Zero is a cut

Written By: - Date published: 9:30 am, March 25th, 2011 - 26 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.

26 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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    Point of OrderBy Bob Edlin
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    No Right TurnBy Idiot/Savant
    4 days ago
  • Government funding bailouts
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    Point of OrderBy poonzteam5443
    4 days ago
  • Two offenders, different treatments.
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    4 days ago
  • Treaty references omitted
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    Point of OrderBy poonzteam5443
    4 days ago
  • The Ghahraman Conflict
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    Point of OrderBy poonzteam5443
    4 days ago
  • Bernard's Top 10 @ 10 'pick 'n' mix' for March 15
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    The KakaBy Bernard Hickey
    4 days ago
  • The day Wellington up-zoned its future
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    The KakaBy Bernard Hickey
    4 days ago
  • Weekly Roundup 15-March-2024
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    Greater AucklandBy Greater Auckland
    5 days ago
  • That Word.
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    Nick’s KōreroBy Nick Rockel
    5 days ago
  • The Hoon around the week to March 15
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    The KakaBy Bernard Hickey
    5 days ago
  • Labour’s policy gap
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    5 days ago
  • Skeptical Science New Research for Week #11 2024
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    5 days ago
  • Melissa remains mute on media matters but has something to say (at a sporting event) about economic ...
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    Point of OrderBy Bob Edlin
    5 days ago
  • The return of Muldoon
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    No Right TurnBy Idiot/Savant
    5 days ago
  • Will the rental tax cut improve life for renters or landlords?
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    Point of OrderBy poonzteam5443
    5 days ago
  • Geoffrey Miller: What Saudi Arabia’s rapid changes mean for New Zealand
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    Democracy ProjectBy Geoffrey Miller
    5 days ago
  • Racism’s double standards
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    Point of OrderBy poonzteam5443
    5 days ago
  • It’s not a tax break
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    Point of OrderBy poonzteam5443
    5 days ago
  • The Plastic Pig Collective and Chris' Imaginary Friends.
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    5 days ago
  • Who is responsible for young offenders?
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    Point of OrderBy poonzteam5443
    5 days ago
  • Gordon Campbell on National’s fantasy trip to La La Landlord Land
    How much political capital is Christopher Luxon willing to burn through in order to deliver his $2.9 billion gift to landlords? Evidently, Luxon is: (a) unable to cost the policy accurately. As Anna Burns-Francis pointed out to him on Breakfast TV, the original ”rock solid” $2.1 billion cost he was ...
    5 days ago
  • Bernard's Top 10 @ 10 'pick 'n' mix' for March 14
    TL;DR: My top 10 news and analysis links this morning include:Today’s must-read: Jonathon Porritt calling bullshit in his own blog post on mainstream climate science as ‘The New Denialism’.Local scoop: The Wellington City Council’s list of proposed changes to the IHP recommendations to be debated later today was leaked this ...
    The KakaBy Bernard Hickey
    5 days ago
  • No, Prime Minister, rents don’t rise or fall with landlords’ costs
    TL;DR: Prime Minister Christopher Luxon said yesterday tenants should be grateful for the reinstatement of interest deductibility because landlords would pass on their lower tax costs in the form of lower rents. That would be true if landlords were regulated monopolies such as Transpower or Auckland Airport1, but they’re not, ...
    The KakaBy Bernard Hickey
    5 days ago
  • Cartoons: ‘At least I didn’t make things awkward’
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  • Solving traffic congestion with Richard Prebble
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    Greater AucklandBy Patrick Reynolds
    6 days ago
  • I Think I'm Done Flying Boeing
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    6 days ago
  • Invoking Aristotle: Of Rings of Power, Stones, and Ships
    The first season of Rings of Power was not awful. It was thoroughly underwhelming, yes, and left a lingering sense of disappointment, but it was more expensive mediocrity than catastrophe. I wrote at length about the series as it came out (see the Review section of the blog, and go ...
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  • Van Velden brings free-market approach to changing labour laws – but her colleagues stick to distr...
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    Point of OrderBy Bob Edlin
    6 days ago
  • Why Newshub failed
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    Point of OrderBy poonzteam5443
    6 days ago
  • Māori Party on the warpath against landlords and seabed miners – let’s see if mystical creature...
    Bob Edlin writes  –  The Māori Party has been busy issuing a mix of warnings and threats as its expresses its opposition to interest deductibility for landlords and the plans of seabed miners. It remains to be seen whether they  follow the example of indigenous litigants in Australia, ...
    Point of OrderBy Bob Edlin
    6 days ago

  • Government moves to quickly ratify the NZ-EU FTA
    "The Government is moving quickly to realise an additional $46 million in tariff savings in the EU market this season for Kiwi exporters,” Minister for Trade and Agriculture, Todd McClay says. Parliament is set, this week, to complete the final legislative processes required to bring the New Zealand – European ...
    BeehiveBy beehive.govt.nz
    3 hours ago
  • Positive progress for social worker workforce
    New Zealand’s social workers are qualified, experienced, and more representative of the communities they serve, Social Development and Employment Minister Louise Upston says. “I want to acknowledge and applaud New Zealand’s social workers for the hard work they do, providing invaluable support for our most vulnerable. “To coincide with World ...
    BeehiveBy beehive.govt.nz
    8 hours ago
  • Minister confirms reduced RUC rate for PHEVs
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    BeehiveBy beehive.govt.nz
    10 hours ago
  • Trade access to overseas markets creates jobs
    Minister of Agriculture and Trade, Todd McClay, says that today’s opening of Riverland Foods manufacturing plant in Christchurch is a great example of how trade access to overseas markets creates jobs in New Zealand.  Speaking at the official opening of this state-of-the-art pet food factory the Minister noted that exports ...
    BeehiveBy beehive.govt.nz
    11 hours ago
  • NZ and Chinese Foreign Ministers hold official talks
    Minister of Foreign Affairs Winston Peters met with Chinese Foreign Minister Wang Yi in Wellington today. “It was a pleasure to host Foreign Minister Wang Yi during his first official visit to New Zealand since 2017. Our discussions were wide-ranging and enabled engagement on many facets of New Zealand’s relationship with China, including trade, ...
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    1 day ago
  • Kāinga Ora instructed to end Sustaining Tenancies
    Kāinga Ora – Homes & Communities has been instructed to end the Sustaining Tenancies Framework and take stronger measures against persistent antisocial behaviour by tenants, says Housing Minister Chris Bishop. “Earlier today Finance Minister Nicola Willis and I sent an interim Letter of Expectations to the Board of Kāinga Ora. ...
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    1 day ago
  • Speech to Auckland Business Chamber: Growth is the answer
    Tēna koutou katoa. Greetings everyone. Thank you to the Auckland Chamber of Commerce and the Honourable Simon Bridges for hosting this address today. I acknowledge the business leaders in this room, the leaders and governors, the employers, the entrepreneurs, the investors, and the wealth creators. The coalition Government shares your ...
    BeehiveBy beehive.govt.nz
    3 days ago
  • Singapore rounds out regional trip
    Minister Winston Peters completed the final leg of his visit to South and South East Asia in Singapore today, where he focused on enhancing one of New Zealand’s indispensable strategic partnerships.      “Singapore is our most important defence partner in South East Asia, our fourth-largest trading partner and a ...
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    4 days ago
  • Minister van Velden represents New Zealand at International Democracy Summit
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    4 days ago
  • Insurance Council of NZ Speech, 7 March 2024, Auckland
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    4 days ago
  • Five-year anniversary of Christchurch terror attacks
    Prime Minister Christopher Luxon and Lead Coordination Minister Judith Collins have expressed their deepest sympathy on the five-year anniversary of the Christchurch terror attacks. “March 15, 2019, was a day when families, communities and the country came together both in sorrow and solidarity,” Mr Luxon says.  “Today we pay our respects to the 51 shuhada ...
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    4 days ago
  • Speech for Financial Advice NZ Conference 5 March 2024
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    4 days ago
  • Early visit to Indonesia strengthens ties
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    5 days ago
  • China Foreign Minister to visit
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    5 days ago
  • Minister opens new Auckland Rail Operations Centre
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    5 days ago
  • Celebrating 10 years of Crankworx Rotorua
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    5 days ago
  • Significant Natural Areas requirement to be suspended
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    5 days ago
  • Government partnership to tackle $332m facial eczema problem
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    5 days ago
  • NZ, India chart path to enhanced relationship
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    6 days ago
  • Ruapehu Alpine Lifts bailout the last, say Ministers
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    6 days ago
  • Govt takes action to drive better cancer services
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  • Govt takes action to drive better cancer services
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    6 days ago
  • Work begins on SH29 upgrades near Tauriko
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    6 days ago
  • Work begins on SH29 upgrades near Tauriko
    Unlocking economic growth and land for housing are critical elements of the Government’s plan for our transport network, and planned upgrades to State Highway 29 (SH29) near Tauriko will deliver strongly on those priorities, Transport Minister Simeon Brown says. “The SH29 upgrades near Tauriko will improve safety at the intersections ...
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    6 days ago
  • Fresh produce price drop welcome
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    6 days ago
  • Statement to the 68th United Nations Commission on the Status of Women
    Tēnā koutou katoa and greetings to you all.  Chair, I am honoured to address the sixty-eighth session of the Commission on the Status of Women. I acknowledge the many crises impacting the rights of women and girls. Heightened global tensions, war, climate related and humanitarian disasters, and price inflation all ...
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  • Speech to the 68th United Nations Commission on the Status of Women (CSW68)
    Tēnā koutou katoa and greetings to you all.  Chair, I am honoured to address the 68th session of the Commission on the Status of Women. I acknowledge the many crises impacting the rights of women and girls. Heightened global tensions, war, climate related and humanitarian disasters, and price inflation all ...
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    6 days ago
  • Government backs rural led catchment projects
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  • Speech to Auckland Business Chamber
    Good evening everyone and thank you for that lovely introduction.   Thank you also to the Honourable Simon Bridges for the invitation to address your members. Since being sworn in, this coalition Government has hit the ground running with our 100-day plan, delivering the changes that New Zealanders expect of us. ...
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    1 week ago
  • Commission’s advice on ETS settings tabled
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    1 week ago
  • Government lowering building costs
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  • Trustee tax change welcomed
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    1 week ago
  • Minister’s Ramadan message
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    1 week ago
  • Minister appoints new NZTA Chair
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    1 week ago
  • Speech to Life Sciences Summit
    Good morning all, it is a pleasure to be here as Minister of Science, Innovation and Technology.  It is fantastic to see how connected and collaborative the life science and biotechnology industry is here in New Zealand. I would like to thank BioTechNZ and NZTech for the invitation to address ...
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    1 week ago
  • Progress continues apace on water storage
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  • Government agrees to restore interest deductions
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    1 week ago
  • Minister to attend World Anti-Doping Agency Symposium
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    1 week ago

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