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False idol

Written By: - Date published: 6:38 am, July 19th, 2008 - 30 comments
Categories: economy, wages, workers' rights - Tags: ,

We’ve said this before but, seeing as BNZ chief economist Tony Alexander is in the Herald this morning saying ‘the October 1 tax cuts won’t cover inflation’, it’s worth restating: tax cuts are not and can not be the method by which people’s incomes are risen for inflation.

Tax cuts cannot be cut year on year on a scale sufficient to compensate for inflation. Even if you were willing to slash government spending to free up the funds, most people don’t pay enough tax to compensate for inflation for more than a few years.

If you want an increase in your income to cover inflation, you need to get a pay rise.

If you want to get a bigger pay rise than you can negotiate yourself, join your union.

30 comments on “False idol ”

  1. santi 1

    “If you want to get a bigger pay rise than you can negotiate yourself, join your union.”

    SP, you missed the yeah right. That would make a very good Tui add.

  2. Ed 2

    I read the statements by Tony Alexander, Brendan O’Donovan and Peter Conway as being correct, but put out of context by the Herald employee Eloise Gibson. It’s perhaps surprising that she didn’t say that petrol has gone up by 26% but tax is not being reduced by even half that percentage.

    Its no better ‘journalism’ really than the ‘lashing out’ of a Pacific Radio talkback host . . .

  3. I would even go further.

    Inflation is tax. What is worse it is a tax laid upon us not by the government but by the Federal Reserve.
    Contrary to what most people think the Federal reserve is not owned by us the people but linked to the other federal reserves world wide as of 1988 when Don Brash helped prepare the “Federal reserve act”. Hell, they even called it the same as the FDA that eliminated popular control of money and the reward for their labour in 1913 in the US giving a private banking cartel the right to print money as they saw fit.

    http://aotearoaawiderperspective.wordpress.com/interesting-videos/documentaries/the-money-masters/

    http://aotearoaawiderperspective.wordpress.com/2008/06/02/g-edward-griffin-on-the-federal-reserve-of-new-york/

    captcha: con Friedrich? neh, they con all of us.

  4. andy 4

    Can i get some news with my ‘unauthorised’ biography of John Key, or can I return it under the consumer guarantees act.

    A family tree, WTF?

  5. BeShakey 5

    travellerev – I think you need to go and learn some basic economics before you start linking to articles you presumably don’t understand.

    The Reserve Bank responds to, but doesn’t directly cause inflation (although it can be a secondary cause sometimes). The Reserve Bank is ‘owned’ by us to largely the same extent as some other independent crown entities are ‘owned’ by us.

  6. randal 6

    i thought it said false ideal. pretending the world actually runs like an econ 101 textbook says it should and then making a big hoo ha if it doesnt. pfffft

  7. MikeE 7

    Are across the board payrises without productivity/production increases somehow not inflationary?

    Is increased government spending not inflationary?

    etc

  8. mike 8

    How about putting some incentives in place, flatter tax rates less handouts to the non-productive sector etc.

    Joining a union is a good way to lose $5 – $10 a week via fees and I know for a fact it gets you not a cent more at my place of work

  9. BeShakey,

    You are a pretentious arrogant patronising little turd.

    I did not link to articles and I would never ever link to articles I do not understand.

    Why don’t you watch the two video’s I linked to, they spell the mechanism and the history of the Federal Reserve system out for you, because clearly you… do not understand what you are talking about.

    The Federal Reserve is part of the international Federal Reserve system owned by a privately owned banking cartel.

    This is the verdict of one of many court cases judging the Federal Reserve a privately owned entity:

    http://www.save-a-patriot.org/files/view/frcourt.html

    Mind you, the video’s are probably way over your head judging by the fact you automatically presumed the links were merely links to articles and did not even bother to check.

    It pays to check, little man, before you spout off your silly little mouth to me.

  10. RedLogix 10

    Joining a union is a good way to lose $5 – $10 a week via fees and I know for a fact it gets you not a cent more at my place of work

    That is because many employers will fight and scrap with the union for months, stalling and begrudging every concession they eventually make… and then when the union agreement is signed, they automatically and without the slightest fuss pass on exactly the same benefits to all their non-union employees.

    This is done to undermine the position of the union, because they can always count on having a certain percentage of scabbing parasites who will avoid paying union fees, while happily accepting any improvements in terms and conditions the union wins for them.

  11. andy 11

    economist shorthand:

    Asset inflation (houses, shares etc) = good inflation

    Wage inflation = bad inflation

    on the flip side:

    Asset deflation (houses, shares etc) = bad

    Wage deflation = good

  12. T-rex 12

    Andy – I’m not sure that’s an accurate representation.

    Economists are interested in economic interactions, of which wages are an important part. If things like houses increase in price, wages have to increase proportionally or economic activity will slow (and eventually cease).

  13. “mike

    How about putting some incentives in place, flatter tax rates less handouts to the non-productive sector etc.”

    You seem to miss understand the tax system. Whether the top tax rate is the level it is now, or the same as the lower ones theres still a monetary benifit to be had for earning more. Anyway I think your out of touch with reality, almost every one I know wants to earn more money, its not the incentive part thats getting in the way.

  14. Draco TB 14

    Here are a couple of articles on inflation.

    http://www.economicgrowth.org.nz/artman/publish/article_492.shtml
    http://sciencehouse.blogspot.com/2006/10/fractional-reserve-banking-and.html

    Are across the board payrises without productivity/production increases somehow not inflationary?

    They would be inflationary but the amount of inflation caused by them would be fairly minor due to the Substitution Effect. Of course, the opposite is also true – pay rises that don’t take into account inflation are deflationary because people will have less money in real terms. A deflationary spiral is far more damaging than mild over inflation.

    IMO, One of the best laws that the government could pass is that wages rise with the CPI every quarter. Productivity gains would then be negotiated.

    Is increased government spending not inflationary?
    Not if it’s within the governments tax take. It only becomes inflationary when the government goes into deficit spending which is exactly what National are promising. I can predict two things that will happen if National become the government – inflation will skyrocket and unemployment will head towards, if not exceed, 10%.

    EDIT: Possible double post – the previous attempt seems to have disappeared into the intertubes

    [lprent: akismet (the main anti-spam engine) has been suppressing links quite a lot. I can understand why – there were 50 of those multiple-link spam in the spam basket this morning. I must have killed another 20 today. Something has figured out how to get around recaptcha, but it looks like a brute force graphics reader from the logs.
    I’m afraid that I view spam as being the characteristic symptom of an unregulated free market. Free to send me spam and other marketing garbage.]

  15. number six 15

    ” If you want to get a bigger pay rise than you can negotiate yourself, join your union.”

    My union? My union?! My union is too busy preparing Andrew Little for the Labour Party to do anything about the death of journalism in this country.

    Oh, I know it’s been struggling for ages, but this year alone has seen the end of NZPA covering racing, business and the South Island! Not to mention Fairfax following on in APN’s footsteps to create ‘hubs’ that can sub-edit pretty much every single paper in New Zealand.

    How this manifests itself at my work is that the APN hub is now producing our world pages. One person in Auckland creates the world news page that basically all the North Island papers (minus the Dom) gets to read about. One person.

    By the time Farifax does the same thing, you’d be lucky to have two or three people in the whole country producing the world news pages, the national news pages, the business news pages. Hell, in short, the news.

    And what has my union done about it? Zip.

  16. marx 16

    Alexander is a filthy capitalist lapdog of the Australian Shylocks.

    [lprent: Sounds like a troll to me. In fact it sounds weird – like a parody. Oh well lets see where it goes.]

  17. Swampy 17

    Yes, stop inflation by trimming wasteful government spending which is actually responsible for considerable inflationary pressures.

    E.g. “cheapers doctors visits” is simply another vast bloated bureacracy that fails to deliver, I went to my doctor the other day and paid just the same as I always did with a CSC, it certainly is not any cheaper.

  18. Swampy 18

    “This is done to undermine the position of the union, because they can always count on having a certain percentage of scabbing parasites who will avoid paying union fees, while happily accepting any improvements in terms and conditions the union wins for them.”

    Dear RedLogix, I have not belonged to a union except for one year, 20 years ago. When I grew up, union membership was compulsory because the Labour government in the 1930s wanted to control the labour force and did not believe in freedom. National introduced voluntary union membership in 1983 and the Labour government elected the following year abolished it again just as they have abolished many freedom initiatives since 1999. It wasn’t until 1991 that there was substantial and long overdue reform of the old industrial relations system with free choice in membership.

    As we know in 2000 the tables were turned again by Labour and the same old people from the 70s, 80s and 90s crawled out of the woodwork to run the newly resurgent unions and Helen Clark gave every possible concession short of an actual return to compulsory membership and the old awards system.

    There are many small workplaces in NZ where unions are not needed due to the directness of relationships with management but such workplaces are barred from collective bargaining due to a Labour party discriminatory policy that says only unions can negotiate collective contracts.

  19. RedLogix 19

    Swampy,

    Union coverage in NZ is still around 20% of the workforce or less. Wages here are low.

    Union coverage in Australia is around 76% of the workforce.
    Wages there are some 30% higher.

    Have a think about this.

  20. Leftie 20

    Haven’t the employers got their unions? Obviously they see some value in sticking together by being members of the Employers and Manufacturers Association or one of the other Associations.

  21. sean 21

    RedLogix – you should be running the country – you’ve worked out how come wages are higher in Australia!

    Using your line of reasoning I can most definitely say:

    Over the last 10 years, Australia have had governments with strong, positive economic policies – Wages there are 30% higher and their GDP is far better.

    Over the last 10 years, New Zealand has had a cynical government who has based their economic policies around envy tax and punishing success so they can get as many Kiwis as possible on benefits. Wages here are 30% lower than Australia.

    Have a think about this. How do you like them apples?

  22. Draco TB 22

    National introduced voluntary union membership in 1983 and the Labour government elected the following year abolished it again

    Bzzzt, wrong

    Union membership has never been compulsory (Prosperity for All? by Brian Roper). It was just legislated that you wouldn’t get the rewards that the union negotiated unless you belonged to the union. This, of course, made it far more desirable to belong to the union. National’s legislation, such as the ECA, made it possible that you could get the benefits of belonging to the union without actually doing so, ie, legalised theft. It was also designed to break the unions and drive down wages which it did spectacularly well.

  23. RedLogix 23

    Sean,

    Lets list some MAJOR economic differences between Aus and NZ.

    1. They are bigger, about 4 times bigger. All other things being equal, size does matter.

    2. They have had an excellent compulsory super scheme for decades that means their capital markets are cash rich, which means business has access to the capital to invest in technology and productivity.

    3. They own most of their own economy, their own banks and the like. Unlike NZ they do not struggle against a structural current account deficit caused by overseas owners pulling massive profits out of their economy year on year. New Zealand by contrast has to pay out the equivalent of about 9% of GDP to our overseas masters BEFORE we even start to pay ourselves.

    4. Their economy is enjoying massive cash flow from an unprecendented minerals booom.

    5. When it comes to distributing this wealth the Aussie unions represent 76% of all workers. This means they cannot be ignored or marginalised as they are here.

    You are welcome to tell me how a National govt will change any of these major factors.

  24. Quoth the Raven 24

    Sean – You realise that people on higher incomes in Australia are taxed more than here. Top tax rate in Aus ~45% New Zealand 39%. Envy tax?

  25. higherstandard 25

    Red Logix

    All quite true and the reason why I believe we should once again consider a full economic union with Australia.

    It’d be interesting for a government to get an independent body to take a good hard look at this again with a view to whether the positives would outweigh the negatives.

  26. RedLogix 26

    All quite true and the reason why I believe we should once again consider a full economic union with Australia.

    Considering that the NZ economy would add the equivalent of another Victoria to the Aus Federation, there would be some plusses in it for them too. But we should not be too rosy eyed about Australia either.

    Many years ago David Lange was addressing the Melbourne Press Club, it was one of his trademark rollicking speeches that went down well with that crew of hard-bitten hacks. Then came question time. The first man up puts the question, “Mr Prime Minister, what do you think of political union then?” (Being code for political union between Aus and NZ).

    Quick as a blink, no pause whatsoever Lange comes back, “I think it’s a great idea, I’m all for it. I tell you what, when you guys get it here, write and tell us New Zealanders how good it is and we’ll have a think about it.”

    The crowd fell out of their seats laughing of course… the endless bickering and in-fighting between the Federal States being the bread and butter of their daily copy.

  27. higherstandard 27

    Excellent sounds just like Lange – I was lucky enough to be at a few of his after dinner speeches and he never disappointed.

  28. Greg 28

    You don’t have to cut tax to compensate for inflation. Just inflation index the tax brackets! Can someone give me a logical explanation as to why this is not happening already?

  29. Because inflation and earning don’t directly correlate. Explain to me how CPI increases mean people pay more income tax.

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