Tuesday, May 15, 2007



The calm before the Budget

Thursday is Budget Day, so the news today is thin, mostly tied up with speculation on what sort of savings incentives Cullen will deliver and the pepetual wailing and gnashing of teeth over the absence of tax cuts for the rich (you'd think that after seven and a half years, our political journalists would have twigged to this being something that social democratic governments generally aren't in favour of - but apparently not). Well, that and Ian Wishart's latest bucket of sewage, which everyone to their credit is doing their best to avoid stepping in.

Thanks to Michael Cullen's good work over the last seven years, the Budget is likely to show OBERAC surpluses stretching out as far as the eye can see. This is likely to provoke the usual demands from the right for that money to be "returned to the hard working taxpayer" in the form of tax cuts. Writing in The Listener, Brian Easton is rather acerbic about such demands:

This savings-before-investment figure is an accounting notion, frequently referred to as “The Budget Surplus”, even though almost all of it has been spent.

Treating the amount as available for tax cuts (or for more government spending) confuses an accounting aggregate with an economic reality. It was a monetarist confusion that seemed to lead the National Party during the 2005 election to propose using this “surplus” for income tax cuts. Had the policy been implemented, the cuts would have fed into household consumption, reduced national saving, and so pushed the exchange rate up further, screwing even more exporters and ruining the economy even further.

Fortunately, wiser – or at least more economically informed – heads seem to have since prevailed in National.

But even with a more responsible approach, the large apparent Budget “surplus” (before investment and such spending) is politically unstable: there will always be those who, from economic ignorance or political opportunism, argue that this money – which we haven’t got – should be given away in tax cuts. The danger is that enough of the public may believe the ill-informed to drive an irresponsible economic policy – as almost happened in 2005.

Savings incentives are a political way aroud this, a way of cutting taxes without really cutting taxes, defusing some of the political demand without causing inflation (and while directing it towards social democratic aims to boot). But they don't deal with the underlying problem: that there are people out there too thick to realise that the "budget surplus" isn't, a view encouraged by people who think that it is appropriate to run the country in the same way that National's cronies ran Tranz Rail. The only way of dealing with this is to make it clear what the "surplus" is spent on - roads, schools, hospitals, and pensions - and that the sort of asset-stripping tax cuts promoted by the extreme right for their own benefit would come at the expense of the social and physical infrastructure the vast majority of New Zealanders depend on to live.

18 comments:

"tax cuts promoted by the extreme right for their own benefit would come at the expense of the social and physical infrastructure the vast majority of New Zealanders depend on to live"

Now I/s i am a single late 20s individual, with no kids. Why shoudlnt i get more money in my pocket through tax cuts?? Exactly what social infrastructure do i rely upon each day? Alternatively if you dont think conditions are right for tax cuts, why dont taxes go up to pay for this social infrastructure??

Posted by Anonymous : 5/15/2007 12:54:00 PM

Anon: Why shoudlnt i get more money in my pocket through tax cuts??

As I just said: because the government needs to pay for the social and physical infrastructure the vast majority of New Zealnders depend on to live their daily lives. You may think you don't benefit from this, but that's because it is effectively invisible and taken for granted.

To make it clearer, taxes pay for the roads you drive on. They pay for your daily freedom from violence - the police who maintain law and order, and the couts which allow disputes to be resolved without resort to murder. They pay for your ability to conduct commercial transactions without being cheated. They pay for your ability to eat safe food. They paid for your education - the schools you (presumably) went to (even the "private" ones get government money), and the tertiary institution you may have attended. They pay for your peace of mind, your freedom from having to worry about losing everything if you get seriously sick, lose your job, or otherwise end up on the bottom of the heap. They paid for you when you were young (your trips to the doctor, your school dental care, even your birth), and they'll pay for you when you get old (when you lie pissing into a bag in an old people's home, or desperately pumping morphine in a cancer ward. And don't believe it won't happen - we all end up like that in the end). And if your circumstances change and you have kids, they'll pay for all of that for them too.

None of this is done perfectly. Arguably some of it isn't done enough. But it is done, and it mostly works, which is more than you can say for countries which don't favour taxation, like the US or Somalia.

Thinking you can go through life without using any of the services mentioned above is simply delusional. Thinking you won't ever need them displays a singular lack of imagination, a blindness to the possibility that your circumstances could ever change, or that you could ever be anything other than young, healthy, and successful. Unfortunately, this lack of imagination seems to be quite common on the right.

Posted by Idiot/Savant : 5/15/2007 01:34:00 PM

And to address the second part of your question:

Alternatively if you dont think conditions are right for tax cuts, why dont taxes go up to pay for this social infrastructure??

Actually, I think they should. And if you ask people whether they really think our health system is good enough, or our schools sufficiently funded, or that we have enough police or roads, the strong implication is that they think likewise.

(Unfortunately, if you also ask them "are taxes too high", they'll also say yes; people want all this stuff, but they apparently don't want to pay for it. I'd point at the 90's as an example of what happens when you give in to such thinking).

Posted by Idiot/Savant : 5/15/2007 01:38:00 PM

Well, you're fairly unlikely to be mugged by someone desperate for food. That's an example from an an extreme which is rare here, but the point is relevant in many areas. Can you honestly say that your life is no better off for having those in need taken care of. You may not be one of those people but you still live in the same society as them

In addition unless you are planning to stay a single late 20s individual, with no kids, I'd consider that you might be paying for social infrastructure that you may need in the future.

Posted by Anonymous : 5/15/2007 01:38:00 PM

in defence of that anon poster - no one is suggesting that people during some point of their lives receive no benefit from social infrastructure. But what is less clear is when people should and shouldnt make a disproportionate contribution to that infrastructure. When that said individual is of an age when they have a family, then also their contribution, through theoretically being at the peak of their earning potential will be greater.

What isnt unreasonable is questioning the value of increased spending (are you confident that every cent in increased health funding has been applied well?) or whether individuals shoudl receive more of what they earn and not have to give so much of it back through tax.

Posted by Anonymous : 5/15/2007 02:56:00 PM

I have no problem paying "more than my fair share", that's the absolute essence of a decent society in my mind. To each as they need is a basic ethical requirement as well as a utilitarian solution to the problems I/S mentions.

I am still periodically bemused at people that I meet who have significant fianancial resources yet begrudge every cent of tax that they pay, or every cent they are forced to spend on anything else (child support, car rego etc) that doesn't immediately benefit them. Whereas I find myself preferring tax deductable donations at times just because I want to reduce my taxable income to below the top marginal rate. So this year due to unexpected income I'm donating ~10k in Australia and more than that in NZ.

I look at it as "what would I do with the money otherwise", and the answer is almost invariably "either buy junk or spend it on activism". So by giving it to activists I'm just making the govt contribute to things the govt often doesn't approve of (they lose my marginal tax rate times the tax deductable part of the donation). And I think that's funny.

Although it does lead me sometimes into the backward situation of wanting to donate to government-approved groups rather than more direct-action oriented ones. I try to resist that pressure.

Posted by Moz : 5/15/2007 05:39:00 PM

That Brian Easton is right on. The Australians should employ him to help them run their economy better.

Posted by Anonymous : 5/15/2007 07:55:00 PM

I expect the budget will be preempted by some interesting political news announced tomorrow, a further blow to Labour. Ha ha ha!

Posted by Anonymous : 5/15/2007 08:59:00 PM

"As I just said: because the government needs to pay for the social and physical infrastructure the vast majority of New Zealnders depend on to live their daily lives. You may think you don't benefit from this, but that's because it is effectively invisible and taken for granted."

That's just spin. Labour wastes heaps of money. They can't even point to improvements in hospitals for all the billions they poured in there.

Posted by Anonymous : 5/15/2007 09:00:00 PM

"Alternatively if you dont think conditions are right for tax cuts, why dont taxes go up to pay for this social infrastructure??

Actually, I think they should."

Bulldust
Labour's already wasting too much
The government will end up spending more than half the money in the economy. That is too socialist.

Posted by Anonymous : 5/15/2007 09:04:00 PM

moz
"I am still periodically bemused at people that I meet who have significant fianancial resources yet begrudge every cent of tax that they pay,"

Dear Mr Moz
I object to having to pay Labour's ideological socialist crap like 30% increase for nurses with no increased productivity. Anyone with at least 10% of a brain can see this is purely Labour bribing its core supporters just before the 2005 election. Working for Families is another huge electiom bribe.

Posted by Anonymous : 5/15/2007 09:06:00 PM

According to Easton people would spend their tax cut not save it therefore we shouldnt have tax cuts

Well for Mr Eastons information the biggest profligate spender and waster of money is the Labour Goverment.

If Cullen wants people to save he should lead by example

Posted by Anonymous : 5/15/2007 09:09:00 PM

This comment has been removed by the author. Posted by Moz : 5/15/2007 10:23:00 PM

This comment has been removed by the author. Posted by Moz : 5/15/2007 10:25:00 PM

Retry that with the spelling errors and mistake:

The problem to many of the other anonymouses is that he is leading by example. All that "surplus" money he's putting into government services instead of spending it on tax cuts is a real investment in making NZ a better place.

I'm appalled that anyone would claim nurses are overpaid. Specifically, if you think they're overpaid now why not train up and take advantage of the excessive wages they get?

How about the free market view: since we have an ongoing shortage of nurses, obviously nurses are not paid enough. When we have a surplus of nurses and no vacancies, then we can return to the old policy of cutting their pay and making their jobs harder. How does that sound?

Posted by Moz : 5/15/2007 10:32:00 PM

If the Labour government wants to find a nice excuse to hide a few billion dollars, why not just start accumulating a foreign currency reserve? Might just manage to counteract those carry-trade speculators and bring the NZ dollar down a tad...

Posted by Anonymous : 5/16/2007 02:42:00 AM

Is the server down at Kiwiblog??

C'mon Anon's... I know you guys all look the same, belong to the same demographic, and live the same frustrated lives with the same fallacious arguments and the same lack of conscience... but could you at least invent a pseudonym so we know who to reply to?

ta

Posted by Anonymous : 5/16/2007 01:07:00 PM

what's that abc

you want to know who we are and where we live?

Do you want to start a dossier on everyone who has made a comment on a blog, a la the Greens and Phil U......

How about debating the facts...like NZ is further down the OECD ladder since Labour came to power.

Crime is up and violent crime has increased even faster.

People getting cut from waiting lists and can't get an operation.

More people on invalids and sickness benefits.

Billions of dollars of waste in education and heath.

The Police look like they are incomptent at best.

We are taxed at a higher rate than when Muldon was in power.

House prices are spiralling out of control and the average NZder can't afford a decent place to live in thier own country.

Homelessness is up under Labour.

Productivity has almost been stamped out.

Strikes are up in the health sector.

NCEA is a failure.

More and more NZders are leaving this country.

This budget will provide tax cuts for large multi-national companies but not ordinary NZders.

This budget will not take money out of the economy with Kiwisaver - do you morons think investment companies will stuff the money into to there mattress at home?

Any tax incentives will only go to rich NZders who can afford to save. This has been proven overseas in similiar schemes.

With tax cuts ordinary NZders might be able to repay there debt (this has increased under Labour) and start saving for the future.

But no Labour and the left wants NZders to be poor and improvished.

They left look aprrovingly at the polices of Robert Mugabe, wondering how they can bring those reforms to NZ.

Isn't that why the UN appointed Zimbabe to the post of economic development???

Posted by Anonymous : 5/17/2007 01:08:00 PM