Written By:
all_your_base - Date published:
4:30 pm, May 22nd, 2008 - 36 comments
Categories: budget 2008 -
Tags: Budget, Cullen, key, tax
From John Armstrong in The Herald:
Is it enough? Michael Cullen has given it his best shot. He has been about as generous as he could be.
He and his Labour colleagues will not die wondering what might have been had the Finance minister’s tax cuts been bolder. He could not have been bolder without seriously risking pushing the Government accounts into the red.
His tax cuts – as he said – are at the limits of his comfort zone…
The clever feature of the tax cuts is that they deliver where it counts politically.
Single people on modest incomes will hardly be dancing in gratitude at the prospect of an extra $12 to $16 a week from October.
For families, however, it is a different story. Labour has again targeted more assistance to them – very deliberately.
So a two-child household earning $65,000 will get an extra $43 a week.
This is the territory where the election will be fought.
Cullen has laid down a challenge to National to do better without being profligate.
If the Budget does not give voters in the crucial $50,000 to $80,000 household income band who are leaning National’s way pause for thought, then nothing will.
From Vernon Small, “Budget proves Labour’s will to win”:
That is one brave – as in almost reckless – Budget.
And if any one doubted Labour still had the will to win the election, this should dispel it.
Delivering $22 to $55 a week in tax cuts and moving all the thresholds far beyond inflation adjustments over three years – is not even the half of it. By the time the programme is rolled out about half of all taxpayers will have at least $50 more in the hand making John Key’s ‘north of $50″aspiration less radical than it seemed.
On the way Cullen has thrown down the gauntlet to National. Everyone will get a cut on October 1 probably at least a month before they go to the polls including an extra kick for the 500,000 superannuitants worth $48 a fortnight for a couple.
Colin James writes: “Michael Cullen usually plays golf. In today’s Budget he switched to snooker.”
Brian Fallow dubs it “the rainy day Budget”.
Michael Cullen has been as good as his word.
When the economy was booming and the Government’s coffers overflowing he banked the surpluses and took the political heat.
Now economic growth is at a standstill, the coffers are underflowing and he has pushed the fiscal accelerator to the limits of prudence.
Colin Espiner is less satisfied with his tax cut but concedes: “Let’s give Cullen some credit. He did what he felt he could without going against everything he believes in. “
The current rise of populism challenges the way we think about people’s relationship to the economy.We seem to be entering an era of populism, in which leadership in a democracy is based on preferences of the population which do not seem entirely rational nor serving their longer interests. ...
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I was pleased to see some decent commentary. So far only Colin Espiner has run the “cheese” line “Colby budget” and none of them have picked up any of the trite lines that were predicted so accurately in spin bingo and its comments section.
Polically a very canny, nay, inspirational budget. Now lets see how long National can go without producing specifics.
David Farrar is reacting like a petulent child who has been told he can’t have his big lollipop. Thats good to be a good sign.
IB – agreed. Bit disappointed in Colin, he’s often better than that.
Yeah, shame to see Gingaspinner sticking out like a sore right thumb lately (he recently accused Winnie of wooing the “mentally ill” and mused on a “stench of death” around the govt) – he used to have some semblance of impartiality now and then.
Good for the nutty Helen-hating blog comment numbers but (and probably the chance of promotion) – all he needs to do now is add porn and he’ll be right up there with whaleoil in no time.
Well Audrey wasn’t quite as quick of the mark, and her commentary has a rather narrow focus (what does this mean for an incoming National government), but at least she manages to avoid cheese references, so some marks there.
And Gordon Campbell, well considered as usual:
http://election08.scoop.co.nz/cullens-cannily-constructed-budget/
Finally had time to look at the budget – starting with what it means for me. It pays the cost of running this site, and provided that I don’t have expand it next year, then it pays for expansion in 2010 and 2011.
Cool!
A canny and politically astute budget indeed. But one that is good for the economy?
It was, of course, hoping for too much to think that a party running 20% behind in the polls wouldn’t follow a path, at the end of which lies a predicted increase in net core Crown debt from $1.8 billion to $13.2 billion.
The Honourable Dr Michael Cullen is a careful steward of the economy, but he is above all else a shrewd and long-sighted political operator. Helen Clark (whose `fingerprints’ are all over this budget, in the words of Tony Alexander) is another. More than an economic budget, therefore, this is a political budget, though I don’t expect the True Believers to agree with this. It’s a challenge to John Key and Bill English which essentially says: `I’m a good enough Minister of Finance to empty out the coffers and still be able to avoid running the country fiscally aground. Are you?’ With an added twist along the lines of `If you think you can do better, let’s see some policy.’ It’s a budget which asks National to put up or shut up, and might provide the impetus the electorate needs to begin demanding policy from John Key before they vote for him.
Colin James, as noted, has called this the Snooker Budget because it leaves National snookered with poor choices: blag it, talk big for now and try desperately to make the numbers work in the future; or criticise the budget as simplistic, cynical and fiscally irresponsible. John Key in his response speech took the first option, undoubtedly the correct one in the short term, but I suspect we may yet see him adopt the second view, which seems to be held by DPF among others. At some time the cold light of day is going to have to be shone on those numbers, and John Key might rue his `too little too late’ response, although the `too late’ bit is manifestly true as far as the electorate is concerned.
Either way, FY2009 becomes battle of the finance ministers: whowever holds that position is going to have to weather `if I were him’ and `I told you so’ assaults from his opposite, who will be free to talk without the responsibility of acting, as Key is now. I think Cullen has the chops to make this budget work, but if I were Bill English I’d be worried about what I’d do if I won the election, because it’s either learn to live lean (as an almost-virgin finance minister under adverse conditions) or cut spending and suffer the resulting electoral fallout.
Option 2 would be the wise option there. Taking option 1 and accepting Cullen’s poisoned chalice genuinely will be Labour Lite behaviour. John Key is talking about `expenditure review’ already, and if there genuinely is as much profligacy in government spending as the wingnuts think there is, he might be able to get away with cutting it in ways which don’t impact on the ordinary battlers – but I’m not convinced there is. In any case he’s going to have to decide and campaign on one of these two broad courses of action *before* he does the expenditure review, which means that even if he finds little or no fat, he will have to cut something. That could prove costly, in more than one sense of the word.
Congratulations to IrishBill for picking the `cheese’ meme. We’ll see this come up time and time again in the next few years. They gave away a block at Back Benches one night as a luxury item, so it’s already becoming part of NZ’s political landscape.
Bring on the next lot of polls.
L
Thank you, Lew, for that measured and thought out comment.
“Bring on the next lot of polls.”
Taken before the budget, the latest poll tells a rather different story from the well-publicised one at the weekend. The gap is halved from 27 points to 14.
http://www.roymorgan.com/news/polls/2008/4295/
According to John Key on Close Up, and Campbell tonight, he will keep Wellington public service levels exactly as they are (saving half a billion according to him!?)and, ah , um close an embassy in Sweden that doesn’t yet exist to fund tax cuts three times as large as Labour’s (>$50 c.f. $16). No jobs cut, no services slashed. What an financial genius he is! No wonder he’s rich. I’d mortgage my house to buy an apartment from him. He seems really smart.
Yes, lovely Lew: but I fear Key may have miscued by not ripping in with option 2 right from the break.
When John Campbell (rightly) labels you “slippery as a snake in wet grass” on national TV and even Sainsbury pulls no punches, it’s a sure sign that the “love me for who I am” honeymoon has done its dash.
Slippery has “me-tooed” himself into the mother of all snookers and the game is now “show us the money”.
His shot, black to win. Spectacular masse required from a C-grade player, clock ticking, sweaty sheen developing.
Hope I’m wrong, but when the cue’s in the rack on this one, watch for his handlers to pull out and head back to the Races with good old “Onelaw”.
Yeah – Key looked real dark on close-up and he wasn’t even pressed very hard. Christ knows how he’s going to go head to head with Helen.
The Ray Morgon poll shows that the race is by no means over.
On these figures a couple or three percentage points down and National are toast (sortof)
Um … well, perhaps if ALL parties get a couple or three points, from National. Even 14% is a hell of a mountain to climb. This’ll be the comeback of the century if Labour is re-elected.
I wonder what odds the TAB has?
L
Lew, at the risk of being branded with the frankly insulting True Believer tag, I’m going to disagree.
Yes, it is a political budget. All budgets are political, especially election year budgets. This is tautology. Any budget can only be passed if you have the upper political hand. Every budget has an eye on the political landscape.
However the budget itself is an end to which the winning of political games is a means. Not the other way around, which is how I am reading you. (Apologies if I’m reading you wrong.)
It should be fairly clear by now that Cullen is a Keyensian. If he had of been one to put even medium term politics ahead of good economic management (as he sees it) we would have seen tax cuts long before now. Look at all the talk about “why has it taken nine years?” Because Cullen sees tax policy in Keyensian terms. Cuts come when needed to stimulate growth. Taxation rates are tools to smooth the troughs. That’s why he talks about the right’s view of ‘tax cuts being always good because tax is theft’ as being ‘religious’. He disagrees that there is anything normative about taxation rates.
It’s not something that gets talked about a lot because Keynes aint that trendy these days, for many reasons. Mostly due to how his ideas were abused by those politicians that liked the ‘spend up large’ part while ignoring the ‘pay off debt while the times are good’ bit. So to my mind this budget is firmly in keeping with his ‘steward’ aspect, if you accept that he is a Keyensian. This applies whether or not you agree with a Keyensian framework, what matters is whether Cullen does.
So that’s where I disagree. I think it’s a long term economic budget tweaked to have short term political benefits.
None of this is to say that the political aspects are not important or broadly as you outline them, but those aspects are there to help push and maintain the Keyensian model that Cullen prefers.
I agree that it puts English in a bind. But again I disagree that a policy of cutting spending would be wise. It would threaten to deepen the recession, just for starters. The political price would be significant as the spending slashed would hit hardest not just on the poorest as with Richardson. The latest from the US looks strangely stagflationist.
I’ll also say that ‘Labour Lite’ seems to be working for them in a way that ‘Act in Drag’ doesn’t. The base is still with them, in spite of the fact that they now have taken on board pretty much everything Brash ran against. The only people upset about ‘Labour Lite’ are redbaiter and the slash and burn posse. (All 200 of them. Who cares?)
The electoral centre has moved left in policy terms over the last few years.(overton windows?) The political pendulum has swung to National because that what pendulums do. There is a belief that Labour have had long enough and that the Nat’s deserve a turn. If National are wise they will govern accordingly. (small c conservatives remember). Richardson didn’t have to worry about MMP.
All of this is just my view of course, which I freely admit is based around the naive and romantic idea that politicians from all parties have beliefs about what works, and play the ‘game’ in order to try and make the country better, being guided by those beliefs. IOW the politics, while fun to watch, and distracting to the journo’s, is in the end subordinate to the policy. Which is why the game gets played.
Sh*t that ended up being a bit long. sorry.
Is the is anz playing politics?
Lew
Its not a 14 point gap between the right and the Left
Run the morgan poll figures through the election seat calculator
Its close bro
More from Roy Morgans
“Helen Clark’s Government has been well behind the National Party for more than a year and the plunging Government Confidence (down 11pts to a record low 93.5) shows electors are losing confidence in Clark.”
Not that much of a boost I reckon.
Harry, Gary Morgan’s analysis is a running joke. He’s based in Australia and comes out with some truly weird shit about NZ politics. Excellent pollster, crap analyst.
Pascal: Regarding which is the means and which the end: of course, you’re right in the general case.
“I think it’s a long term economic budget tweaked to have short term political benefits.”
I can see this, too, but I’m a propaganda geek, it doesn’t come naturally. It becomes a poison cup game, soon enough: is it propaganda being written as policy or is it policy being implemented as propaganda? The budget is very much being written in order to appeal to the immediate, but looks far-sighted as well – and this from a government which isn’t sure if it won’t be half as big in six months. You can see it either way: is it wise policy which they should have implemented years ago, or is it overly ambitious and they’ll be glad if the opposition has to try and implement it?
I quite agree with your assessment of National’s overall policy of appealing to the centre, and that Labour’s political culture is the current orthodoxy. That’s part of the problem, though, and part of the reason for the backlash.
L
So, Roy Morgan confirms what everyone except the press gallery and fairfax already knew – there was no plummet in Labour support – all the parties remain in the same range they’ve been in for the last few months. National is ahead but drop 3% and they’re in trouble.
Be interesting to see Tane’s graph. What’s also interesting is the gradual rise of NZF through the Roy Morgan polls. The Nats have been foolish in their approach to Winston and have not sucessfully taken his support base.
captcha: ounce predicted. Nandor did have thoughts on the future of drug reform…
PB – that was an excellent comment – I actually feel better informed. Thanks. And ditto Lew.
Great tory budget thankyou MC.
The greens must be livered for all their support they get tossed a few pink batts for the beneficiaries.
A good start for Key to build on.
Pascal, re the Keynesian thing. My argument is mostly based on a recent column by Colin James (http://www.colinjames.co.nz/management/Management_column_08May.htm), who reckons that if he overplayed this one, `Cullen would be remembered less for his early careful stewardship than his later relaxing the reins.’ In a way, then, this is a double-play on English: not only does Cullen consider himself a more capable finance minister, but the fact he’s been able to set these terms of reference gives him another advantage.
This is why I think National will come around to the line that Cullen has been irresponsible, because it’s Bill English, not John Key, who’ll have to take those reins if National wins, and this sort of caution is his mode.
From an economic standpoint (though I’m not an economist) I personally agree with your assessment that cutting government spending in favour of a tax cut would seem likely to stimulate stagflation in the short term; but all the economists seem to be disagreeing with me. I defer to them.
Let me also echo Lyn’s sentiments 🙂
L
Ha! Just heard the vox-pops on RNZ and everyone is whinging that the cuts are not enough. Jeez – what a surprise! This is a big cut package and National are not gonna offer much more. Maybe people will start to realise that tax-cut were never the answer and National’s shrill focus on tax is just a PR beat-up that raised expectations beyond any realistic point.
Lew: I’m pretty much agreed with you on everything, and this was exactly what I was expecting from this budget. Labour are shrewd political operators, and there was no doubt that given that National was essentially running on a “tax cuts” platform, and we were approaching a really bad time for the global economy, that Labour would empty the bank and make things hard for National. Whether it’s political game-playing or not ultimately doesn’t matter: It was good policy, and we kept the tax relief until it was needed, and we had that surplus there to deal with natural disasters and the like. Cullen has shown his credentials, which is part of why Key was so rabid on the news last night- he can’t be seen as not being the party that can manage the economy, because that’s his only real edge over Labour at the moment.
Hopefully Labour will catch that it needs to make emotive arguements about who’ll do better with the economy and start coming out strong. If not, well… we’ll be seeing whether National would only last a single term, or not.
mike: The greens haven’t been supporting the government this term, so that’s a very weird statement. The Government has, however, picked up support for a few of the Greens’ member’s bills.
Ari: “Whether it’s political game-playing or not ultimately doesn’t matter”
Yes, ultimately the intent is irrelevant: what matters is how it’s perceived. If the `cynical’ line catches on it could be worse than doing nothing.
“It was good policy, and we kept the tax relief until it was needed, and we had that surplus there to deal with natural disasters and the like.”
The electorate disagrees with you on this one – people clearly think it was stingy, rather than prudent.
“[Key] can’t be seen as not being the party that can manage the economy, because that’s his only real edge over Labour at the moment.”
And this one too. `Not Helen Clark’ seems to be a pretty big edge for Key at this early stage. It won’t be enough if he’s seen as weak on economic matters, though, I think you’re right there.
L
Quote from JK on RNZ this morning:
Tax cuts alone do not win elections, what also matters is the vision for the future
We will not be announcing our tax cuts until 5-6 weeks before the election. They will be larger than Labours….. that are pitifully small and are only a cynical last minute attempt just before an election.
Take out messages:
1. National will delay until the last possible moment to announce its actual policy, until the middle of an election campaign. This will be done to minimise any actual debate and scrutiny.
2. If Labour’s cuts are “pitiful”, what does this imply about the size of the cuts National need to offer in order not to be so. Twice as large? Or north of that?
3. And of course the insane dissonance… Labour’s measured cuts during the course of a routine Budget are “cynical”, while somehow National’s proposed cuts just days before an election is somehow “visionary”.
Captcha: right tabloid
The electorate disagrees with you on this one – people clearly think it was stingy, rather than prudent.
Mainly because that is what the pundits are telling them to think.
Where is the analysis in the media that is telling the people how cuts “north of $50 pw” would rip the guts out of the public sector? If these Budget cuts are pitiful, then what is not be pitiful?
If National attempt to trump Labour with cuts closer to $100 pw (and that was the expectation he was talking up when referring to the Australian Budget in the House yesterday), then where is the analysis that attempts to explain just what would happen to our hospitals and schools when something in the order of $16b, or over 25% was slashed off Govt income?
There is none.
And why not, you really have to ask yourself.
RedLogix: Right or wrong, it’s what the electorate believes, and as someone mentioned on another thread, tax is 23% higher in real terms due to inflation since 2000, so it’s not just National party spin and a compliant media.
Why not? Because nobody cares enough to do any, is the flippant but strictly correct answer. It’s down to the government, its supporters and those concerned about the possible social impacts of a big tax cut and requisite spending to map out the dangers – but it’s very hard to do so until there’s firm policy. One can only speculate until then.
I think we’ll see plenty of analysis once National release some policy.
L
tax is 23% higher in real terms due to inflation since 2000, so it’s not just National party spin and a compliant media.
In 2000 the public sector was after a decade of being run down was tettering on collapse. Such a position was not sustainable regardless of what party was in power.
Imagine for instance is we were still spending on health at year 2000 levels. We have trouble enough retaining highly valuable medical staff as it is, so realistically, what would have happened if we had done nothing? I think we can categorically state that the system would have collapsed, with huge numbers of people being drawn off overseas.
National’s proposed tax cuts in the order of 20-25% of real Govt income, would I suggest propel us back to our parlous Year 2000 conditions; lining up very closely with your quote above.
RedLogix: The point I’m trying to make is about perception, not about policy. The fact is that tax is effectively higher now than in 2008; the fact is also that investment in the public service is also significantly higher. If there’s a gap between perception and the actual impacts of policy such that one of these two facts is more accepted or given more weight than the other (and I agree with you that this is the case), it’s the government’s responsibility to bridge that gap. No amount of actual substantive policy will get a government support unless that policy is clearly communicated, and that’s been Labour’s major failing. The fact that people believe they are overtaxed in NZ in 2008 signifies that National is winning this battle for agenda control.
L