerbates risk: namely, rigidity. When demand for what you produce falls, you need to start producing something else. Suppose the international price of dairy falls dramatically, perhaps because the Chinese economy goes into recession.

The current concentration on dairy production in New Zealand will not be a big problem if dairy farmers can quickly and cheaply switch production to something where demand has not collapsed. But if dairy farmers are effectively stuck with dairy, then they are in big trouble. And so are the other New Zealanders whose earnings depend on the success of the dairy sector.

The point is not specific to dairy farming. Anything that makes our economy less responsive, less able to adapt rapidly to changes in demand or in the cost of inputs, makes if far more vulnerable to changes in the global economy.

This is where governments do most to exacerbate economic risk – all around the world and here in New Zealand. The most obvious way they do it is through regulation. Governments impose rules that make it difficult to respond quickly and cheaply to changes in the economic situation.

Employment regulations make it difficult for firms to get rid of newly unsuitable staff or to change their terms of employment. And, on account of these restrictions, firms are reluctant to take on new staff. Employment law thus limits firms’ ability to respond to new circumstances. That’s one of the reasons ACT has proposed significant liberalisation of employment law in New Zealand.

Resource consenting also impedes our ability to respond to economic shocks or even to slow-motion developments. It can take many years and hundreds of thousands of dollars to get permission to put your land to a new use. The consenting process is so arduous and uncertain that many people give up before even embarking on it. Good ideas don’t get off the ground. This is one of the reasons that ACT proposes major reforms of the Resource Management ACT. The RMA is an enormous legislative wet blanket lying across the New Zealand economy.

Other political parties seem blissfully or, more accurately, dangerously unaware of the problem. Rather than seeking to diminish the role of the government in the economy, they seek to expand it. For example, Labour has become entranced by forestry. They plan to subsidise an increased production of trees. The Greens, of course, want to subsidize an expansion of “green” businesses. Even National have edged back towards the economic planning of Rob Muldoon, dispensing $1.7 billion a year in corporate welfare for their favoured firms and setting a target of doubling agricultural exports by 2025.

All such interventions simply make our firms less responsive to economic reality. They produce not what there is real demand for, but what the government is willing to subsidize. And the government’s willingness to subsidise certain things and tax others (as it must to fund the subsidy) responds not to economic reality but to political reality.

Politicians are aiming to get re-elected. Unsubsidized businesses are aiming to produce what people are willing to buy. A subsidized and government-directed economy will not respond properly or quickly to changes in the global economy. This is one of the reasons ACT rejects National’s corporate welfare and the other parties’ proposed return to central economic planning. By eliminating all corporate welfare, we could reduce the company tax rate from 28% to 12.5%. 

Like other Western economies, New Zealand’s is becoming “sclerotic”: slow to respond to economic shocks and changes in patterns of demand. This is not because people are lazy and dull-witted. People are always ambitious and they are now better educated than ever before.

The recovery from the recent global recession is so slow compared with previous recoveries not because people have slowed down but because governments are impeding them. If New Zealand is to thrive in a risky world, the government must spend and borrow less, it must tax less, it must regulate less and it must not try to decide what we should produce.

ACT is the only party in New Zealand that takes the risks we now face seriously. And ACT is the only party that understands that the answer is not more government, but less.

The current political “debate” in New Zealand – the accusations and bickering and name-calling – reveals a political class who have become obsessed with their own affairs and oblivious to the real risks to the population.

My message to the voters is “ask National and Labour what is their plan to deal with the coming economic shock?”

Then vote the party that has a three point plan. Vote for ACT.

 

Contact Ph 02102481006

 

The Greens have become full socialists

"The Green Party launch sounded like the launch of a socialist party.  The environment is now very much a second thought," said Dr Jamie Whyte.

"Mr Steven Joyce's response from National would have had more credibility except National's record on tax is not good.  New Zealand now has one of the highest Company tax rates among small open economies. Indeed, our corporate tax rate is higher than the average in the EU.  

"High company tax is discouraging investment and holding down growth and wages.  If National had a plan to reduce job-destroying taxes, they could have responded to the Green's socialist manifesto with a call to free enterprise and prosperity." 

 

Contact: Dr Jamie Whyte Ph 02102481006

The Sunday Series with Jamie Whyte - 17 August 2014

This week: Dr Jamie Whyte talks about ACT's Company Tax policy.

Same problems, same failed solutions

Shea Terrace, Takapuna

7.30am, 15 August, 2014

 

Same problems, same failed solutions

Extract from speech to North Shore Rotary

“At this election National is promising more of the same. The other parties are suggesting even more of the same. What we need is far less of the same,” said Dr Jamie Whyte this morning.

“Brian Fallow of the Herald wrote a column yesterday pointing out similarities between this election and the 2005 election. Not only do we have an incumbent party trying to win a third term, but the economic situation is similar."

Dr Whyte said, “Fallow could have gone further.  In 2005 Labour’s most valuable asset was the Prime Minister and in 2014 National’s most valuable asset is the Prime Minister John Key, who is even more popular.”

“To make his case about the economic similarities with 2005, Fallow points to a number of economic indicators, such as unemployment, wage rises and house prices."

“But Brian Fallow misses the important point. The economic situation is the same as 2005 in a more fundamental sense. After six years in power, National has made no serious changes to the structure of the economy they inherited from Labour in 2008. We have the same excessive level of government spending and taxation. The same over-populated central and local government bureaucracies. The same burdensome regulations. Even more corporate welfare,” said Dr Whyte.

“At this election National is promising more of the same: tax, spend and regulate. The other parties are suggesting even more taxation, even more spending and even more regulation.

“Only ACT is saying we need less taxation, spending and regulation.

“ACT says we need a fresh new approach after nine years of Labour-lite spending followed by six years of National-lite spending,” said Dr Whyte.

"We need an economy that is dynamic, resilient to shocks and quick to adapt to changes in global demand. That requires the government to play a smaller role and reduce the burdens it places on enterprising New Zealanders. We need lighter regulation, lighter tax and an end to corporate welfare – or government cronyism, as it is less politely called.

"ACT has put forward a positive practical solution: eliminate corporate welfare and slash the corporate tax rate from 28% to 12.5%.  This one measure, which is self-financing, will do more to promote investment, growth, jobs and real wages than all the policies being put forward by the all the other parties put together." 

 

Contact : Dr Jamie Whyte 021 02481006 

ACT wants politicians to stop meddling in private property

ACT wants politicians to stop meddling in private property
Press Release, Don Nicolson
5/08/14

 

“With the news about a pending sale of privately owned Lochinver Station to Shanghai Pengxin  once again stirring anti-foreigner feeling, politicians must show respect for private property”, ACT’s Primary industry spokesman Don Nicolson says. 

“Private property is a fundamental institution of a free and prosperous society. Politicians should not try to interfere with the voluntary sale of private property. If the Stevenson family choose to sell their land to Shanghai Pengxin, that should be no concern of the government’s.

“ACT isn’t concerned about the sale of private assets such as farms to anyone in particular because land is not mobile; farm employment that generates wage tax continues regardless of ownership; consumption of local inputs still occurs; and, hopefully, as a profitable business, even more tax and GST will be collected. Any owners must abide with our national rules. 

“If a foreign individual or firm can pay more than any other bidder, then their investment in New Zealand is welcome. That’s how markets should work. ACT believes it is the government’s job to defend property rights, not to undermine them”, Nicolson concludes

David Cunliffe exposes his ignorance on tax matters

David Cunliffe does not know that the economics of company taxation is all about incentives and dynamic feedback effects.

Today Cunliffe said that ACT’s policy of cutting the company tax rate from 28% to 12.5% would just transfer funds to the rich and would not be offset by increased economic growth. He is wrong on both counts.

A 12.5% Company Tax rate by 2020 will result in more investment, more jobs, higher wages and greater output. Additional revenue from this prosperity will reduce the government revenue loss of a 12.5% company tax by $625 million to $2.786 billion.

$1.7 billion of the $2.786 billion of the proposed company tax rate cuts between 2015 and 2020 are funded in 2015 by abolishing both corporate welfare and the greenhouse gas trading system.

The rest of the company tax cuts are funded by a part of the $1.5 billion new policies allowances already provided for by the National Party in each budget from 2015 onwards.

I am not surprised that David Cunliffe doesn't want to talk about ACT’s plans to abolish corporate welfare and cut company tax because his policy announcements to date show him to be a corporate welfare king. He wants to tax all companies at a high rate so he can dispense favours to a chosen few.

New Zealand has a company tax rate higher than any other OECD economy of comparable size.

David Cunliffe should know that, in a globalised economy, the good majority of company tax is paid for by New Zealand workers in the form of lower wages.

Wages rise in countries with lower company tax rates (such as Canada, Denmark, Finland, the UK, Sweden, Switzerland, Iceland and Ireland) because their workers have more capital to work with paid for by the additional capital inflow.  

A range of studies show that a 10% cut in the company tax rate can increase the GDP growth rate by 1 to 2% and wages by a similar amount (see Research Appendix below)

David Cunliffe should stop trying to tax, regulate and subsidise New Zealand to a higher growth rate. That is a fools’ errand.

David Cunliffe had nothing of substance to say in response to ACT’s tax proposals. He certainly didn’t want to talk about abolishing corporate welfare.

Labour prefers to return to the negativity of Muldoonism when New Zealand had the productivity of a Polish shipyard.

Cutting taxes will substantially increase wages and living standards in New Zealand. ACT has found a way to cut the New Zealand company tax to 12.5% by 2020 without cutting any existing expenditures except corporate welfare and the greenhouse gas trading system.

 A 12.5% company tax rate will make New Zealand the premier investment destination in the southern hemisphere.  

 

Research Appendix

1.     Fehr, Jokisch, Kambhampati, and Kotlikoff (2014) found that lowering the U.S. corporate tax rate from 35% to 9% and eliminating corporate tax loopholes would raise the U.S. capital stock (machines and buildings) by 15%, output by 5% and the real wages of both unskilled and skilled workers by 8%.

 2.     Mertens and Ravn (2013) reviewed U.S. post-war tax changes and found that a one percentage point cut in the U.S. corporate tax rate increased GDP per capita by 0.4% in the first quarter and by 0.6% within one year

3.     Lee and Gordon (2005) reviewed 70 countries to find that a cut in the company tax rate of 10 percentage points raises annual GDP growth per capita by between 1.1% and 1.8%. 

4.     Djankov et al (2010) analysed the taxation of similar sectors in 85 economies. They found that higher corporate income tax rates greatly discouraged entrepreneurship, foreign direct investment and economic growth. They found that a 10 percentage point increase in the corporate tax rate reduces the ratio of investment to GDP by 10% and the entry rate of new firms by 18%.

5.     Kotlikoff and Miao (2013) and Cullen and Gordon (2007) found that company taxes discourage the higher-ability entrepreneurs from expanding their businesses and going public to diversify risks.

 6.     Ferede and Dahlby (2012) found that a 10% cut in a provincial company tax rate in Canada raised the annual per-capita growth rate by 1 to 2 percentage points.

 7.     De Mooij and Ederveen (2008) found that a 10 percentage-point reduction in a country’s effective average corporate tax rate increases its stock of foreign direct investment, on average and in the long run, by over 30%. 

8.     Fuest, Peichl, and Siegloch (2013) found that a 1% increase in a German municipal business tax rate leads to a 0.3% to 0.5% decrease in local wages.  

9.     Arulampalam, Devereux, and Maffini (2012) found that in nine European countries a $1 rise in company tax liabilities reduced wages by 49 cents.

10.  Felix and Hines Jr., (2009) found that a 1% lower state corporate tax rate in the USA increases union wages by 0.36%.

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