If more tax is the answer . . .

16/12/2020

Sigh:

The Treasury says the Government will need to raise taxes to keep providing health and education services, which are becoming more expensive by the year.

It also warned that house prices will continue to rise for some time yet.

The department’s briefing to returning Finance Minister Grant Robertson said the Government’s books weren’t sustainable thanks to rocketing public service costs.

The Treasury warned that the Government’s finances would be “unsustainable in the medium term if the costs of public services continue to increase at historical rates”.

That is unless tax revenue was “increased as a share of the economy”. . . 

If more tax is the answer, have they asked the right questions?

A business faced with this scenario would take a very careful look at every cent it spent, cut out luxuries and reassess exactly what were necessities.

This is what National did when it led the government through the GFC.

Can anyone point to any time since Labour was elected in 2017 where it so much as hinted at doing anything like that?

Despite its warnings about spending, the Treasury warned that the scale of the Covid-19 crisis was so big that in the short term the Government needed to spend more to stimulate the economy.

“At present, the risks of fiscal policy doing too little outweigh the costs of it doing too much,” it said.

The Treasury said carrying higher debt was the right thing to do as it would keep unemployment low and improve people’s wellbeing.

“Too little support will result in more job losses, firm closures and a permanently poorer economy.

“While the economy remains weak, higher debt from expansionary fiscal policy is likely to be welfare-improving, if expenditure is temporary, targeted and timely.” . . 

Temporary, targeted and timely are very important qualifiers.

When so much is being borrowed it is absolutely essential to ensure every cent is spent wisely.

Now more than ever the government should be focusing on the quality of its spending and doing every thing it can to reduce the burden of debt and repayment that future governments and taxpayers will face.

In doing so it should be mindful of Winston Churchill’s observation:  We content that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

Taxes (Churchill Quote) – Simon Burrow


Decade of deficits

17/09/2020

Treasury is forecasting more than a decade of deficits:

With deficits projected out to 2033/34, there needs to be urgent action from all political parties on addressing the national debt, says the New Zealand Taxpayers’ Union. 

Taxpayers’ Union Campaigns Manager Louis Houlbrooke says “After many years of prudent fiscal management from National and Labour, it Treasury is now projecting 15 years of deficits in a row. As a result, net debt will be $31 billion higher – or $17,000 a household – in 2033/34 compared to the Budget 2020 projection. The Government needs to give us a credible path back to surplus rather than leaving taxpayers on the hook for a never-ending accumulation of debt.”

“The major reason for the more than a decade of deficits ahead is Treasury’s belief that our economic recovery from Covid-19 will be more anaemic than previously expected. The message is clear: our recent track-record of weak economic growth isn’t just hurting incomes and entrepreneurship; it’s going to have a serious impact on our public debt.

“The solution to the forecast decade of deficits is to cut wasteful spending, end regulatory taxes on business which stifle growth and employment, and deliver modest tax relief to households and employers to get the economy growing again.” 

It’s 12 years since Treasury last forecast a decade of deficits.

That was when a Labour-led government propped up by New Zealand First was on its last legs. It was also before the global financial crisis hit.

National came to power and in spite of the GFC and Canterbury earthquakes, returned to surplus in less than 10 years.

Who will you trust to turn the Treasury forecast round this time – the government that squandered the surplus and had the country back in deficit before Covid-19 hit, or a National-led government that understands that the quality of spending is far more important than the quantity?

Today’s Pre-election Economic and Fiscal Update forecasts a longer and more painful economic crisis than earlier forecast and requires a serious growth plan to get New Zealand back on track, National Party Leader Judith Collins and Finance spokesperson Paul Goldsmith say.

“Our economy is forecast to have shrunk by 16 per cent in the June quarter, and we will be taking on even more debt, an extra $200 billion. Every dollar and cent of this will have to be paid back by our children and grandchildren,” Ms Collins says.

“Unemployment will be substantially worse in 2022 and 2023. Treasury predicts 100,000 more New Zealanders will lose their jobs in the next two years.

That’s more than 10,000 more than the total population of Palmerston North.

“The Minister of Finance shouldn’t try to sugar coat these figures. He has taken a rose-tinted glasses view at a dreadful picture that cannot be described as anything other than catastrophic. Any short-term improvement on the Budget forecasts is far outweighed by the worsening picture past 2021.

“The contrast between Treasury’s estimate of more than 16 per cent contraction in our economy in the June quarter compared with 7 per cent in Australia shows he should be careful about making comparisons,” Ms Collins says.

“Grant Robertson’s only plan is higher taxes, and no country has ever taxed its way out of a recession, and this a huge one,” Mr Goldsmith says.

“Treasury is forecasting that under Labour New Zealand will be in deficit every year for at least the next 15 years. Grant Robertson and his Government have no plan to get New Zealand back into surplus. Ever.

“New Zealanders have a choice for our economic recovery: more government programmes, welfare and costs for business under Labour or lower taxes, more business investment and quality infrastructure under National.

“National has a comprehensive plan to secure our border and prevent New Zealand from yo-yoing in and out of lockdown. Effective border management, coupled with common sense and pragmatism around the rules, is an important aspect to help our economy can recover.

“We will do everything we can to make it easier for businesses to hire – 90 day trials, flexible employment laws, low taxes and innovative policies like JobStart and BusinessStart.

“Our economic plan of job friendly policies and investment in quality infrastructure will grow our economy, give businesses the confidence to grow and restore household incomes for New Zealanders,” Mr Goldsmith says.

“National will release our fiscal plan soon which will carefully balance the need to inject stimulus, increase investment in core public services and restore Government debt back to prudent levels,” Ms Collins says.

We couldn’t afford the current government before Covid-19 hit, we certainly can’t afford another three years of mismanagement.

 


Still not enough PPE

15/04/2020

The message from the top is that New Zealand has enough personal protective equipment (PPE) for people who need it.

The message further down the chain contradicts that:

Newshub has obtained more evidence of the gulf between the Ministry of Health and nurses about what’s happening on the frontline with masks and personal protective equipment (PPE).

An audio recording between a charge nurse and staff member reveals the reality of the frustration heath workers face in their efforts to wear masks to protect themselves from coronavirus.

“If you are telling me that you are insisting on wearing a mask at work, I don’t know what to say – we are stopping other people doing that,” the nurse can be heard telling the staff member.

“We are directed that staff can’t wear masks.” . . 

These concerns are not isolated to just one hospital; a nurse at Burwood Hospital, for instance – where six of New Zealand’s nine COVID-19 deaths have occured – says staff even on the COVID-19 ward do not have adequate protection.

They’re on the frontline of the COVID-19 crisis and want to do all they can to protect themselves and their patients, but requests for masks are being blocked by their managers.  . .

A major healthcare provider says it’s struggling to get even a week’s worth of PPE:

Green Cross Health is a provider of primary health care services through pharmacies, GP clinics and home health care and community nursing.

Group chief executive Rachael Newfield said they were struggling to get PPE for their community health division.

“We undertake 60,000 personal cares, which are close contact carers looking after an individual in their home every week.

“To date, from the 20 DHBs, we have received just 30,000 masks, so that isn’t enough to last a week, if we allow our staff to feel safe and follow the latest guidance,” she said.

Newfield said the amount of PPE they could receive also differed between individual DHBs, and stocks from local suppliers were also tight.

When the message to the public is to protect ourselves why doesn’t the health service have enough PPE for all the staff who need it?

Yesterday a third of people with Covid-19 were health workers.

The number of health workers in New Zealand with Covid-19 has jumped by nearly 60 percent in just four days.

On Wednesday, 64 healthcare workers had contracted the virus but that figure had leapt to 101 by Sunday.

Of the 110 new confirmed and probable Covid-19 cases in the intervening period, 37 of them – more than a third – were health staff. . . 

Not all The health workers contracted the disease through work but that some did makes it even more important that all of them have PPE when and where they need it.

Director-General of Health Ashley Bloomfield said the situation was worrying.

“I’m concerned about any case in a healthcare worker, particularly where it happens in the workplace,” he said.

“We’ve got some information about the cases that are healthcare workers and what I’ve asked the team for particular analysis of is, of the cases that have happened in the workplace, how was it that they were infected? So was that through being part of caring for someone with Covid-19 or was it because they are part of a cluster where they may be a close contact of another staff member?” . . .

And was it because staff don’t have the PPE they need?

The incidence of disease in health workers takes the edge off the hope that comes from the decline in the number of new cases.

That downward trend will have to continue before the government decides to let us out of the level 4 lockdown and giving health workers the PPE they need will help that.

Yesterday Treasury outlined various scenarios showing  the economic impact of the lockdown:

Treasury scenarios released by the Government show unemployment could reach up to 26 percent if the coronavirus lockdown is extended beyond four weeks.

The data shows the range of scenarios Treasury has predicted for the New Zealand economy, based on assumptions of different amounts of time under the four COVID-19 alert levels.

The scenarios show that unemployment can be kept below 10 percent, and return to 5 percent next year, if the Government is willing to provide additional financial support. . .

The economic and social costs of the lockdown are already too high.

We can not afford to have it extended, especially if the extension was due to an increase in infections because health workers don’t have the PPE they need to keep themselves safe.


Budget inquiry must be widened

04/06/2019

The National Party is calling for the Budget inquiry to be widened:

The Prime Minister must be open and transparent about what questions she has asked her Finance Minister since spurious allegations were made that National acquired Budget documents through criminal activity, Deputy Leader of the Opposition Paula Bennett says.

National has written to State Services Commissioner Peter Hughes requesting the SSC widen its Budget investigation into Treasury and its Secretary to address a number of serious questions about the behaviour of both the department and the Finance Minister.

“The GCSB’s National Cyber Security Centre has said publically that it told Treasury its computer system was not compromised, yet both Gabriel Makhlouf and Grant Robertson chose to issue statements implying National carried out a ‘systematic hack’,” Ms Bennett says.

“Among the many questions that still need answering is what information Treasury and the Finance Minister had at their disposal before they issued those statements.

“The SSC inquiry should also include a complete review of all communications between the Finance Minister’s office and the Prime Minister’s office under the ‘no surprises’ approach.

“It took 36 hours for Treasury to come clean that it was sitting on a lie, and the Prime Minister needs to explain why she allowed her Government to mislead the public for so long.

“Did she and Grant Robertson ask the right questions of Gabriel Makhlouf, or did they take a ‘see no evil, speak no evil’ approach to all of this?

“It is concerning that even after Treasury admitted the Budget information was obtained without any hacking, its statement failed to offer an apology or take responsibility, and continued to disparage the Opposition in an entirely inappropriate way. . . 

John Armstrong isn’t waiting for an investigation he’s calling for resignations:

The chief executive of the Treasury, Gabriel Makhlouf, must resign.

It might have been Budget Day, thereby making his departure hugely inopportune for the Labour-led Government. That’s just tough. Makhlouf has to go. And forthwith. His exit on the most important date in the Treasury’s calendar may have piled humiliation on embarrassment.

It left Grant Robertson’s shiny new wellbeing budget feeling somewhat sick on its first public appearance. That’s just too bad. Makhlouf has to go. He has no choice in the matter. . .

He has to go — and for two simple reasons. Budget secrecy is sacrosanct; Budget secrecy is paramount. That is the bottom-line. It is non-negotiable. Any breach is sufficient grounds alone for heads to roll.

In Makhlouf’s case, there is another factor which should have sealed his fate — competence.

The ease with which National extracted Budget-connected information from the very heart of the (usually) most infallible branch of the Wellington bureaucracy demonstrated the shocking inadequacy of the Treasury’s cyber security.

It seems it is no exaggeration to say that the protections currently in place to guard that information have been at best lax and at worst non-existent. . . .

On top of that, the department’s handling of the aftermath of the breach of security raised further questions of competence.

The rapidity with which Makhlouf referred matters to the police following the hacking which soon enough turned out not to be hacking conveyed the impression that he believed National was responsible.

Although he endeavoured to avoid making that insinuation, in process, he veered dangerously close to soiling the Treasury’s neutrality.
While he might well be as neutral as he ever was, he is no longer seen as neutral. That is unacceptable. . . .

But this isn’t the only resignation Armstrong thinks should happen:

Should Robertson also be tending his resignation as a Cabinet minister or be sacked by the Prime Minister? The answer is an emphatic “yes”.

A breach of Budget secrecy — especially one of this week’s magnitude — is something so serious that resignation is mandatory.The applicability of ministerial responsibility demands nothing less. But it ain’t going to happen.

Robertson is exempt from having to fall on his sword. That exemption is by Labour Party decree. He is just too darned valuable.

Both he and the Prime Minister have made it very clear that they will move mountains to ensure Robertson emerges from this episode as untarnished as possible by placing responsibility for the breach fairly and squarely in the Treasury’s lap. . .

It’s been fascinating following commentary from the left which is trying to paint Simon Bridges as the wrong-doer in the botched Budget saga.

While we are mentioning Bridges, let’s deal with the bogus claims of his critics that his accessing of Budget documents was unethical, even if it was not unlawful. That is nonsense. Since the dawn of time, it has been incumbent on Opposition parties that they expose faults and failings in the policies and procedures adopted by the government of the day.

In revealing that the Treasury’s notion of what passes for Budget secrecy is screamingly flawed, Bridges has acted in the public interest.

Can his critics in Labour’s ranks put their hands on their hearts and affirm they would do things differently if they faced the same circumstances in Opposition? Of course not.

Bridges has simply been doing his job. On this week’s form, it is conceivable that he is going to be doing it a lot longer than both friend and foe have been predicting.

The machinations may be of little interest to any but political tragics but the botched Budget provided the Leader of the Opposition with an opportunity to shine in a week when the spotlight ought to have been on the Finance Minister and his leader, and shine he did.


Just when you think it can’t get worse

30/05/2019

Treasury allowing Budget information to be found from a simple search on its own website was bad enough.

Calling it hacking and involving the police without properly investigating first was worse.

And just when the organisation ought to be showing it’s learned a lesson and taking extra care it does the opposite:

. . . 10:30am – In a major blunder, Treasury staff mistakenly handed out copies of the budget to journalists and political commentators.

Newshub’s Political Editor Tova O’Brien tweeted that she was given one of the top secret documents. When the recipients questioned whether they were supposed to see them before going into the lock-up, she says an official asked “Are you not Treasury?” before hurriedly taking the copies back. . . 

It’s a simple human error but given the lead-up it shouldn’t have happened.

So will heads roll?

Treasury bungled badly and Finance Minister Grant Robertson and Winston Peters made baseless accusations against Simon Bridges.

Will there be resignations or even apologies?

Don’t hold your breath.


Budget shambles

30/05/2019

Yesterday the government and Treasury kept saying Treasury had been hacked.

At 9pm the night before David Farrar had a less sinister explanation:

. . . That possibly the material was put up on a website of some sort and someone found it. Treasury are calling it  because they didn’t think it was open to the public. But there is a difference between  a secure computer system, and locating information that is on the Internet (even if hidden).   . .

This morning police say there wasn’t a hack:

The people who accessed Budget information from the Treasury website did not act illegally.

Instead, they appeared to have used a search tool on the Treasury department’s website, which “does not appear to be unlawful”, police advised Treasury.

The person or persons were able to “exploit” the system because Treasury staff had been preparing a clone website in the background that they intended to swap over with the live website on Budget day.

To do this they began uploading some Budget information onto the clone site.

Although not publicly accessible, some of the information could be seen when a search was made on the website. . .

This is supposed to be Finance Minister Grant Robertson’s day to shine. Instead at least some of the spotlight will be on the shambles at Treasury, the government department for which he’s responsible.

Budgets aren’t the super-sensitive documents they used to be when the value of the dollar, tariffs and taxes would change at the stroke of a government pen.

But it’s supposed to be be a positive focus for the government.

Instead Opposition leader Simon Bridges has stolen the limelight thanks to some simple technological tinkering by someone who, contrary to the accusations, was not acting illegally.


Our money not theirs

18/05/2018

Taxpayers’ Union chair Barrie Saunders calls it a classic Labour Budget:

Robertson’s first budget was written in extraordinarily benign circumstances. The economy is growing at a sustainable rate of around 3%, tax revenues for the June 2018 year will exceed Budget 2017 estimates, unemployment is down to 4.5%, employment levels are very high at 73.1%, and public debt at 21.7% of GDP is low and trending downwards. 

The economy is in vastly better shape than any new Government has inherited since 1972. That year Labour leader Norman Kirk won with a thumping majority and an inexperienced team. Labour lost to National’s Rob Muldoon, with a similar majority in 1975, and no more clues as to how to manage structural problems with the economy, which led to the economic crisis of 1984 and the Lange/Douglas reforms. 

Prime Ministers Bolger, Clark and Key would have been over the moon if they could have assumed office with today’s economic fundamentals.

The TU notes two wins for taxpayers.

  1. Fiscal responsibility

It is very encouraging that the Government is remaining within the pre-election ‘Budgetary Responsibility Rules’.  We think Steven Joyce’s allegations that Labour had an $11.7 billion hole (which Labour vehemently denied) had also been helpful in keeping the Government restrained in the face of criticism from some on the left who say they should borrow more. 

  1. Independent election policy costing office

Budget 2018 announced that “public consultation will be launched in August on establishing an independent body to better inform public debate in our democracy.”   This is something the Taxpayers’ Union has been pushing for since 2014 – for transparency and accountability of what political party policies will cost taxpayers.

For decades political parties during election campaigns have made allegations about expenditure policies of others.  That’s why we worked so hard last year with our election “Bribe-O-Meter”.  . .

National left the economy in very good shape and the government has at least budgeted to retain surpluses.

But let’s not forget it’s our money not theirs and that a surplus means it’s taking more in tax than it needs.

Had National still been in power all of us would have been able to keep a little more of what we earn.

This red-green-black government couldn’t even increase tax thresholds to address bracket creep which Treasury predicts will put average taxpayers into the top tax category by 2022.

. . .Taxpayers’ Union Economist Joe Ascroft says “This is the eighth successive Budget that has not delivered income tax relief. While most New Zealanders expect only the most well off should pay the top rate of tax, if the current trend continues, even the average taxpayer will be paying the top rate.”

“In fact, much of the wage growth over the last eight years has actually just been keeping up with inflation, so while many families don’t feel much better off, they are paying more in tax than ever before. Inflation will similarly push families into the top tax bracket over the next four years.” . .

The only tax cuts in this business were for hot horses.

In terms of tax relief, unless you breed horses you are out of luck. Winston Peters has announced $4.8 million in tax reductions for ‘high quality’ horses (defined in the media release as being based on bloodlines, looks, and racing potential!).

 


Money not all that matters

22/01/2018

Treasury has made a coding error in its  modelling of projected changes in child poverty.

“The error in our microsimulation modelling affects our assessment of both the Families Package announced in December 2017 and comparisons with the previous Government’s Family Incomes Package announced in May 2017,“ says the Secretary to the Treasury, Gabriel Makhlouf.

“The error likely led to an overstatement of the projected impact both packages would have on the reduction of child poverty.

“It affects our projections of the number of children expected to be in low-income households, and the number to be lifted out of poverty*, by 2020/21,” Mr Makhlouf says. 

“The extent of any change in the projections on child poverty is still being determined.  Because the error applies equally to comparisons with the previous Government’s Family Incomes Package, the estimated relative impact of the two packages is essentially unchanged,” Mr Makhlouf says. . . 

The projections were that National’s package would lift around 50,000 children out of poverty and Labour’s would lift an additional 38,000.

The wording of that sentence is deliberate. There’s been a lot of congratulatory media releases from government supporters claiming it would lift 88,000 out of poverty when the truth is the lives of more than half of those would have been improved by National.

I’m not saying only another 38,000. Even one person having an improved life is good, and 38,000 – or whatever number Treasury’s new projection comes up with, is better – it’s just that the government can’t take all the credit.

Beside giving parents more won’t automatically make their children’s lives better.

As students in Wellington have found, being given $50 a week has led to rent increases which leave them with little or no extra money.

Even if parents don’t face rises in the cost of necessities and any other adverse eventualities which impact on their incomes or outgoings; even if they don’t waste a cent and even if they have superb budgeting skills,  money isn’t all that matters.

The causes of poverty are complex and no matter how good projections on numbers are, they are only projections that won’t and can’t take into account all the individual circumstances which leave families with too little for their needs.

 


Still focussed on surplus

17/12/2014

The Government believes an OBEGAL surplus is achievable this financial year, despite Treasury’s latest forecast predicting a $572 million deficit (0.2 per cent of GDP) for the year to 30 June 2015, Finance Minister Bill English says.

“These forecasts emphasise the unusual conditions the New Zealand economy is experiencing,” Mr English says. “Treasury is predicting solid growth, growing employment and low interest rates, which help New Zealanders to get ahead. But at the same time, falling dairy prices and low inflation are restricting growth in the nominal economy and government revenue.

“This is making it more challenging for the Government to achieve surplus in 2014/15. However we remain on track to reduce debt to 20 per cent of GDP by 2020.

“Although this latest Treasury forecast predicts a small deficit for the current year, we believe the strong underlying economy and responsible fiscal management can deliver a surplus when the final government accounts are published next October,” Mr English says.

Whether we return to surplus this year or next, the government’s careful management has turned the economy around in the face of financial and natural disasters and has protected the most vulnerable people while doing it.

Previous forecasting rounds show the outlook can change significantly between the Half Year Update and the final accounts being published. As recently as 2012/13, the final OBEGAL deficit was $2.9 billion smaller than the previous HYEFU forecast.

“The Government has a track record of sticking to our spending plans to protect the most vulnerable and to provide certainty for users of public services. We won’t be changing that approach,” Mr English says.

“Despite the lower than expected revenue forecasts, the Government’s ongoing commitment to spending restraint means the public finances continue to improve significantly each year.”

The OBEGAL deficit has shrunk significantly from a peak of 9 per cent of GDP in 2010/11. Net core Crown debt is expected to peak in the current fiscal year at 26.5 per cent of GDP and then reduce to 19.1 per cent of GDP in 2020/21. A residual cash surplus is now expected in 2017/18, a year earlier than forecast previously, which is also when the Government intends to start repaying debt in dollar terms. 

The Budget Policy Statement released today confirms that allowances for Budget 2015 and Budget 2016 have each been reduced to $1 billion. The allowance has been re-phased over three years to provide a $2.5 billion allowance in Budget 2017.

“This will allow us to consider modest tax cuts and/or additional debt repayment in Budget 2017, as economic and fiscal conditions allow,” Mr English says.

Treasury’s forecasts suggest that New Zealand’s economic growth potential before inflation sets in – essentially the speed limit of the economy – is higher than estimated previously.

New Zealand recorded 3.9 per cent economic growth over the year to June, which was one of the higher rates among developed countries. Other positive economic indicators include:

  • GDP growth is expected to average almost 3 per cent over the next five years, better than the Euro area, the US, the UK, Japan and Canada.
  • Interest rates are staying lower for longer, with mortgage interest rates still just above 50-year lows.
  • Household disposable income is increasing faster than inflation – rising 9 per cent in real terms in the last four years. It is forecast to increase by another 9 per cent over the next four years.
  • Recent job growth is expected to continue. There are 72,000 more people employed now than there were a year ago. An additional 153,000 people are forecast to be in work by mid-2019.
  • The average full-time wage is expected to rise by $8,000 to around $64,000 by mid-2019.
  • Unemployment, currently at 5.4 per cent, is forecast to fall to 4.5 per cent by 2018. 

“Achieving those goals is possible only with a continuation of the sustained economic growth this Government’s careful economic management is helping to deliver,” Mr English says.

Most other countries would envy us these indicators.

National remains focused on returning to surplus, growing our economy, and supporting more jobs. ntnl.org.nz/137TT21


Higher income households paying higher share of tax

29/05/2014

The opposition fought National’s tax cuts tooth and nail and keep saying they help the rich and hurt the poor.

That isn’t supported by the facts:

New data indicates New Zealand’s income tax and support system continues to provide significant income redistribution, with households earning more than $150,000 a year forecast to pay 74 per cent of net income tax in 2014/15, compared with 58 per cent in 2008/09.

“Four years after the Government’s comprehensive tax reforms, latest data confirms that New Zealand’s income tax and support system significantly redistribute incomes to households in need,” Finance Minister Bill English says.

“It is now clear that higher income households are paying a larger share of income tax than they were in 2008.”

“As I’ve said previously, the Government has maintained a redistributive income tax and income support system that supports low and middle income families and helps New Zealanders through times of need. So at any particular time, a large number of households effectively don’t pay income tax,” Mr English says.

“The amount these households pay in income tax is exceeded by the amount they receive from welfare benefits, Working for Families, paid parental leave and accommodation subsidies. That’s entirely appropriate for those families genuinely in need.”

Using data from the Household Economic Survey, Treasury has updated information provided last year to include forecasts for the 2014/15 tax year.

The Treasury estimates that this year households earning over $150,000 a year – the top 15 per cent of households by income – will pay 49 per cent of income tax.

But when benefit payments, Working for Families, paid parental leave and accommodation support are taken into account, these 15 per cent of households are expected to pay 74 per cent of the net income tax. And that is before New Zealand Superannuation payments are counted.

It also excludes the impact of other aspects of the tax changes in 2010, including tightening property tax rules and compliance, and increasing GST.

By contrast, households earning under $60,000 a year – which is just under half of all households – are expected to pay 9 per cent of income tax.

“When we take income support payments into account, as a group they will actually pay no net income tax at all,” Mr English says.

“That’s because the $2.5 billion of income tax they are expected to pay will be more than offset by the $7.3 billion they will receive in income support.

“It’s appropriate to maintain a tax and income support system that helps low and middle income households when they most need it.

“But people who call for even greater transfers to low income families, or who call for the top tax rate to be raised, need to be aware of how redistributive the tax and income support system already is,” Mr English says.

“This also highlights the importance of Government policies to support people out of welfare and into work.”

The left’s answer to many problems is to throw more money at them.

That’s other people’s money and their favourite source of that is the wealthy who, they say, should pay more tax.

These figures show the wealthy are already paying most income tax, families on lower income are paying no net income tax and households on less than $60,000 are paying just 9%.


On track to surplus

08/11/2013

Labour was forecasting a decade of deficits when National came to power five years ago today.

In spite of an unprecedented combination of financial and natural disasters, National has turned that round and is back on track to surplus.

Treasury’s financial statements for the September quarter, released today, show key indicators are stronger than forecast in May’s Budget:

Core Crown tax revenue of $14.4 billion was 1.1% higher than forecast, largely due to other individuals’ tax and GST ($143 million and $108 million respectively). While GST was relatively close to forecast, continued strength in gross other persons tax and lower than expected refunds have contributed to higher than forecast other individuals tax. This improved performance was partially offset by $113 million lower than expected corporate tax, due to lower than forecast provisional tax.

 Core Crown expenses of $17.5 billion were 1.4% lower than forecast. Delays in earthquake expenses and treaty settlements ($88 million and $55 million respectively) led to lower than expected expenses. Other lower than forecast expenditure was spread across a number of activities.

The total Crown’s operating balance before gains and losses (OBEGAL) was a deficit of $1.3 billion which was $382 million lower than expected, largely owing to the stronger than forecast core Crown tax revenue and lower than expected core Crown expenses.

Gains on the Crown’s investment portfolios were $781 million higher than expected, particularly the New Zealand Superannuation Fund. In addition, actuarial gains on the ACC outstanding claims liability arising from discount rate changes, resulted in unforecast gains of $812 million. The better than expected core Crown revenue and expenses result, alongside these stronger than expected gains, were the key reason for the total Crown’s operating balance inclusive of gains and losses recording a $539 million surplus, compared with an expected $1.2 billion deficit.

At 30 September, total Crown assets were $242.2 billion and liabilities were $171.7 billion. The Crown’s net worth strengthened to $68.5 billion.

The core Crown operating cash deficit was $2.8 billion. After taking account of capital expenditure during the year, there was a residual cash deficit of $3.7 billion at 30 September ($400 million below forecast). The cash shortfall was funded through additional borrowing which pushed the net core Crown net debt to $60.0 billion, equivalent to 28.2% of GDP. Gross debt was also close to forecast at $80.1 billion, or 37.7% of GDP. . . .

The Labour government that took us into deficit before the global financial crisis could not have achieved what National has.

National has the books back on track from red to black and that’s been managed without any slashing and burning.

Credit for that goes to John Key, Bill English and their colleagues who have focussed on getting more for less. Introducing whole-of- government purchasing to cut costs across the public sector is one of their initiatives.

They’ve also concentrated on reducing long term costs, such as those of benefit dependency and that will provide both financial and social benefits.

Once in surplus the government has choices and a priority must be reducing debt.


If you thought balancing the books was easy . . .

16/07/2013

If you thought balancing the country’s books was easy, you can try your hand at doing it.

An online calculator that allows people to have a go at addressing the Government’s long-term financial challenges is being launched today by Victoria University’s Chair of Public Finance, Professor Norman Gemmell.

The long-term fiscal calculator, developed in conjunction with Treasury, is one of the first tools available on a new website, (www.nzpublicfinance.com) also launched today by Professor Gemmell, which provides a hub for public finance research and policy debate.

The calculator shows how a range of different choices in spending and taxation can help to address the challenges facing the Government’s financial position over the next 40 years. These challenges result from factors such as population ageing and increasing demand for services.

“The pressures facing the fiscal position over the long-term mean that some adjustments are going to be required,” says Professor Gemmell. “This calculator lets people choose which options they think are best.

“For example, you can choose to spend more on health or education but, at the same time, the calculator forces you to think about the trade-offs involved with this.

“It gives people more information about the range of options we have, and allows them to say ‘How, if I was going to balance the books, would I do it?’” says Professor Gemmell.

People will be able to submit their choices online and those submissions will contribute to a picture of preferred options for closing the gap between spending and income.

Professor Gemmell says the long-term fiscal calculator is the first of a number of web tools that will be available on his new public finance website.

“The website will bring together research and data that will be useful for academics, analysts and policy makers. But it’s also aimed at the general public and at stimulating debate and discussion on a whole range of public finance questions around public spending, tax rates and saving schemes like Kiwisaver.”

Professor Gemmell says engaging with policy makers and other organisations on public finance issues is an important part of his role. He is talking with economists and other universities about including a variety of research from around New Zealand, and from around the world, on www.nzpublicfinance.com.

The calculator is here.

It’s a very blunt instrument with limited options but does give an idea of the complexities involved in balancing a Budget.


Higher rate, lower take

04/08/2012

More than 20 years ago then Finance Minister Ruth Richardson produced graphs which clearly showed that the tax take had increased after tax rates were reduced.

Higher economic growth might have had something to do with the higher tax take but lower rates were also a factor.

People decided the rates were fair and put their energies into making money rather than avoiding tax.

Now Treasury research shows that the higher tax rate imposed by Labour in 2001 resulted in a lower tax take from the wealthy:

Far from its intended purpose of increasing the contribution by wealthy people to the cost of running the government, the 2001 tax increase spurred the highest income earners to find ways of avoiding tax, the “Elasticity of Taxable Income in New Zealand” paper found.

Published on the Treasury website, the research paper tracks the proportion of income tax paid by different income bands between 1994 and 2008, and finds the top 10 percent of income earners had begun to pay an increasing share of total income tax in the years immediately preceding the tax rate increase and peaked at 38.9 percent at the time the tax rate increase was announced.

“However, following introduction of the 39 percent rate, it fell to 33.9 percent in 2001,” the report says. “Between 2001 and 2009, the share of taxable income obtained by the top decile fluctuated between 33.7 percent in 2008 and 34.6 percent in 2005.”

Treasury warned the results should be treated with caution, but that it showed “the elasticity of taxable income is substantially higher for the highest income groups”, meaning the higher the income bracket, the more capacity that group of earners has to manipulate declared income.

Adherents to politics of envy liked the higher tax rate on upper income earners, at least in theory. Accountants and lawyers who got a lot more work from people looking for ways to minimise their tax liability did too.

But the tax increase was motivated by politics and, just as its critics foretold, it didn’t work in practice – the higher rate resulted in a lower take.


Treasury seeks cost-cutting suggestions

12/01/2012

Treasury’s Cross Agency Programme Management Office is asking for good ideas from the private sector to cut government’s costs and lift the public service’s effectiveness.

The government department is “testing the market for innovative ideas” in a bid to make cash savings and improve the public sector’s efficiency by improving collaboration across different agencies, according to a tender document. The registration of interest (ROI) is seeking ideas to “improve the way government works” without asking for anything in specific.

“Submissions should indicate the agencies that would most benefit from adoption of the idea or would be natural leads to management implementation,” the document said. “The primary purpose of this ROI is to seek general information that will assist the Treasury in identifying ideas with potential for government to improve efficiency and effectiveness through cross-agency or all-of-government initiatives.”

A good place to start is by asking if we need each agency. It’s possible the answer would be no and that the best some agencies could do to save money and lift effectiveness would be to disappear altogether.

If the answer is yes, then the next question should be: could they perform at least as well and for a lower cost if they merged with other similar entities?

Some may well be better as they are but there could be benefits in mergers for others.

It’s early days yet but if the new Ministry of Primary Industries, formed from the merger of  three separate ministries lives up to expectations it could be a model for other mergers.


Living standard about more than money but not high without money

27/05/2011

Treasury has decided there’s more to higher standards of living than material wealth:

Treasury’s understanding of the term living standards goes beyond the narrow material definition – often proxied by GDP – to incorporate a broad range of material and non-material factors such as trust, education, health and environmental quality. In taking a broad approach to understanding living standards, Treasury is in line with other economic institutions internationally. For example, the Australian Treasury acknowledges that “analyses of economic development or progress that only take income into account neglect other important determinants of wellbeing”  . . .

I can’t argue with that. Anyone who thinks the standard of living is all about material wealth knows more about price than value.

The OECD certainly thinks so in its better life initiative:

The Index allows citizens to compare well-being across 34 countries, based on 11 dimensions the OECD has identified as essential, in the areas of material living conditions and quality of life: housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety, work-life balance..

New Zealand performs well on the index which rated factors including  income, employment, education, health, civic participation and satisfaction.

New Zealand performs exceptionally well in overall well-being, as shown by the fact that it ranks among the top countries in a large number of topics in the Better Life Index.. .

. . . When asked, 77% of people in New Zealand said they were satisfied with their life, above the OECD average of 59%.

Our average incomes are lower than those for the OECD but we’re above average for most other factors. However, the report acknowledges that while money can’t buy happiness it contributes to higher living standards.

That reminds me of a quote attributed to Margaret Thatcher:

“No one would remember the Good Samaritan if he’d only had good intentions – he had money too.”

A high standard of living must take into account more than material possessions, but it still requires material goods and services and the money to buy them unless you remove yourself from society and become wholly self-sufficient.

You don’t need a lot of money to have a good life but you’ll have a better life if you, and your country, have more than enough.


Bigger is better for efficiency

14/04/2011

Treasury’s report benchmarking administrative and support services shows that more than $236 million a year could be saved by efficiencies and that the quality of service could be improved.

Treasury Deputy Chief Executive Andrew Kibblewhite said: “Spending levels across agencies are quite variable, ranging from between 3 percent to 36 percent of total organisation running costs. Some variation is attributable to agency size as smaller agencies are more affected by fixed costs, and some variation is due to the nature of agency operations.  For example, some agencies are in the midst of some significant ICT investments to transform public services and make them more efficient.  If we are to use this information constructively, we must consider it in light of each agency’s operational context.”

The report concludes that making these services more efficient can save more than $236 million a year and that service quality can also improve. . .  

 Mr. Kibblewhite said “we don’t just want efficiency improvements. We also want to see these functions playing a more strategic role in their organisations.  In times like these, chief executives need CIOs, CFOs, and heads of procurement and HR helping them understand their business and make decisions that lift agency performance and reduce agency costs.”

Smaller agencies will always have a higher proportion of fixed costs than larger ones. The question then is: if bigger is better for efficiency do we need all the small agencies, can some be amalgamated or go altogether?

Finance Minister Bill English said the report shows there is room for more back office savings which could go into front line services.

“The Government is committed to moving resources from the back office to the frontline so we can deliver improved public services to taxpayers with little or no new money over the next few years,” Mr English says.

“The report shows that in many instances the cost of functions like property management, human resources, finance and ICT in New Zealand is higher than international benchmarks.

“For example, the average office space per person in our public service is about 21m2 compared with best practice in some New Zealand agencies of about 15m2. This is one of many areas where we believe there is room for improvement.

It’s difficult to argue with the goal of improving services and reducing costs and the benchmarking will be an annual exercise which should ensure the savings aren’t eroded over time.

For a bit of perspective on the size of the challenge we face in making savings have a look north and east. Obama is proposing $4 trillion of cuts to trim the USA’s deficit.


Is it over already?

08/09/2009

Treasury is suggesting that the recession is over.

If it is we’ve wasted it.

The government has used the recession to start cutting back its expenditure and examine potential changes to its income.

But it’s only a start.

New Zealand was in recession before the rest of the world in spite of record payments for dairy products which play a very significant role in our economy.

I don’t think the fundamental problems which led to that early start to the recession have been fully addressed yet.

Unless they are our economic growth will never reach its full potential. 

Until that happens we won’t be able to afford the first world lifestyle – including health, education and other social services – to which we aspire.


Budget papers released

25/06/2009

Treasury has released official Budget papers and advice.

Finance Minister Bill English said the papers show the challenges government faced in writing the Budget.

“The release of these papers shows the challenges the Government faced in putting together a Budget in the toughest global economic conditions since the 1930s. These challenges required us to consider a wide range of options.

“We believe we struck the right balance and put New Zealand on the road to recovery,” Mr English says.

“Continuing with the rampant growth in spending by the previous Government would have seen debt rapidly spiral out of control.

It’s difficult to get credit for not spending, but anything which didn’t add to growing debt is to be applauded.

However, howls of anguish in the media as the consequences of tighter public service budgets become apparent show that a lot of people still don’t realise the importance of keeping a tight rein on spending.


Ups and downs in gloomy forecast

15/01/2009

Treasury presented a gloomy forecast to the government today with the bad indicators going up and the good ones down.

They’re predicting unemploying rising to 7.5% and economic growth slumping to zero.

Yesterday’s release from Statistics NZ showing a 26% fall in the number of building consents issued in the year to November is a symptom of the slowdown. But given the international financial meltdown wasn’t evident until September the next lot of  figures are likely to be even worse.

New houses are still being built in Wanaka but locals say that it’s much easier to get tradespeople than it was even a few months ago.

But what’s happening in New Zealand isn’t as important as events overseas because job losses and business failures there will further depress the volume and value of our exports.

Dairy products are generally considered staple foods but lamb is a luxury item in many people’s shopping baskets and luxuries go when belts get tightened.


Treasury BIM links economy to quality of life

04/12/2008

A question from the floor at a public meeting in Wanaka three years ago asked then National Party leader Don Brash why he always talked about money and the economy rather than things that mattered like health and education.

He responded that a growing economy was the means to provide better social services.

This is echoed in Treasury’s Briefing to the Incoming Minister of Finance  :

Future gains to economic growth will need to be driven by increases in productivity growth. Improving productivity will have benefits for individuals, businesses and for society as a whole. A more productive New Zealand will offer our people opportunities to earn world-class incomes without having to go overseas to achieve this. It will allow New Zealand businesses to provide sophisticated products to the world without having to relocate their head offices. Higher incomes will underpin a public sector that can provide high-quality services, which will lead to improved social outcomes in crucial areas such as health and education.

Higher productivity will make New Zealand a more attractive place to live, work and do business with and from.

That reminds me of this quote from Margaret Thatcher:

No one would remember the Good Samaritan if he’d only had good intentions; he had money as well.

This is a simple concept but achieving the economic growth we need to provide the standard of living and social services we want is more complicated and we can’t leave it all to government.

They can implement policies which enable and encourage improved productivity but they can’t create wealth, thats up to people and businesses.


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