The front pages Weds all featured stories based on this press release from the Deputy Leader and finance spokesman of the National Party.
Joanna Average, who has earned the average wage since 2000, is only $500 a year better off now once tax bracket creep and inflation are taken into account… Mr English says the average wage has risen by 30% since 2000, but someone on the average wage in 2000, is now paying 42% more tax. “Wages up 30%, tax up 40%. There’s something very wrong with that.”
Is there, though? Let’s run some quick numbers off the case study the Nats provide:
2000 average wage: $33,968, taxed $6,623, which is a rate of 19.5%.
2007 average wage: $44,123, taxed $9,430, which is a rate of 21.5%.
But! Reconsider that 2007 wage without “tax bracket creep” – then tax would be $8,604. Or, to flip that around, it’s the difference between a net income of $34,700 and one of $35,500. (Both of them are well up on the 2000 net income of $27,300)
That’s what Nat’s claims amount to: less than a thousand dollars differential. Definitely, you’re better off with that extra grand, but it’s hardly the big loss to match the big numbers the press release throws around. The whole point of the press release is to win support for tax cuts, but the numbers just don’t back it up as a major issue.
The real issue is inflation. The Nats’ own calculations show that the effective loss of earnings due to inflation is $6842. In other words, inflation is the behind 90% of “loss of earnings”; tax bracket creep is responsible for only 10% of that.
(Did I get it right? Economics heads are invited to point out where I am hideously wrong, but obviously I don’t think I am. In any case, that’s enough math. I’m going to sleep.)