Written By: - Date published: 3:00 pm, May 22nd, 2008 - 67 comments
Categories: budget 2008, election 2008 -
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The tax cuts are smaller up front than Labour had been hoping to deliver but the economic position at present means there is simply not the money in the coffers to give huge cuts right now. Labour is bringing forward the cuts and the boost to Working for Families to October 1, instead of April 1 which would be the usual date, and targeting money at lower income families first. The cuts in following years will be larger than most expected and will spread the benefits into upper middle income levels ($50K plus), with the tax bill for someone on $50,000 reducing 15% by 2011.
Labour’s broadband plan is much more sophisticated than National’s and will actually work in delivering better internet without putting Telecom back into a monopoly position. It doesn’t aim to build in record time a network massive bandwidth that most people have no use for. Instead, it takes a more prudent and cost-effective approach to gradually increase broadband speeds. Sure, National’s investment figure is bigger but there is a vacuum behind it, as if the plan was made up on day and Key plucked the$1.5 billion figure from the air. It was good to see that Labour’s plan specifically includes money for a new trans-Tasman cable, for which the government will be anchor tenant. It’s all very well having lightening fact connections in New Zealand but not much good if the data can’t get overseas. The Labour plan also targets those who have most use for faster broadband, businesses.
The tax cuts and the global economic slowdown mean the fiscal position of the Government will be much tighter in the coming years than it has been in the last few budgets. The operating deficit will be down to a couple of percent of GDP. Government debt will remain stable at around 18% of GDP over the next three years. Labour is not increasing debt to pay for tax cuts but rather than decrease debt further it is giving tax cuts. By phasing the cuts in over three years, the inflationary impact from them is reduced. Inflation is expected to fall under 3% in the medium term. That’s the Reserve target, so interest rates can be expected within the nest few months.
This means there is little free room, only about $1.7 billion, for spending or tax cuts promises heading into the election without going into an operating deficit (that is, borrowing to fund day to day spending, rather than borrowing for investment). Which sets us up for an interesting election: where will the money come from for both major parties to offer vote-grabbing policies, and what will be left for policy concessions to minor parties in governing deals?
As we predicted, this budget leaves National in a bind. If they offer larger tax cuts than Labour, it will have to increase borrowing or cut spending. It also eliminates the over-taxation argument. There was this weird perception that Cullen was sitting on a huge pile of gold at the end of each year, when, in fact, the operating surpluses were being used to fund capital investment and pay-down debt. Now, Labour has delivered tax cuts and kept debt levels steady. It has already meant less new social spending than Labour would probably have liked.
It now comes down to a simple choice for voters: reasonable tax cuts, not more government debt, and moderate increases in government spending or large tax cuts (mostly for the rich, no doubt), more government debt, and less spending on public services.
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“It was good to see that Labour?s plan specifically includes money for a new trans-Tasman cable…”
Just out of interest….that wouldn’t be the Kordia link would it….if so then I hope the $15m (?) is not just underwritten SoE capex….
Still, nice to break the Sthn X “monopoly”, as I believe Telstra is whacking a whopping great big piece of glass Sydney to Hawaii….
From what I can stomach of the KB comment thread and those comments above, i see a few common arguments from those who don’t like these tax cuts. Here are three, there are probably more:
1. `Too much, and yet simultaneously not enough’. This one seems logically indefensible unless you presume that what people really mean is `not targetted at me’.
2. `There is a billion dollars per year worth of fat in the public service which can be cut without significant adverse impacts on taxpayers’. Leaving aside the fact that John Key has said he’d cap the core public service rather than cut it, taking this as given without due diligence is an incredibly risky platform upon which to base policy.
3. `Cullen doesn’t believe it’, aka `Cullen is being hypocritical’. So what? The legislation will be passed by the time you get up tomorrow morning. If it’s really policy you care about, well, here’s some policy for you. This one is a masked `I don’t like Cullen and I won’t like him no matter what he does.’ A fair and reasonable standpoint, but only if people declare it as such.
L
Brett, closing the embassy may not be National’s main policy, but it’s the only one he was able to articulate when questioned on both current affairs shows tonight. He’s so impressive.
National Disgrace is right. It’s not my job to think up policies for John Key. It’s his job to tell us HIS policies. He wants to be Prime Minister. He was asked for policy, and closing the embassy in Sweden was his reply (a fact that you have not disputed, Brett, because he said it).
Since he used exactly the same line on both programmes, that was clearly the prepared message that he wanted to get across. Bigger tax cuts, one less embassy. (Must be a feckin huge embassy …)
Brett, if you don’t like Key’s answers, tell him, not us.
The Swedish embassy is this years “hip-hop tours” without the veiled racism. Brash-lite.
Like the thousands of useless “health bureaucrats” twiddling their thumbs through $5 billion a year, Slippery is about to find his mythological demons a little hard to deliver on a plate – particularly with so many already “me-tooed” off the menu.
The inherent contradiction of running simultaneous “Corrupt! Corrupt!”, “NZ Sucks” and “We’ll do the Same” campaigns is coming back to bite their tight, shiny wee tooshes.
Honeymoon’s over, smiling assassin, and them good ol’ EFA blues are a-crooning: you can’t buy my love no more.
If you guys really think all we will here from key is about the Swedish embassy, well your sadly mistaken.
It wasnt the time or place for Key to go through his policies, but when he does, the country will sit up and take notice.
There’s poetry on this comment thread. Not good poetry, but real love has gone into it.
L
Anyone else hear Keys budget reply speech comments, about not being interested in Vietnam or the Sprinkbok tour?
And Clark’s later put down ? Loved it
“But I wanted to be the Ambassador to Sweden!”
Don’t worry robinson, we’ll send you to Somalia, instead.
Brett, you make my brain sad.
listen to the crap leighton smith is pushing out on newstalk zb this morning…will somebody please buy him a ticket out of here
randal: He actually said he’d leave of his own accord: “If you don’t throw this lot out on their collective arses, then I’m leaving the country”.
L
“If you don’t throw this lot out on their collective arses, then I’m leaving the country’.
Labour should put that on a billboard with his picture.
You’re right Brett, if John Key did announce an actual policy, I would indeed sit up and take notice! I’d be shocked. His ‘peek a boo” wait and see is not cute, or credible any more. Pathetic. He’s history.
I note interest rates have shot up already in response to the ‘miserable block of cheese’. Imagine how much your mortgage will go up if Key pledges to borrow and splash three times as much.
Don’t you worry about Leighton Smith.
He will remain in the country because his prediction will come to pass: Labour will be soundly defeated at the polls!
“I believe that if ya have extra cash at the end of your pay cheque, you should invest it, and not spend it on booze, cigarettes or at the TAB, unlike those on the left.”
Generally being a cogent commentor, Brett, I’ll give you the benefit of the doubt and retract the ‘filthy bigot’ remark. I read that as a comparison of your beliefs with those on the left, not on the spending habits of the unwashed masses.
It’s still a fairly ugly stereotype. A lot of people with more money than sense make some big gambles and hit the sauce with the best of ‘em, but I truly can’t be bothered rehashing a debate on worthless stereotypes.
You just sound more nanny-state than the incumbent when you make such a statement: “don’t give them money, they’ll just fritter it away. Tsk tsk.”
“For example – This WFF thing makes me sick. Why should I as a single person fund other people’s lives just to have families?”
Steve gets gastronomically discombobulated over WFF. Steve, WFF being a tax rebate, families are getting more of their own tax take back. If you’re going to blow chunks over something, it pays to be sure you know what you’re talking about.
Erikter, you’re the one who wants fully privatised healthcare and education – I daresay the state doesn’t do much public provisioning in Somalia, I think you’d be far happier in your small-governmental utopia than ‘sod – I don’t think he minds paying taxes for a decent society.
I think we’ll send you there, you’ll be so happy! Low tax, user pays, oh gosh you’ll just love it!
I have a question or two. In previous years since about 2004, Dr Cullen has told us that a cautious fiscal stance was necessary both as a buffer against possible future economic shocks and because too great a spending stimulus could also have placed undue pressure on monetary conditions.
So now we have a tax cut. They cause the surplus to become very skinny indeed, leaving no further protection against economic shocks. Interest rates are still very high (in fact, higher than at any time since 2004).
So was he lying before when he said there was no room for tax cuts? If Dr Cullen is to be consistent with the rules he has set for himself over the last nine years, isn’t the only justification for these tax cuts political?
Billy, sometimes macroeconomic concerns are well over my head, but I’ll take a small punt.
I think we’re experiencing those ‘future economic shocks’ to a small degree now – hugely increased prices have reduced spending, and enabled said tax cuts to occur. Given the change in the economic climate since 2005, it’s worng to hold what Cullen said in 2004 as relevant now. You seem to be taking Cullen’s comments ceteris paribus which is by no means the case.
Matthew Pilott,
Here’s what I think. I think we could have afforded tax cuts in any of the years since 200. Cullen just didn’t want to give them because, being a socialist (or social democrat, if there is a difference) he doesn’t like tax cuts.
Now, politically and for no other reason, he has to give them, even though by the criteria he set the conditions are much less favourable than at any time at least since 2004.
munera accipit frequens, remittit nunquam
Tax cuts since the year 200 would have been nice, but I meant 2004. Must have been the influence of the Latin.
Here’s what I think. I think we could have afforded tax cuts in any of the years since 200. Cullen just didn’t want to give them because, being a socialist (or social democrat, if there is a difference) he doesn’t like tax cuts.
And in the seven years of plenty Joseph as Pharoah’s chief minister could have cut taxes and allowed everyone to spend up large. He would have been most popular with the people.
And in consequence during the seven years of famine, the people would have starved… and the good times would have meant nothing. This ancient story from the Old Testament pre-dates Keyensian economics by some 5000 years, but the moral of the story remains the same… self-control and restraint may not be popular, but it is ultimately life-giving.
(Seeing as how we are indulging in history here…)
“Now, politically and for no other reason, he has to give them, even though by the criteria he set the conditions are much less favourable than at any time at least since 2004.”
I could just as equally say that he didn’t budget tax cuts because they weren’t needed and would have been inflationary.
Now, as inflation on inelastic consumption has eroded our purchasing ability, Cullen comes through with the goods.
Our two viewpoints have a lot in common Billy – they’re based upon assumptions, guesses and our opinion of the actors/agents involved.
There’s not a lot of fact to clearly prove you’re right and I’m wrong, or vice versa; we’re talking about motivations in the end.
To illustrate: Maybe, deep down, Cullen has been bursting at the seams (he is often bright red, to the point of vermillion, after all) to give us tax cuts, but conditions just weren’t right – and now he’s the happiest man in the land (deep down inside – on the outside he had to be somewhat begrudging to maintain the facade) because he’s had the excuse to do so.
Redlogix: shush, we’re Godless commies Social Democrats, you’ll confuse Billy by getting biblical…
What happened to the strikeout of “commies”? It looked far snazzier when that was there. Other HTML seems to work. Odd.
[lprent: I'm not sure - it always
worrksworks for me.]So Matthew, you reckon we would have been getting these tax cuts even if it weren’t an election year? I know it requires a guess, but what is yours?
Hmm… There is always that point. Why can’t you run for PM instead of Key?
Another guess, I couldn’t say for sure. Election or no, given every second story in the papers has been about food or petrol prices, and there’s a lot of hurt from interest rates, there would be a big incentive to act.
If price increases have reduced discretionary spending, tax cuts aren’t going to be as inflationary so I’d say it’s much better than even odds.
One big point though: I also think Labour are very smart operators, politically. If they wanted to give tax cuts purely for political gain, don’t you think they would have done so in the last budget, so by now we’d have had almost two months of fatter pay cheques? And perhaps another one to look forward to in April 2009 (they could have even brought that one forward to 1 Oct).
I would be unelectable, Matthew. I have an appalling stutter, incontinence, a twitch, a hair lip and an eye patch.
Billy. Are you Nick Smith?
Funny, Billy, I thought you looked rather handsome in that photo. I suppose incontinence is hard to photograph.
Out of interest, have you seen the film Taxidermia? I think you described one of the main characters.
[Matthew, stop trying to pick up tories on the blog. SP]
No, but I have just read the plot summary at IMDb. Implausably, it is:
Gyorgy Palfi’s grotesque tale of three generations of men, including an obese speed eater, an embalmer of gigantic cats, and a man who shoots fire out of his penis.
http://www.imdb.com/title/tt0410730/
Billy, I wouldn’t recommend it to many people. You’d think with a description like that, it wouldn’t leave a lot to the imagination. It doesn’t…
Highly recommended to a select few.
SP – Isn’t this the new it place to be seen in? (you know that this looks like jealousy from you)
Well, despite the hair lip, incontinence and so on, I do look like a young Sophia Loren only hotter and more left wing…
‘Sod! I think Billy’s after you again! (or was it the other way around?)