Should the government borrow?


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


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


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


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


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


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 . . .


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.

Clark hints no more tax cuts


Helen Clark intimated to Jamie McKay in an interview on today’s Farming Show that there are unlikely to be any more tax cuts from Labour.

The interview will be on line here later.

And Bill English says  Clark’s promise of a pay jolt for teachers and Michael Cullen’s comments he’s beyond his comfort zone clearly put any future tax cuts from Labour in doubt.

Mr English says National has long been an advocate of placing more trust in taxpayers to make more decisions with their own money.”Let’s not kid ourselves. Despite the begrudging election year tax cuts, Labour thinks it can spend taxes better than taxpayers. If Dr Cullen is really outside his comfort zone, it’ll be Labour’s future tax cuts that are first to get the chop.”
Mr English says National will have an ongoing programme of personal tax cuts. It will be a responsible programme, and a transparent programme.

“National will build on the tax cuts due to kick in tomorrow. We will treat them as the first tranche in our tax-cut programme. That will be followed by another tranche of tax reductions on 1 April 2009, and further tranches in 2010 and 2011.

“We will be disciplined with the taxes that New Zealanders pay, and will make more effective use of existing spending, with a clear focus on the delivery of frontline services.

“The same cannot be said of Dr Cullen, who has been a fair weather Finance Minister. He has spent the windfall gains from the commodity boom, but failed to future-proof economic growth.”


Given my blue bias it’s not surprising I’ve never bought into the National as Labour-lite theory and there can be no clearer difference between the two parties than their attitudes to the public purse.

National treats taxpayers’ money with respect and its policies will create economic growth from which more social services can be afforded.

By contrast Labour has no repsect for taxpayers’ money and its policies focus on redistributing it than in economic growth.

UPDATE: The Farming Show interview is now on line. In it Jamie McKay asks if Labour can afford its tax cuts and the  answer from Helen Clark is:

Obviously they’re costed on the best information we had back before the budget was signed off so they proceed . . . but whether it would be prudent to go any further than that is obviously a judgement for the electorate.  We think we went to the outer edge of what we could do for folk when we made the decision for the budget.

Tax cuts close to $50


National’s Finance Spokesman Bill English told Farming Show host Jamie McKay that the party’s tax cuts will be close to $50 a week.

The interview will be on line here soon.

The Herald reports on the interview here.

Nat’s tax cuts


National will keep the October tax cuts and bring in the second stage of it’s tax cut programme in April next year, if it becomes the government. It will introduce a third round of tax cuts in 2010.

Vernon Small reports:

Labour’s second round of tax cuts was not due to take effect till April 2010, but Mr Key said National would not ask taxpayers to wait another 18 months for the second cut.

“They have waited far too long already,” he said at the the opening of the party’s election year conference in Wellington this morning.

This announcement was, not surprisingly, met by applause from the 700 or so delegates, of which I am one.

Welfare for Families to stay


National will not change Welfare for Families if it’s in government.

John Key said the decision was made to give some certainty to those receiving assistance.

“A large number of New Zealand families get Working for Families.  National understands this. I know it is particularly tough out there for families with kids. These are families with mums and dads who are working long hours, trying to get by on a modest wage in the absence of tax cuts under this Labour Government. We don’t want to make life more difficult for them.

“While National has long been concerned about how far up the income scale Working for Families stretches, a careful analysis of possible changes at the higher income levels showed that it was not worthwhile making them.

“I have long held concerns, in addition, about high effective marginal tax rates acting as a disincentive to people under WFF, but we are confident that this issue will be addressed by our tax package.

“As I have always said, I am interested in what works.  National acknowledges that Working for Families payments are an important part of the income of many families.

“Despite concerns we hold about the system, I consider that offering people certainty is much more important in these tough economic times.”

I don’t like the idea of middle and upper income people receiving welfare but philosophical purity doesn’t win elections. And the comment about high marginal tax rates being addressed by National’s tax package gives me some hope because families keeping more of what they earn won’t need extra by way of a benefit.

Tax policy out in first week of campaign – Key


The National Party will announce its tax policy  in the opening week of the election campaign.

National has already said it had finalised a programme of tax cuts and Mr Key told a business audience today that these were locked in.

They would be more substantial than those proposed by Labour and the programme would not change if economic forecasts worsened.

“In terms of our tax cuts programme it (an economic downturn) will make no difference at all,” Mr Key said.

When National designed the cuts package it was aware that the economy could take a turn for the worst and had been cautious.

If there was not an ongoing programme of tax cuts then the take-home wage gap between Australia and New Zealand would become unsustainable because of the number of people it would drive across the Tasman.

“You will see from us a programme of ongoing personal tax cuts… We have done them, we know what it looks like.” Mr Key said the programme would be “extremely transparent” in terms of cost and what they would deliver.

In the speech Mr Key said National would be releasing its KiwiSaver policy and there would be other policy releases on Working for Families. He indicated these would be minor changes to current government policy settings.

Once something like Welfare for Families is established it is difficult – politically at least – to axe it and It is possible that welfare is the easiest way to help low income working families.  But I hope National’s tax package will provide a more efficient, less costly way to help middle and upper income earners than benefits which create disincentives for self-help through rebates on extra income.

Hager’s Hollow Horror


John Roghan  says Nicky Hager is carving out a new career in disingenuous political naivete.

Not content with a book based on Don Brash’s emails, since brought to the stage and soon to be a movie too, Hager is running a sequel on the discovery that some of the same “hollow men” are consultants to John Key.

The fact that someone in the National Party must be passing this material to Hager is far more interesting than the use he is making of it, and I have no objection to his using it.

I agree that where the material comes from is the more interesting, and for National, more serious point.

…email, I think, is fair game. A fair reporter, though, could reveal what he learns without feigned horror at the fact that people running for public office hire consultants who try to conceal some of their intentions during an election campaign.

Parties of all stripes are coy on some subjects before an election for good reasons.

The public interest can be greater than the sum of personal interests, sometimes even in conflict with direct personal gains. It is easy to sell benefits to a section of the electorate, harder to explain how the benefits hurt a country in the long run.

Some are minority interests that should be advanced in the national interest. Hager should ponder how much progress Maori would have made in recent decades if every step in their recognition had been an election issue.


Public debate usually favours the status quo. Not much could ever be done if every decision was put to the electorate for a prior mandate.

Take the present Government’s biggest economic moves, KiwiSaver and, this week, KiwiRail, which I don’t remember being canvassed, with all their costly implications, at elections beforehand.

Had Labour given an inkling at the last election of the premium they have had to pay to re-nationalise the railway, and the fortune it is going to cost to cover its likely losses, National’s last campaign would have feasted on the information.

If only.

But now that the deed is done, the politics have changed. The purchase is the status quo and National will not dare put re-privatisation before the electorate this year, though that may be what it ultimately does with the trains if not the tracks.

Yep – once something is underway it is difficult to change it, even if it’s because sometimes bad policy is good politics.

Likewise KiwiSaver, a year old this week. At the last election the savings scheme was an essentially voluntary proposal. The following year it was to become compulsory for employers and acquire some costly enticements of dubious economic value.

Not long ago my employers wound up my company super fund. I couldn’t blame them; from April they had to contribute to KiwiSaver if staff favoured it. And who of us were going to turn down Cullen’s $1000 handout and tax credits?

The scheme celebrated its first birthday on Tuesday with 718,000 members – more than double the number predicted in the first year. The only people complaining about it are those annoying economists who see the difference between individual gains and the national welfare.

They fear the scheme will not add to total personal savings, merely displace previous savings schemes.

In the Herald last weekend Maria Slade reported an estimate that as little as 9 per cent of the money in KiwiSaver accounts so far is new saving, a percentage the researcher reckoned would not cover the administration and compliance costs of the scheme.

Is anyone surprised by this?

Westpac economist Dominick Stephens said KiwiSaver had cost the taxpayers $497 million in its first 11 months, an amount that could have added to national savings if it had been left in the Budget’s fund for future public pensions.

Even that fund is questioned by some savings professionals who point out that a superannuation scheme is only as good as the future economy that will have to pay out. From that point of view, the best retirement insurance is the investment made in the economy today.

And not just retirement – health, education and every other service will be more secure in the future if we strengthen the economy now.

Anyone who believes that the best investments are made by those who stand to lose if they get it wrong would argue the economy would be stronger in the long run if the KiwiSaver incentives were turned into personal tax cuts.

And yes again.

Nevertheless, National will have to keep the scheme now that it is replacing private savings on such a scale. The best the party can do is continue to avoid saying whether it will keep the incentives.

It will not be easy, and should not be easy; it is the job of political opponents and the press to pin all policies down. But adroit tacticians can keep the options open and enable a government to come to power with room to move in the national interest. Voters, I think, understand this. They don’t need horrified disclosures that it happens. It is the horror that sounds hollow.

Exactly. National has learnt from the damage done by stupid promises made by Jim Bolger before the 1990 election; and Helen Clark has too which is why she keeps trying to under promise and over deliver.

Parties should be upfront about their philosophy, principles, general  policy, and – sometime before an election – some detailed policy. But they can’t be specific about everything because, once a party is in Government it must have room to adapt to events and circumstances.

Style vs Substance


If it wasn’t for the gender of the Prime Minister  this could be about New Zealand:

To a visitor from outer space, it would be hard to distinguish the job description of prime minister today from that of a talk show or game show host. The PM is a regular fixture on radio and television, where no topic is too small for him to discuss. He offers cash prizes to listeners and he sweats on the weekly ratings.

Sounds very familiar.

The lines between celebrity and politics blurred some time ago. Our leaders are more needy because their handlers have convinced them that if they miss a single news bulletin the public will soon forget them. But voters can just as easily project wisdom on to politicians who are silent as those who blather sweet platitudes about Australian values and the noble struggle of the working family.

This too could be about politics on this side of the Tasman.

Although it is tempting to see Rudd as merely the sum of his past lives as a Queensland bureaucrat and diplomat to China, his approach to federal office is, in a way, no different from Howard’s.

“The moment you start campaigning for the next election is today,” Howard told his partyroom at the first meeting after the Coalition’s 2004 election win.  I’m a great believer in perpetual campaigning.”

And this explains one of the problems with the many unexplaiend consequences of the Electoral Finance Act: it’s impossible to separate the role of an MP from campaigning because under the Act’s very broad definition so much of what an MP does could also be deemed to be campaigning.

This happens to be a worldwide trend. Tony Blair noted last June, just after leaving office, that a large part of his time as a British prime minister was spent “coping with the media, its sheer scale, weight and constant hyperactivity”. Blair measured the compression of the news cycle by the number of topics he ran a day: “When I fought the 1997 election we took an issue a day. In 2005, we had to have one for the morning, another for the afternoon and by the evening that agenda had already moved on.”

Thankfully, the Australian market is still small enough to keep Rudd to three issues a week rather than three a day.

It was not always thus. Remember when sit-down press conferences took precedence over the door stop and parliament was the place to announce big policies? The last government to practise politics the old-fashioned way was the Hawke-Keating regime between 1983 and 1996. To be fair, Howard’s administration began as Paul Keating’s ended, with a sense that the public was intelligent enough to handle a detailed policy debate over months and years, not hours and days.

The GST was Australia’s last old-school reform. Howard needed four years, from 1997 to 2001, to discuss, draft, amend and bed down the new tax system.

When was the last time the electorate was treated intelligently with prolonged discussion, drafting, amending and bedding down of policy here?

Under Rudd, Labor operates on the delusion that the electorate can absorb two or three earth-shattering announcements a week. Darting from topic to topic, like a shock jock or newspaper columnist, is why Howard lost the plot in his final year in office.

Has Rudd forgotten Howard’s increasingly hysterical public conversation of 2007: the Murray-Darling takeover, tax cuts, the Northern Territory intervention, a federal rescue of one hospital in a marginal seat in Tasmania and more tax cuts?

What really binds Nelson and Rudd is their mistaken belief in the 24/7 media cycle as an end in itself. The reason Blair and Bill Clinton have such dismal legacies in the deeper ponds of British and US politics is that they wasted too much time thinking of the next line instead of honing policy.

This is not a curse of either the Left or the Right. US Republican President George W. Bush followed the Democrat Clinton by devoting more time to crafting the headline for invading Iraq – weapons of mass destruction – than worrying about securing the peace afterwards.

The media has reduced politicians into thinking by the minute.

Or is it that politicians only think by the minute and so that’s all that’s left to report?

Think about the issues on which Rudd hopes to build a new reform consensus, from climate change to the Federation to the tax, welfare and retirement incomes systems. Rudd can’t win any of these debates by press release alone. He has to patiently explain himself again and again, one big idea at a time.

Patiently, explaining one big idea at a time? Could any of our politicians try that here – and if they did, would we do them the courtesy of listening to them and really thinking about what they were saying? Because if didn’t we would indeed get the politicians we deserve.

More scope for tax cuts


National thinks the Reserve Bank’s gloomy economic forecast gives more scope for tax cuts without fuelling inflation and – how surprising – Labour doesn’t.

The central bank’s prediction of a marked slowdown in growth and a rise in unemployment to 6 per cent in 2011 underscores the key role that interest rates and an economic downturn are likely to play in the election campaign.

National’s finance spokesman Bill English said yesterday the outlook was tough for households, and the Reserve Bank’s projections were “quite a bit worse” than the Treasury had forecast. But Mr English was optimistic the economy was resilient, and when asked what impact the Reserve Bank’s predictions would have on National’s plan for tax cuts, he indicated the party could make its cuts without worrying the inflation watchdog.

However, National will still have to be careful about how it funds the tax cuts, and Mr English conceded as much when he noted there could be higher costs for the Government from rising unemployment if the Reserve Bank’s scenario played out.

Even though the economic outlook is souring, Labour does not believe National can offer bigger tax cuts without more pressure on inflation.

That’s the difference between people and a party which understand the benefits of wealth creation and those who just concentrate on wealth distribution.

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