Kiwisaver success is in National's hands

John Key expended much energy in Parliament yesterday afternoon criticising the budget from Labour's Socialists as a "money go round" Budget -- a budget in which the derisory business tax cuts* and the half-arsed Kiwisaver "tax credits" were offset respectively by a virtual payroll tax and by higher petrol taxes. Now while he's right about the give-with-one-hand and take-with-the-other Budget, in the end the criticism is as empty as Key is shallow since at the end of the day his team would do no different. There are two main areas of the Budget that are relevant here.

1. There were no personal tax cuts. But neither are there any tax cuts on offer from the opposition -- in fact as Cullen pointed out, Billy Boy English has already ruled those out. So no difference there.
2. The success or otherwise of Cullen's Kiwisaver scheme, a scheme devised by politicians, depends wholly on the degree to which people sign up to it (or, more accurately, don't sign out from it), and that decision will be made by savers based almost wholly on their expectation of future wealth to be delivered by the scheme including, crucially, that any wealth that won't be meddled with politically. Which means that the bureaucratic mare's nest that is Kiwisaver could be extinguished almost immediately by the simple political statement from either Key or English that if elected in 2008, they would deal to this scheme as Muldoon did to the last Labour compulsory savings scheme -- by scrapping it. Such an announcement would see future expectations of Kiwisaver wealth wither before they were born, and see Kiwisaver as a viable scheme gone by lunchtime. Which means if they really believed in their criticism of Kiwisaver, then it's within their own hands to extinguish it. But National's socialists aren't going to do that, are they, making their criticism about as shallow as Helen's bird bath.

And we can see once again that between Labour's Socialists and the National Socialists there's a difference only as slim as the thickness of a small red flag. Tweedledum and Tweedledumber.

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* Yes, derisory. As one Newstalk ZB correspondent so eloquently pointed out this morning:

• Most NZ businesses are sole traders or partnerships who pay tax at the personal rate. No tax cut there.
• Limited companies generally pass their profits on to shareholders, who who pay tax at the personal rate. No tax cut for them.
• Large corporates generally pass profits on to shareholders as dividends with tax credits attached; but those credits are then measured against the shareholder's own personal tax rate. No tax cut there either.

Or perhaps "derisory business tax cuts" is the wrong phrase. How about, "the illusion of tax cuts"?

UPDATE 1: Julian explains in the comments below why, "All else being equal, the decrease in the business tax rate will not impact on the revenue the government steals."

In an imputation tax environment, corporate tax is essentially a withholding tax. The important tax rate is the personal tax rate. Since this is not changing, then theoretically the amount of tax received by the NZ government (personal + corporate) will be unchanged. The quantity of personal tax paid to the government is going to go up. The failure of the business press to identify this is disappointing. The failure to highlight this in the budget yesterday is disgusting.

Read on for the complete point. UPDATE 2: John Boy talks hoaxes to TVNZ:

"Perhaps the biggest hoax perpetrated in this Budget was on businesses, which on the one hand get tax cuts but on the other are forced to match their employees' KiwiSaver contributions in a cruel money-go-round," says Key.

And perhaps the biggest hoax perpetrated by this opposition is that they could kill Kiwisaver with one sentence: "If elected, we will kill it and return your money." But they won't, will they. Watch him dodge that question on Close Up last night [video. UPDATE 3: Says one business owner who emailed me on this:

Incidentally, one of the questions I will be asking when interviewing a potential new employee is "Do you wish to participate in Kiwisaver? If the answer is "Yes", it is extremely unlikely they would be employed by us. How many other employers will do this? Interesting question.

UPDATE 4: Cactus Kate takes exeception to Fran O'Sullivan's description of Michael Cullen's eighth Budget as "a fiscal money-go-round that would do a Virgin Islands tax-dodge designer proud." As a designer or Virgin Islands tax dodges herself, Cactus takes "a certain professional umbrage at comparing the fiscal finesse and rounded respectability of Virgin Island tax-dodging (legally referred to in the business Fran as "taxation minimilisation specialist") to Cullen's performance as Finance Minister," and notes that:

Theft and fraud was illegal in New Zealand last time I checked. Receiving proceeds of crime was also a criminal offence. Therefore those who benefit from the surplus are created criminals from Cullen's go round. Tax dodging has far more legal credibility.