Should the government borrow?

April 11, 2009

Should the government borrow:

* to enable middle and upper income families to buy luxuries?

* to buy and maintain high country farms?

* to fund the Families Commission?

* to support a bloated public service?

The survey  commisioned by the Business for Sustainable Development didn’t ask those questions, it just asked if the government should borrow to fund tax cuts.

But if the previous government wasted so much money on these and other money wasting projects the current one wouldn’t have to borrow to fund them now.

Had the previous government  not overtaxed and overspent we’d have had tax cuts long before now.

If it had spent more on policies which promoted economic growth instead of those which stifled it we’d be in a much better position to meet and recover from the recession.

But it did which leaves this government to clean up the mess and get the economy growing again.

Because the previous administration spent the lot, this one has to borrow. That’s not bad in itself as Adolf at No Minister points out:

. . . just so long as the borrowing is funding capital expenditure and only sufficient tax is taken to fund operating costs and service the debt over the lifetime of the asset.

That’s what prudent people and businesses do and it’s not imprudent for governments to do it too.

Spot the difference

October 15, 2008

Successive Australian Finance Minsiters have run surpluses, given tax cuts year after year and had money left over for a rainy day which it’s now using to help its citizens.

Michael Cullen has run surpluses, only now and with great reluctance given small tax cuts and has nothing left over now the storm’s broken.

Everything comes at a cost

October 13, 2008

More in your pocket may come at a cost.

This is the headline on an ODT opnion piece by Elizabeth Mackie, a Dominican Sister, who is writing on behalf of the Dominican Mission and Justice Committee.

She concludes by saying:

I’d like to offer a simple checklist to help us vote beyond the rhetoric of tax cuts.

If tax cuts come with increased government borrowing and debt, the cost is too high.

If tax cuts further limit the resources available for protecting species, or taking care of national parks and wild places, or protecting the Earth itself, the cost is too high.

If tax cuts mean that fewer resources will be applied to address climate change, the cost is too high.

If the billions spent on tax cuts mean that less is available to meet historic Treaty claims, the cost is too high.

If tax cuts result in increased numbers of children living in poverty, the cost is too high.

If tax cuts are achieved through reduction in health, education and social support services, the cost is too high.

If tax cuts reduce the nation’s capacity to habilitate prisoners and compensate victims, the cost is too high.

If tax cuts deepen divisions in the social fabric of this nation, the cost is too high.

What price tax cuts? We all need to be sure about the real costs before we tick the boxes on November 8.

If those are her priorities, then it is not only the cost of tax cuts which is too high, so too is the cost of everything else which doesn’t address the issues she’s raised.

If we look back at the last nine years of Labour’s mis-management we can see that, by Elizabeth’s criteria, the costs of much of their policy has been too high.

And today we have another one – a universal student allowance.

Keeping Stock notes the country is broke and asks: where is the money coming from?

Everything comes at a cost but good policy also brings benefits which justify the cost.

A universal student allowance is not good policy and the benefits to the few who receive it will not justify the cost to the many who pay for it.

It certainly woudn’t get any ticks when measured against Elizabeth’s checklist.

Nats tax cuts less but more

October 8, 2008

National’s tax cuts are lower than planned before the mess Labour’s made of the economy became evident, but still more than we’d get from Labour.

Workers on the average wage will get an extra $18 a week from April 1 next year under National’s tax package, and they will receive $47 a week more than they do at present by 2011.

The tax cuts would be funded mainly through cuts to the KiwiSaver scheme.

. . . Incorporating Labour’s October 1 cuts the same worker would be $47 better off by April 1, 2011.

The package outlined by Mr Key included movements in both the thresholds that different rates started and drops in the actual rates themselves.

It also included a tax rebate of $10 per week for taxpayers earning between $24,000 and $50,000 who do not receive anything from Working for Families.

Labour, which ought to have known more about the state of the economy, is going to take two weeks to adjust its policy in light of the bad outlook. But National to whom the amount of red ink would have been a bad surprise has managed to get its policy out in just two days.

Who’re we going to trust – Labour, who already knew what was happening and still don’t know what to do about it, or National who have assessed the situation and acted?

Tax cuts trimmed

October 7, 2008

The red ink is worse than expected so National is scaling back its tax cuts.

“We have made some changes to our tax package in light of the news Michael Cullen dished up in yesterday’s pre-election fiscal update (Prefu),” Mr Key said.

“The thrust has not changed. But we are being realistic about what is fair and affordable in light of the mess Labour will be leaving behind it.”

Following on from the Labour tax cuts of October 2008, National would still be making further tax reductions on April 2009, April 2010 and April 2011.

“The largest chunk of this tax reduction will be provided on April 1 next year.

“For someone on the average wage, the actual amount of the tax cuts will be similar to that which we have previously signalled, and I will detail those numbers tomorrow.”

Guyon Espiner said on TV1 (not on line) he thinks the average income earner will still get around $50 a week off their tax but the upper income earners won’t get as big a cut as was expected.

Tax rate & tax take

October 6, 2008

Critics of tax cuts always say they’ll be matched by spending cuts on the assumption that the tax take mirrors tax rates.

Obviously they’re related, and one affects the other, but they don’t necessarily move dollar for dollar nor in the same direction.

Ruth Richardson showed charts at a public meeting in Oamaru before the 1993 election which clearly demonstrated that while tax rates had fallen the tax take had risen. Among the reasons for that was a decrease in tax avoidance and an increase in productivity.

When Labour put up the top rate with its envy tax in 1999, among the immediate beneficiaries were lawyers and accountants as people hit by the new 39c rate on earnings over $60,000 sought to minimise their liability so the rate rise wasn’t met by a corresponding take rise.

National will announce its tax package on Wednesday and it’s sure to be met with accusations that every dollar gained by tax payers will be one lost from social services.

That won’t be the case because National has already made it clear its priority will be front line service delivery and that any savings will come from sorting out the bloated backrooms.

Unfortuantely there will be no miracles regardless of which party wins the election. But if it’s National, better economic management than the profligate spending of the past nine years should boost productivity and growth. That means more businesses and individuals making more which ought to generate a greater tax take from lower rates.

They give with one hand . . .

September 30, 2008

It’s taken Labour nine years to allow us to keep a little mroe of our own money, but the day before the tax cuts finally happen we’re faced with power price rises.

On the eve of the Government’s tax cuts some Contact Energy customers have been lumped with a 10 percent hike in the cost of electricity.

The increase in Wellington, Nelson and Dunedin takes effect on November 1 – but is expected to be rolled out nationwide in the coming months.

The company is defending its decision to hike prices, a month after posting a $237 million annual profit, blaming a lack of new generation and problems transporting electricity to the South Island.

Raewyn Fox from the Federation of Family Budgeting Services says many people were hanging out for tax cuts, and this increase will make a big dent in them.

And as the government owns the company, the tax cut we get with one hand will go back in power bills paid to the other.

Correction & Apology: : As The Double Standard and Poneke have pointed out Contact is a private company. no excuses, I didn’t check my facts I apologise and I’m sorry.

However, the give and take still applies because Meridian which is an SOE and Mercury which is owned by an SOE are putting up their prices too.

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