No room for titanic tax cuts if we're all sinking
FIRST READING - VERNON SMALL
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Everybody knows the boat is leaking, but still everyone wants chocolates and a long-stemmed rose.
So if prophet of pessimism Leonard Cohen was right, it might be too soon to say tax cuts have lost their allure to an electorate watching the international credit crunch come ashore.
But suddenly, in the week they arrive after a decade of waiting, tax cuts are no longer The Big Thing.
National has tacitly acknowledged this by bringing forward its flagship announcement from the scheduled first week of the official campaign to next week. Other reasons for the move have been advanced, such as the need to give their campaign momentum or to trump Labour's tax-cutting credentials.
But it might also be a recognition that the public is no longer hanging out for them. That they have, in National's own estimation, "banked the cuts and moved on" and that handling fallout from the world financial crisis is of far more concern than a few more dollars in the pocket.
It may also be because the amount National can offer will not actually look that titanic when it finally docks – and that there are better avenues of attack for the Opposition. In other words, that Finance Minister Michael Cullen may have been right when he crowed after the Budget that he had stolen National's tax- cut fox, eviscerated it, strangled it and thrown it into their back garden.
That may also explain the new attack theme from National this week, turning back on Helen Clark her "trust" mantra, recalling how Dr Cullen scrapped the "chewing gum tax cuts" and asking whether he can be trusted to stick with his three-year package.
National's leadership privately admits it was surprised at the size of Labour's cuts. It is certain that, if Dr Cullen knew then what he knows now, he would never have sunk $10.9 billion in tax cuts. The good doctor himself admitted as much last week, saying the debt numbers in next week's pre-election economic and fiscal update (prefu) were "not pretty" and he was beached outside his comfort zone.
So, has National changed the substance as well as the timing of its tax cut package? It had originally signalled a level of about, or above, $50 a week before Labour's Budget. Since then its messages have been confusing, but they seemed to suggest a $50 cut on top of Labour's October 1 tranche.
That has now been clarified as an overall tax cut of a bit below $50 for the worker on the average wage, including this week's reduction.
So what do we know so far, and what can we deduce?
Labour's tax cuts this week range from $12 to $28 a week and deliver $16.50 at the average wage. All up, by 2011, Labour would hand back between $21.73 and $55 a week or about $32 at the average wage.
Under Labour there would be no cuts next year, with the second and third rounds kicking in in April 2010 and 2011. The overall cost is $10.9 billion.
National is promising a bit less than $50, perhaps closer to $45, at the average wage including Labour's October 1 cuts. So that suggests another, say, $15 on top of Labour's package.
Block of cheese anyone?
National will have a second round of cuts next April, followed by more in 2010 and 2011. It will also cut rates, not just move the thresholds, to match its belief in a broad-base low-rate regime.
So the "peak" amount may well be higher than Labour's; closer to $80 than Labour's $55 a week for those earning over $80,000 a year. It will also cost more than Labour's $10.9 billion, but some of the extra will be funded by trimming two existing programmes.
One is KiwiSaver. Big money can be freed up by changes to the subsidy regime, perhaps by extending it to all earners as a tax cut rather than as a savings incentive that only KiwiSavers get.
At the same time as National tones down the rhetoric on tax cuts, it is likely to step up discussion of other aspects of its economic plan, as it moves to establish its credentials to deal with a crisis that no one believes will be solved by lower taxes alone.
It hopes a broader emphasis on reducing costs and regulations, extra infrastructure spending, national education standards and ensuring efficiency in government spending, will appeal more to a worried electorate. Appeal more, that is, than Labour's flamboyant plans and Beehive buzz words; let's hear it once more for the Growth and Innovation Framework and Economic Transformation.
Whatever the outcome of the word-war, National and Labour must brace for some very bad numbers in next week's Treasury update – and some gloomy words to go with them. The economic forecasts were finalised in late August, long before some of the worst news on bailouts and nationalisation of banking stocks on Wall Street and in Europe.
Even before factoring in the big financial chill, the operating balance will look particularly bad, given it takes into account the considerable losses on investments by ACC, the Government Superannuation Fund and the Cullen fund.
Friendlier numbers will be delivered by the alternative measure – the operating balance excluding gains and losses – but the debt track will look ugly and will be extrapolated out to 15 years by the Treasury as a tacit warning to both main parties.
So we should all enjoy the chocs and roses while we can.
- © Fairfax NZ News
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Sorry Mark, but what planet do you inhabit? Following your rather strange scenario you earn $100 per year, you take $50 the government $50. Of the governments $50, 100% is spent on Education, health, policing etc etc. (No Surplus) Now the government takes $45, there is now a 10% shortfall that the government have to take from somewhere, lets say Education. Now it costs you more to put your kids in school, so your tax cut may be valid, but it is costing you just as much to live.
Its not complicated?
There is no cost for tax cuts. Imagine all New Zealand earned a total of $100 a year. The government take $50 of that, and the people keep the other $50. With tax cuts the government takes $45, and the people keep $55. It's still $100. There is no cost to this. Just more money where it should be, with the people that earned it.
This has to be some of the most enlightened responses I have seen in a long time, Where will National get the money? Health, Education, Policing, I just can not see JK pulling 10B out of his Ar$3?
I am a firm believer if we get $50 extra per week, it will end up costing us an extra $60+ per week to cover cuts in Education and Health.
The only way National can do this is to sell existing profitable public entities, as they have always done. I mean what rocket Scientist sold the likes of Telecom. their x million a year profit should be coming into the government coffers, not some joe blogs in Canada. Who was guilty of that sale then?
I for one am glad for the tax cuts. Im tired of working the same hours and getting considerably less than I can in other countries. It does actually make a difference.
Haha.., Morgan Robertson, you will fall in a bit if all those people are not state services employees .... just thinking citizens who are a little bit interested in their future, their children's future and the future of their country.
Considering what was revealed in today's Dominion, it might be a good idea if there were a few public servants paid to promote some interest and discussion in politics, because the evidenced disinterest as regards so many of the "not so young" is a little bit disquieting.
It will be a sad state of affairs if the money that you think is available by dumping people who are superfluous were acquired only by dumping people who are gainfully employed; or it turns out the savings cannot be made because what you think is superfluous was, in fact, done voluntarily.
Using this example of political unawareness as regards young people, there appears to be a social need which would require attention either from the formal education system or from voluntarily active persons across the political spectrum.
I am provoked by the way National/Act supporters have such an extremely narrow view regarding what is "participating in and contributing to society".
In the minds of the National/Act conservatives, if there isn't an employer/employee relationship, then it is an intolerable situation which is to be condemned and rectified. I would like their political idols to have to cost into their policies all the voluntary work done in our society. All the work that is of cultural or recreational advantage, the parenting, the voluntary caring, the voluntary educational and training work and the work of DIY jobbers.
This unpaid work might be done by superannuitants (who in fact are welfare beneficiaries), solo mothers, sickness and invalid beneficiaries and even unemployed who are, as it might well turn out to be, responsible people doing their best.
I am not suggesting we have some sort of subsistence society without work and money, but things are able to be taken to either extreme, and tolerance and balance is required in a sophisticated society.
To suggest that nobody is doing anything, or should not be doing anything, unless it is done on a wage is going to the other extreme.
Do not belittle those who are being interested and constructive simply because you do not agree with them, Morgan Robertson.
Apathy is a much more dangerous common enemy.
There is an incredible amount of waste in the government. Since Labour took it over, to run the government now cost 20 billion more a year. That is twice what Cullen promised to return to taxpayers in a 4 year period. The bureaucracy is one of the killers. This Labour government rode in on a world wide boom, they squandered their opportunity by raising taxes and building up surpluses only to waste it. The government put 43 percent of all monies in New Zealand in circulation. This is socialism and it doesn't work. This was one of the major causes of inflation and hence interest rates going up which hurt most homeowners. National will lower the bureaucracy by attrition and putting a cap on hiring.
@ Kathy
Your argument is seriously flawed.
Yes, people on an unemployment benefit may look for jobs to slightly reduce the tax you pay (or so the argument goes), but in a recession there are less jobs for people to move into.
May as well vote for National then - the party popular with the willfully ignorant.
Irrespect of the hows and whys, we need a more dynamic bunch in power. You seriously have to wonder what the current priorities are when the bare essentials (food, petrol, power) have been allowed to become so expensive! What good will tax cuts do if the benefit is so readily absorbed by such high living expenses.
But a lot more needs to be spent on infrastructure, and, in spite of having the highest tax revenues ever, the country's infrastructure is crumbling. Admittedly, you can partly blame the Resource Management Act for that. This needs a serious overhaul if the country is to move forward. But, so long as the Greens have influence over Labour, this will not happen. I remember seeing Jeannette Fitzsimmons, at her home in Coromandel. Every light bulb in the house was an eco-bulb. But, someone should remind her that power is needed to operate even energy saving bulbs. The Greens will have us all reading by candlelight by next winter.
Remember its your money they're giving back. Not theirs! And whatever they give with one hand they have already taken with the other.
How many new taxes(or tax increases) have the government introduced in the last few years. Plus the increase in inflation means we pay more taxes also. 120% rise in the price of cheese means more gst...
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Sorry Jack, I Laughed and laughed and laughed at your post, thanks for making my life so enjoyable.
Your Comment 'Since Labour took it over, to run the government now cost 20 billion more a year' WTF. I presume you are working on US billions, and even then u are still a weeeeeeee way off.
If you are going to post figures, at least back them up with some validation, not just usual media fright mongering. I too can pick figures out of my behind, I just dont see the need to post them here.