Our only Prime Minister, on Radio NZ
“I utterly reject those propositions. Twelve percent of households pay 76 percent of all net tax in New Zealand,” he said.
I’ve written about “net tax” before, both on StatsChat and elsewhere. It has to be defined and analysed carefully and non-intuitively in order to get these sorts of results.
Suppose we had an imaginary population divided into three groups. The ‘Low’ group, of 10 people, each pay $1000 in income tax, $1000 in GST, and receive $1500 in cash benefits. The “Middle” group, of 5 3 people, each pays $4000 in income tax, $3000 in GST, and receives no cash in benefits. The one person in the “High” group pays $17000 in income tax, $8000 in GST, and receives no cash in benefits.
According to Mr Key’s definition, the high-income group pays 71% of the “net tax”. The middle-income group pays 50% of the “net tax”, and the low-income group pays -21% of the “net tax”. That’s even though every person in this imaginary population pays more in tax than they receive in cash benefits.
There are three strange things going on here. The first is that GST is ignored. That’s obviously just wrong — GST is just as real as income tax. The second is that cash benefits are treated differently from all other categories of government expenditure, even other categories such as subsidised medications that provide a direct, quantifiable individual benefit. The third is that percentages behave strangely when you have a mixture of negative and positive numbers. It’s quite possible, by choosing the subsets of the NZ population correctly, to find a group that pays well over 100% of the “net tax”.
Percentages become a lot less useful when they aren’t bounded by 100, and people who want to communicate accurately should avoid them in that situation. And if you want to distinguish income tax revenue from GST revenue, you should clearly explain what you’re doing and why.