Friday, August 19, 2005

Tax cuts and honesty...

Well, I guess that the events of the past few days have made up my mind. Well, at least a half of it.

I begin with this article

New Zealand's economy is continuing to do better than the Government expected, filling its coffers and creating larger surpluses than predicted.

Treasury opened up the books in the Pre-Election Fiscal and Economic Update today predicting the Government would get $29.1 billion in total operating surpluses between now and 2008/2009.

Finance Minister Michael Cullen said New Zealand was probably in a better position than any other developed country to cope with the pressures of an ageing population.

The surplus for the current year would be $600 million higher than predicted in the May budget, reaching $7.29 billion. A more robust economy than Treasury predicted is expected to push up the tax take and Dr Cullen said there was some room for increased spending on top of already announced initiatives.

But I don’t want to follow the “I want… I want…” path of all of the other commentators pushing the tax cut barrow.

To start with, let us go back just three months into history -

Budget changes to personal income tax thresholds will save the average wage earner about $6 a week - but not for another three years.

The thresholds will on paper be inflation-adjusted by 2 per cent a year from the start of the new financial year, but will only impact on actual tax paid once every three years - effecting a 6.12 per cent change - beginning in 2008.

It is the first time Finance Minister Michael Cullen has adjusted the thresholds and made any concession to calls for "tax cuts".

The changes will see the average full-time wage earner - on $42,920 a year - saving just over $6 a week.

Asked why it would take three years to kick in, Dr Cullen said it fitted the Government's "fiscal forecast", meaning it did not believe it could afford the spending now.

He had no plans to change the actual tax rates, saying it was too expensive for too little taxpayer gain.

"It would be very difficult unless you're prepared to bite the bullet of significant reduction of expenditure growth.

There is really something far more fundamental to governance at stake here, and Labour has flubbed it not once but twice and possibly three times on this one topic. Central to the flub, to my amazement really is the previously infallible Dr Cullen. Those with short memories like mine might remember my comments here -

If those elected then implement policy and law which was not revealed, or which was misrepresented during the election campaign, then the government is immoral (because it has be born from a lie, it continues in a lie, and being immoral once can be immoral again any number of times and in any number of ways).

That is why I believe Labour will not get a third term in the coming elections. They are moving away from, or have lost contact with, their electorate. They are perceived as having promoted "immoral legislation" with the Civil Unions Act (despite that Act having been a matter of conscience and not promoted as Government legislation) and to have acted against the wishes of the electorate with their unilateral decision on the seabed and foreshore debate. They are seen as no longer following the path, the values, the morals that they set down at the last elections.

That is why I believe that National will win the coming election.

I want to say that I was wrong, not in my conclusion but in ommitting one other factor that is playing very strongly right about now.

That missing factor, the fundamental weakness in Auntie Helen’s push for a third term, is one word –


To say that the good doctor has “got it wrong” is quite true. In terms of scale, the “wrongness” ranks with him telling a patient he needs a heart transplant when in fact he has a hernia. (Note to the trivia merchants – I know he is NOT a doctor of medicine). The consequence of that is that his credibility is close to zero. With that goes a very large part of the remaining credibility of the Labour Government.

The motives behind the errors (whether intended or unintended) might have been for the best, for the majority. I am suspecting not. THAT is a measure of how much credence this last Budget and the Labour campaign has cost.

And this leads to a totally separate path to the one that will be tramped by so many others. The main reasons for the Labour Party to lose this election might be morals as I discussed in my other post, might be “tax cuts” as will be posited as “the main reason”, it might even be National's "telethon" advertisement.

There is a third, and a less visible and less acknowledged path as well. It is where this Labour Party stands.

Without doubt, and also without fanfare, this past Labour Government (yes, past tense already) has taken a long and very solid stride toward the left. There have been the subtle and largely unheralded changes to the law under which the labour unions are allowed to operate. There have been the consolidation of social welfare benefits. There has been the increasing penetration of government redistribution of wealth in the relationship between living standards, the “cost of living” and gross income at the lower end of the scale. That facet of the Labour Government has been the foundation of its announcement of the latest electoral bribe, the extension of the scheme into even higher income levels. All of the symptoms that point to the increasing power of the militant labour movement; that scourge of the Muldoon government, and one of the biggest weaknesses of the NZ economy in the 60’s through 90’s.

It will be interesting to see just how long the likes of Brian Easton take to wake to this as well. To illustrate, let’s step forward a year to Mr Key’s first Budget. This will be the first real chance for him to put the National Government’s tax cuts in place. So, we get 10% off corporate tax, we get a similar amount off personal tax. The world is happy.

At the same time he is going to start demolishing the redistribution mechanisms put in place by the past Labour Government. So he should, right? Give a tax cut, it has to be paid for, there is no longer any justification for targeted assistance… The effect, you will see no doubt, is to ensure that the pampered low wage workers have the incentive to increase their earning potential. This they will do, with vigour. It will not be by qualifying as doctors and lawyers. There will be a very strong (and largely correct) impression held by the lower paid (let’s say average income and below) that somewhere along the line they have missed out. And I will say now that they would be right. The effect will be that instead of the government imposed “wealth redistribution” there will be increasing and major demands for “direct wealth redistribution.”

It might even be possible to place a rough measure on just how much we are talking about.

Take a family on a gross income of $32,000. That would be one of the leading hands in our factory. At the moment he qualifies for total assistance of $17 per week. He will get back about $4 per week in tax. He is $13 worse off than before. So, before we start looking at any inflationary pressures, that worker is going to be looking for a wage increase of about 3% just to recover the “benefit” he had before.

Take a worker on $24,000. He gets no benefits because he is single. He gets back about $10 per week - enough for a packet of smokes and a beer. He knows the boss is getting back ten times that, the union makes sure he knows. And the question is asked "Where is the equity in that?"

Is there a picture emerging here?

Much as I hate the thought, I do not believe that John Keys (I will have to think of a quick name for him now – Jonkey comes to mind) is going to have some very major problems to contend with –

    Wage pressure inflation
    Imported inflation as fuel prices increase and the exchange rate declines
    Accomodation cost pressures as land banking investment resumes.
    Increasing industrial action in support of increased wages.

Yeah, there y’go Jonkey. Homework for the next twelve months… I don’t think you have it right either. Not by a very long piece of chalk. There are holes in your party’s policies that are the result of thinking that is just too simplistic, just too pat to hold any hope of viability.

IF the Nats get my vote it will be because of the failure of the left rather than I have moved to the right.

I return to the lesser of two evils.


Robert said...

Take a worker on $24,000. He gets no benefits because he is single. He gets back about $10 per week - enough for a packet of smokes and a beer. He knows the boss is getting back ten times that, the union makes sure he knows. And the question is asked "Where is the equity in that?"

There’s a lot to argue with here, but the bit I’ve excerpted pretty well sums up your point.

Alright, you’re mixing apples and oranges (low-wage worker and ‘the boss’). It ought to come as no surprise that there is a difference in income between the two. Furthermore, with respect to the progressive tax scheme that you advocate, ‘where is the equity in that’?

Secondly, from your post: He had no plans to change the actual tax rates, saying it was too expensive for too little taxpayer gain.

"It would be very difficult unless you're prepared to bite the bullet of significant reduction of expenditure growth.

I realize that these are not your words, but you likely assent to them…no? Regardless, this is the same pap that the Democrats incessantly peddle. It presupposes that ‘expenditure growth’ is sacrosanct and that individuals may only keep the portion of their income that those in power deem appropriate; the code phrases include: “tax cuts are too expensive” and “reducing entitlements is painful”.

At the end of the day, the style of governance that you describe and indeed desire (yes, we have in America as well) is little more than servitude…all for one and one for all. A collectivist utopia, if you like.

The probligo said...

Robert, can I explain for you in very simple terms...

Your first excerpt was my presentation of the attitude taken in past years by the worker unions. Read it, you will see that to be the case.

Do I agree with it? Go back, read again...

The second extract is media speak of post budget commentary from Dr Cullen (Minister of Finance if that were not already clear).

At the time that the comments were made, one has to accept (with all of the BS filters firmly in place) that that is the premise to which the government is working.

The point of my post, what you completely ignore, is that -

It is now apparent that Cullen was wrong in his assessment of NZ's financial position.


Cullen misrepresented NZ's true financial position.

Whichever of those two is correct calls into question not just his conduct as Finance Minister, but the whole credibility of the Labour Government.

Unlike other countries, if NZ gets a whiff of dishonesty or incompetence in its government, then we usually start reaching for the other boxes on the ballot paper.

Go back, read my last two paras again Robert. Will I be supporting the Labour Party in this next election?

ONLY if it is the lesser of the two evils. Those evils are -

A Labour government proven to be discredited, and either dishonest or incompetent.

A National government that could only take power with the support of the extreme right (they would make GWB's policies look like Raplh Nader's) and a politician who is the master of political opportunism and popularist policies. That latter is a gent I know personally (he was our local MP for a term) and he is a detestable little slimeball.

But the key word is -


Does that make it clearer for you?

Al said...

GW's quite the moderate, really. The distinction between him and John McCain is purely a matter of rhetoric. The MBA carried some weight with me - and the tax cuts, leading up to the last elections - but there are good businessmen and bad ones.

But, when it comes to politics, most of them aren't good enough. There's way too much clamoring for political favors and subsidies. Or "targeted" tax cuts.