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Zero is a cut

Written By: - Date published: 9:30 am, March 25th, 2011 - 24 comments
Categories: budget 2011 - Tags:

As we brace for this year’s budget it’s important to remember that no change is a cut. A dollar today buys nearly 5% less than it did a year ago and there are 1% more New Zealanders.

Not every piece of government spending is affected by domestic inflation or population growth but the bulk of it is. And that means that no nominal change in funding is a 6% cut.

Even Bill English has admitted as much, in response to questioning from Russel Norman:

Dr RUSSEL NORMAN (Co-Leader—Green) to the Minister of Finance: Does he agree that due to inflation, no new spending in the upcoming Budget is the equivalent of a cut in real terms?

Hon BILL ENGLISH (Minister of Finance) : It depends on which part of the Budget—and I am not trying to be clever about it. Some services will continue to get somewhere near an inflation adjustment, such as health and education. Inflation adjustments will continue to be made to income support programmes such as superannuation and benefits, which are very large components of the Government’s annual Budget. There will be services that will have no increase in spending, and that means they will be cut in real terms. We have a strong expectation that everyone supplying public services needs to focus on providing more services for less money, and that is not a new message.

This is the most subtle and insidious way that the Right can undermine public services, by letting inflation and population growth do the work for them. Even when it comes to health and education, the Nats can say ‘we’ve spent more than ever before’ but if that increase doesn’t match inflation and demographic needs, it’s a cut.

24 comments on “Zero is a cut”

  1. Lanthanide 1

    Wow, a very straightforward answer from Bill. I wonder why.

    He didn’t even drop in the usual attack on Labour, or claim that an aggressive recovery would make everything better again and not to worry out little heads about it.

  2. PeteG 2

    This sort of creepage is common – under Cullen it happened for nearly nine years, where no changes meant many people paid more income tax, year after year, as they crept up the brackets.

    But that doesn’t really affect the current argument – should we keep spending more and borrowing even more?

    • Bright Red 2.1

      false dichotomy. the spending could be funded by reserving tax cuts for the rich and subisdies for polluters.

    • Colonial Viper 2.2

      But that doesn’t really affect the current argument – should we keep spending more and borrowing even more?

      Government spending is the only thing keeping the economy going and stopping aggregate demand from dropping like a rock, since the private sector refuses to lift its game.

    • ianmac 2.3

      As a non-economist I thought that the famous “block of cheese cut” that Dr Cullen proposed then didn’t enact, was to counter the creep or is that fiscal drag. He decided that the cost/benefit was not worth it knowing that the then opposition would make capital out of it. (There. I used some economist speak!)

      • Herodotus 2.3.1

        The block of cheese was to be made every 3 years- based on the 3 years previous inflation figures – so we were still going backwards, wait 3 years to regain what was lost in our spending power. It did not take into account the initial years of the Lab govt. And people ask why Lab lost touch with the public. It was and still is damn hard to keep bread on the table. Just look at our current account deficit, we borrow to keep the masses: clothed, housed, fed and educated.
        It was tokenism at its lowest level.

        • Peter 2.3.1.1

          Every day you go to work your dollar is worth less. I’ll vote for the political party that can increase Real Income. Do you know any?

    • lprent 2.4

      Now that is begging the question.

      Or should we raise government revenues to ensure that we can borrow less (and pay less interest ofer the long term, which is the kicker with debt)?

      It is quite clear that the tax cuts over the last few years were unaffordable when we are in one of the cyclic recessions that happen too frequently to ignore. There aren’t enough cuts politically available to more than dent the fiscal debt situation.

      Or should we live in hope (as the government is at present) that the economy has a aggressive recovery? Something that shows absolutely no signs of happening to increase government revenues (ie the faith based argument).

      Or should we sell assets to reduce government debt in the short term, while making sure that the overall costs to the economy rise in the long term?

      I’m sure that there are many other alternatives that I haven’t covered. But your simplistic attempt to constrain the debate is so characteristically predictable… It is like watching a caricature you’d expect to see in a cartoon..

    • Lanthanide 2.5

      ianmac mentioned this at 2.3 although got the slogan wrong, and I want to really highlight it further.

      In 2005, Cullen proposed to index the tax thresholds to inflation. Initially, due to low inflation, this would not have made a big difference to after-tax income. As such, the National opposition called it the “chewing gum tax cut” and went apeshit over it. The media glommed it all up. Eventually Cullen scrapped it.

      Since we’ve just gone through several years of quite high inflation, I think that had Cullen enacted that threshold indexing, the bands would probably be a bit different than now. It seems highly likely the top band would be higher than $70k that National considers people to become ‘rich’ at (Under Labour it would be $75k right now, and $80k come 1st April 2011), although the middle band at $48k is probably about what it would’ve ended up at under Cullen’s deal.

      Anyone care to calculate what the thresholds would now be had that policy gone through? Marty? I’d do it myself but have no idea where to get inflation data from and not 100% sure I’d get it right.

      • Draco T Bastard 2.5.1

        Inflation Calculator would probably be a good place to start.

      • Herodotus 2.5.2

        As the adjustments were to be made every 3 years, we would have only expereinced 1 adjustsment so far in 2008, with anther adjusment this year and then there were new taxes to take this “gift” away from us.
        http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10368511
        “The move was derided as the “chewing gum” budget as it would have given many people just 67 cents a week more take home pay.
        Dr Cullen told MPs that the axed carbon tax had been tagged to fund the drop in revenue caused by raising the thresholds at which people moved into higher tax brackets. ”
        So it was not even intended to be a cut it was all smoke and mirrows. So Lanth we would all ghave been the poorer for it.

  3. ianmac 3

    Bill English also conceded that since all the Statistics NZ figures were not in because of the Earthquake damage, there could be a negative final growth figure. But he said, that was not important to look into the past (except to blame Labour for 9 long years…..) as we must look forward to improvement that is on the way.
    As Marty has shown, for we peasants things cost heaps more, and my neighbours and I hold Key and English to fix it like they promised!

    • PeteG 3.1

      The best thing we peasants can do if things are costing heaps more is to address our own budgets, sitting around expecting the government of the day to fix things for us is doomed to disappointment. We can’t always rely on a lolly scramble around election time, if that always happened the country would go broke. Hang on….

      • Bright Red 3.1.1

        I remember a few years back when the righties were complaining about Labour runnning huge surpluses and demanding more lollies by way of tax cuts, which National duly gave them with borrowed money.

      • M 3.1.2

        PeteG

        I don’t know what planet you inhabit but as one of those said peasants I can’t trim my costs anymore. Don’t know about you but eating and being clean rates pretty high on my list, and no, I don’t take five showers a day but try to be careful with energy as I’m a peaknik. I make most meals from scratch and food waste is kept to a minimum. I usually have celery in my garden as the price of it is outrageous and I can use this to make stock if there happens to be a chicken carcass from a roast meal.

        I do not expect a lolly scramble but I do expect to be able to get by without thinking what the hell am I going to do if my washing machine breaks down.

        The reason the country is going broke is because John Key and his coterie voted themselves a massive lolly scramble and managed to manufacture a financial crisis so that selling off assets would seem to be the sane and sensible choice.

        You might like to toady to this mob and be ready to swallow their crap but most aren’t or are getting to the stage where they aren’t willing to believe the crap NACT spout anymore.

  4. RedLogix 4

    Came home last night and announced to ‘her indoors’ that I was sick of working to support the family and I was going to quit. We could just go to the bank and live off borrowed money.

    When she went all peculiar on me I tried explaining that “well that’s how the govt is doing it, so why can’t we?”.

    For some reason this didn’t help.

    • ianmac 4.1

      Clever Red Logix. Yet Bill English keeps on explaining that he is just doing what a prudent housekeeper would do. Say what?

  5. sean14 5

    Marty – 4 days ago it was Slash and Burn, now it’s Zero is a Cut. What’s changed?

    • lprent 5.1

      It is the same thing – did you only read the title?

      Perhaps you should actually read the article. Come back and ask if you find any concepts that are too hard for you to understand. But please check with wikipedia first. You’ll find that the explanations for ‘inflation’ and ‘population growth’ are both in there

      • sean14 5.1.1

        The first paragraph of the Slash and Burn post talks about “Cuts of up to 32%”. That’s hardly the same as failing to compensate for inflation (unless the economy is in much, much worse shape than we are being led to believe).

        • lprent 5.1.1.1

          There are both.

          From what Bill English has been saying (you can find the links in the posts), some budget items are going to get severe cuts. Others like education and health are going to get increases, but increases that are less than or at best equal to the the inflation rate (in the latter case not increasing to cope with population increases is also a cut). There will be a range in between those points.

          It looks like all existing programs are going to get an effective cut in real terms on a per capita basis.

          The economy is actually in pretty bad shape. Not because particularly because of the business levels, which appear to have stopped dropping. It is because the governments revenues are not covering its expenditures. Basically the drop in company profits and the reduced numbers of people in work have markedly reduced the government revenue, while at the same time paying for all of those extra long-term unemployed has massively increased expenditure. And that was before the cost of the quakes is counted in.

          This is something that was completely predictable from when the tax cuts went through. Labour’s tax cuts would have been bad enough (and I disagreed with them) but at least they were spread over almost everyone including most of the people who are now unemployed. Nationals tax cuts were idiotic because they reduced the tax take from those who are still working in the recession.

          And you notice that the tax cuts haven’t particularly helped with a “aggressive recovery”? It was a silly idea more rooted in blind optimism than any rationale. Cutting costs in the governments expenditure is what NAct is now doing – the problem with that is that it will further depress the internal economy and further entrench and increase long term unemployment- just as it did in the early 90’s. That just delays any recovery for quite some time and uses debt to pay for the current ‘living’ expenses.

          Basically what NAct should have been doing is to reverse tax cuts (as being a silly error of judgement on their part) to a more sustainable revenue position. Then they’d be able to use their ability to raise debt into increasing the infrastructural projects now that we need to grow when a recovery takes place. It’d employ more people and prevent the issues that come from long-term unemployment slowing down any recovery.

  6. HC 6

    To put all this in very simple words: All low income earners, the beneficiaries and a larger and growing share of the so-called “middle class” are now going to be asked to pay even more for the tax cuts that only benefitted the truly high income earners!

    I think that Bill English was rather sombre about all this, because he senses that the voters could within coming months realise that they have been “done” by this government. Only the strongest supporters of National and ACT (the upper 5 % of income earners and asset owners) have benefitted from the tax cuts, while others have not seen any improvement or even seen a substantial worsening of their circumstances. The majority of voters may actually wake up at last and vote this crowd out. That is what Bill English, John Key and consorts are worried about most!

    Now I am really looking forward to being work-tested as a sickness beneficiary from May 2011 onwards! Having been on an invalid’s benefit for good reasons and then been put onto the sickness benefit due to apparently biased and totally unreasonable decisions by WINZ paid designated doctors and a similarly “un-independent” Medical Appeal Board, I will as a sick person have to compete with all the other well qualified and desperate people for probably just a part time job.

    That will do my health a hell of a good, will it not?

    This government has NO answers, NO plans, NO future direction, NO brains, NO sense of fairness, NO respect for the worse off and NO sympathy for those very much at the bottom end of the food trough.

    Sadly the Labour Party is lacking in direction, in serious determination and in honesty to really present a feasible alternative. I see a weak Phil Goff, a pathetically uneffective Annette King and many young upstarters that are still green behind their ears.

    Again voters will be faced with a choice between lesser evils. NZ politics is in a very, very dismal state of affairs. My vote will go to a more honest small party, and that is the only hope many of us have now.

    • ZeeBop 6.1

      I’m surprised oil prices are only $100 a barrel. And now Nuclear is in doubt, seen now rightly as prohibitively expensive when the cancer costs, risks are added in. Can you imagine that, oil $200 and all those foreign rugby fans having stayed at home, just as National go to the polls with having done nothing but hold back progress.

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  • Anniversary of Sri Lankan Tamil Massacre
    This is not going to be a happy story but if the Green Party of Aotearoa doesn’t want to know who else will? May 18th marks the anniversary of what is known as the ‘Mullivaikal massacre’ of Tamils in 2009 at… ...
    GreensBy Catherine Delahunty MP
    4 days ago
  • Labour MPs join youth to take part in 40 hour famine
    A team of Labour MPs took part in the 2015 World Vision 40 hour famine and we were told by World Vision and the young people, that it was the first time MPs had joined them and how appreciative they… ...
    4 days ago
  • Rodeo: ‘Family entertainment’ or animal abuse?
    Recently  TVNZ ran a story with confronting footage showing rodeo animals being punched, repeatedly shocked with electronic prods and having their tails violently twisted over their backs. It was clear that significant force was being used behind the scenes to make… ...
    GreensBy Mojo Mathers MP
    4 days ago
  • Budget puts the squeeze on police
    The Government has cut funding to the New Zealand police force in the latest Budget, says Labour’s Police spokesperson Kelvin Davis. “The reduction is a whopping $15.3 million that could put front line officers at risk. ...
    4 days ago
  • Crucial social services take another hit
    The Government looks set to slash half a million dollars of funding for critical social services, including Women’s Refuge and Barnados, says Labour’s Social Development spokesperson Carmel Sepuloni “Taking $500,000 from organisations aimed at improving the lives of vulnerable families… ...
    4 days ago
  • Saying it Loud on Climate in Christchurch
    The Government’s Christchurch consultation meeting on New Zealand’s emission targets was inspiring – not for what was in the Ministry for the Environment’s (MFE’s) defeatist video about the obstacles to changing to a low carbon future, but for what the… ...
    GreensBy Eugenie Sage MP
    4 days ago
  • Budget silent on small business
    The Government has completely ignored one of the most important sectors of the economy – small and medium-sized enterprises – in Budget 2015, Labour’s Small Business spokesperson Jacinda Ardern says. "A stunning 41 per cent of jobs were created by… ...
    4 days ago
  • Thank you John, it’s been bloody marvellous
    The departure of John Campbell is a blow to current affairs investigative journalism, Labour’s Broadcasting Spokesperson Clare Curran says. “Campbell Live stood out in its field. Its axing comes as local broadcasting in New Zealand remains in a state of… ...
    4 days ago
  • KiwiSaver cut shows no long-term plan
    National’s cutting of the KiwiSaver kickstart is incredibly short-term thinking, typical of a Budget that is woefully short on ideas to generate wealth and opportunity, Labour’s Finance spokesperson Grant Robertson says. “New Zealand’s savings rate is far too low. KiwiSaver… ...
    4 days ago
  • National hits the panic button for its 7th Budget
    National has hit the panic button for its 7th Budget in a desperate attempt to look like they’re taking action to reduce our shameful child poverty rates, but they are giving with one hand and taking with the other, Opposition… ...
    5 days ago
  • Panic and back-flips can’t hide twin deficits
    National’s token measures to fight fires they have left burning for seven long years can’t hide a Budget that is long on broken promises, short on vision and fails to reach surplus, says Labour’s Finance spokesperson Grant Robertson. “After being… ...
    5 days ago
  • Auckland land measure seven years too late
    National are so desperate to look like they are doing something about the Auckland housing crisis they have dusted off Labour’s 2008 inventory of government land available for housing and re-announced it, says Labour’s housing spokesperson Phil Twyford. “Despite National… ...
    5 days ago
  • Access to gender reassignment surgery essential
    I was frankly disgusted to hear the Minister for Health say that funding gender reassignment surgeries is a “nutty idea”. A recent study found that in New Zealand 1% of young people identified themselves as transgender, and 3% were unsure… ...
    GreensBy Jan Logie MP
    6 days ago
  • Global milk prices now lowest in 6 years
    The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices… ...
    6 days ago
  • Big risks as CYF checks stopped
    Revelations that Child, Youth and Family is no longer assisting home-based early childhood educators by vetting potential employees should set alarm bells ringing, Labour Children’s spokesperson Jacinda Ardern says. “Doing away with an extra mechanism for checking potential new employees… ...
    7 days ago
  • Housing crisis about real people not numbers
    The Government’s continued failure to tackle the housing crisis is seeing thousands of vulnerable Kiwis being kept off social housing waiting lists, while others, who are on the list, are being forced to live in cars and garages, says Labour’s… ...
    7 days ago
  • Housing crisis about real people not numbers
    The Government’s continued failure to tackle the housing crisis is seeing thousands of vulnerable Kiwis being kept off social housing waiting lists, while others, who are on the list, are being forced to live in cars and garages, says Labour’s… ...
    7 days ago
  • State of origin
    Kiwis are increasingly concerned about the food they give their families. New Zealand consumers have the right to know where their food has come from, particularly when it involves animals, and should be able to expect our Government to label… ...
    GreensBy Steffan Browning MP
    7 days ago
  • Relationships Aotearoa
    It is disturbing that Relationships Aotearoa, a voluntary organisation set up in 1949 to help couples struggling with their relationships following the upheavals of World War II, may be forced to close, says Acting Spokesperson for the Voluntary and Community… ...
    7 days ago
  • An economy that is just working for some is an economy that is not working
    The National Party presents itself as a great manager of the economy, but if the economy is only working for some we really need to question that assertion. Alongside the perpetually elusive surplus, the levels of risk in our economy are… ...
    GreensBy Jan Logie MP
    7 days ago
  • An economy that is just working for some is an economy that is not working
    The National Party presents itself as a great manager of the economy, but if the economy is only working for some we really need to question that assertion. Alongside the perpetually elusive surplus, the levels of risk in our economy are… ...
    GreensBy Jan Logie MP
    7 days ago
  • House prices to a crack $1 million in 17 months
    The average Auckland home is on track to cost $1 million in 17 months’ time if nothing substantial is done to rein in soaring price rises, Labour’s Housing spokesperson Phil Twyford says. “Auckland’s house prices have skyrocketed 63 per cent… ...
    1 week ago
  • Vital support services can’t be left in lurch
    The National Government has big questions to answer about how a provider of services to thousands of vulnerable New Zealanders is set to fold, Labour’s Finance spokesperson Grant Robertson says. Relationships Aotearoa which provides support and counselling to families, individuals… ...
    1 week ago
  • Treasury and IRD on a capital gains tax
    Both the Treasury and IRD have been advising the National Government on the benefits of a capital gains tax. Documents released to the Green Party under an Official Information Act request show that John Key has been selective with the… ...
    GreensBy Russel Norman MP
    1 week ago
  • Charity legislation needs review
    It is unacceptable that the big corporate based charities claim  millions in annual income tax exemptions, while small community based and operated non-profit organisations  struggle to gain official charity status, Labour’s acting spokesperson for the Voluntary and Community Sector Louisa… ...
    1 week ago
  • John’s panic-Key response to housing crisis
    John Key needs to tell New Zealanders what caused his sudden change of heart that led to the Government’s scrambled and last-minute housing measures, Opposition Leader Andrew Little says. “The Prime Minister’s sudden rush of blood to his head followed… ...
    1 week ago
  • Keep our Assets Christchurch Campaign: An update
    I recently presented my submission to keep Christchurch Council assets at the Christchurch City Council’s public hearings on its 10 year plan on 13 May. The hearings are live-streamed and recorded so you can watch them on www.ccc.govt.nz. The Council’s… ...
    GreensBy Eugenie Sage MP
    1 week ago
  • John Key finally admits there’s a housing crisis
    John Key’s weak measures to rein in the astronomical profits property speculators are making are an admission – finally – that there is a housing crisis, Labour Leader Andrew Little says. “But yet again National is tinkering with the housing… ...
    1 week ago
  • Government stifles voices in CYFs review
    The Government’s exclusion of the Māori Women’s Welfare League in a panel on the future of CYFs is a cynical ploy to stifle views, says Labour’s Māori Development Spokesperson Nanaia Mahuta. “It's unbelievable that a significant review on the future… ...
    2 weeks ago
  • Speech to the Otago Chamber of Commerce
    Thank you very much for the opportunity to be here today. It’s a pleasure as always to be back in the town that raised me. Growing up in St Kilda meant that there was one thing that was a big… ...
    2 weeks ago
  • Key can’t just be Prime Minister for Parnell
    John Key must show New Zealanders in next week’s Budget that he is more than the Prime Minister for Parnell, and is also the Prime Minister for Pine Hill, Putararu and Palmerston North, Labour’s Finance spokesperson Grant Robertson says. In… ...
    2 weeks ago
  • Stop the conversions
    This week, some Waikato locals took me and intrepid photographer Amanda Rogers on a tour of some  lakes and waterways in their region, and up to the massive dairy conversions in the upper catchment of the Waikato River. It… ...
    GreensBy Catherine Delahunty MP
    2 weeks ago
  • More regional jobs go in Corrections reshape
    News that 194 Corrections staff are to lose their jobs will have ramifications not only for them and their families but for the wider community, Labour’s Corrections spokesperson Kelvin Davis says. Prison units at Waikeria, Tongariro and Rimutaka face closure… ...
    2 weeks ago
  • Government’s climate meetings off to a bumpy start
    On Wednesday, I attended a hui and an evening meeting that the Government had organised in Nelson as part of its climate change consultation tour, to support the Nelson community telling the Government to take meaningful action on climate change.… ...
    GreensBy Steffan Browning MP
    2 weeks ago
  • Taxpayers the only ones left feeling blue
    Ministry of Social Development bosses could have saved themselves thousands of dollars in consultants’ fees by providing staff with rose-tinted spectacles, Labour’s State Services spokesperson Kris Faafoi says. A report out today reveals the Ministry is spending over half a… ...
    2 weeks ago
  • Why are the regions still facing restrictions?
    Labour's Housing spokesperson Phil Twyford is questioning why the regions should continue to be saddled with LVR lending restrictions announced by the Reserve Bank today. “Labour has been calling for the regions to be exempted from LVRs for the best… ...
    2 weeks ago
  • The high costs of weak environmental regulation
    Te Waihora/Lake Ellesmere is described on the Department of Conservation website as “Canterbury’s largest and New Zealand’s fifth largest [lake], and an internationally important wildlife area.” But the lake is also polluted by nutrients leaching from farms in the catchment.… ...
    GreensBy Eugenie Sage MP
    2 weeks ago
  • Submissions to Wellington City Council on their Gambling Venues Policy
    Every three years Councils across the country are required to check that their gambling venue policies are still fit for purpose and they can choose to consult on their policy if they are thinking of making changes. Councils don’t have… ...
    GreensBy Denise Roche MP
    2 weeks ago
  • Reserve Bank action shows Govt out of touch and out of ideas
    The Reserve Bank’s unprecedented measures today show it understands the serious risks of the overheating housing market – in complete contrast to John Key’s refusal to acknowledge the crisis, Labour’s Finance spokesperson Grant Robertson says. “The Bank is right to… ...
    2 weeks ago
  • Send us your snaps: 25 Years of the Green Party
    This year we've hit a milestone. We're turning 25.To help celebrate a quarter of a century, please send us your photos from the last 25 years of the Green Party Aotearoa New Zealand! Note: Photos must be jpg, gif or… ...
    2 weeks ago
  • 25 Years of the Green Party
    This year the Green Party sends 25. To help us celebrate a quarter of a century please send us you photos of 25 years of the Green Party!Photos must be jpg,gif or png and smaller than 2MB. If you are… ...
    2 weeks ago
  • Bay growth plan too little too late
    Today’s Bay of Plenty growth study from MBIE is another example of Government spin - lots of talk but little action, says Labour’s Regional Development spokesperson David Cunliffe.  “This is a region that desperately needs to develop the downstream processing… ...
    2 weeks ago

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