The problems of a tax-free threshold

Jim Rose details the problems with a tax-free threshold for the NZ Taxpayers Union. 

Running one that's revenue-neutral means you have to increase marginal rates further up. Increasing marginal rates to fund inframarginal transfers mightn't make the most sense. And there are better ways of targeting support, if that's what you want to do. 

He writes:

The introduction of a tax-free threshold is poorly targeted with many of the intended beneficiaries of the policy already receiving other Government support such as benefits, superannuation and tax credits, which could be increased without spillovers to other higher income groups.

The more important tax threshold that needs to be adjusted is the $48,000 income tax threshold that when crossed sees individuals paying a 30% marginal tax rate. Given that a full-time minimum wage worker earns $47,216 annually, they only need to work one additional hour a week or get a 40 cent per hour pay rise in order to be pushed into the higher tax rate. This, combined with the 27% abatement of Working for Families tax credits, can create punishing effective tax rates well above 50%, which has significant impacts on incentives to work.

Most of those in incomes low enough to substantially benefit from a tax-free threshold are either in groups where more targeted support can be provided (such as those listed above), are students working part time, or are second earners, again working part-time.

The tax-free thresholds proposed by the Greens and Te Pāti Māori, along with the one considered earlier in the year by Labour, would cost more than what is currently spent on Working for Families but spills over to many taxpayers who do not need it, rather than just those the policy intends to help.

 

Value for Money: election broadcasting edition

New Zealand subsidises party political advertising during the election campaign. Parliament allocates funding to the Electoral Commission for the Broadcasting Allocation, which funds short political broadcasts. It appears that Parliament allocates a fixed amount of funding, which the Electoral Commission then divvies up amongst the various parties in accordance with their support.

I generally oppose the Broadcasting Allocation. Mechanisms like this always need to tread a careful line between overly advantaging incumbents and providing too-generous of taxpayer support to fringe movements opposed by most voters. So National and Labour get about two-thirds of the monetary allocation and just under half of the available minutes.

But, if we're going to have this kind of thing, I can think of no better use of the money than its being provided to The Civilian Party. Recall that The Civilian Party is something of a protest movement promising free ice cream and llamas. The New Zealand Taxpayers Union, which I generally support, has opposed this use of government funding. But where the funding comes out of a fixed pot, it's only at the expense of the other parties: were The Civilian Party's allocation removed, the other parties' allocations would be increased.

I'm willing to bet that viewers will receive far more utils from the two minutes of Civilian Party advertising than they will from that of any other party. Funding reallocations away from The Civilian Party will reduce total national utility. Redirecting funds away from the other parties and towards The Civilian Party, on the other hand, seems a fine idea. 

I think the NZTU got this one wrong. 

In the alternative, I humbly submit my request to get to be the one who decides which parties are really jokes in 2014. The list isn't short.