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Labour takes bull by the horns, Nats left standing

Written By: - Date published: 10:14 am, October 13th, 2008 - 25 comments
Categories: economy, election 2008, helen clark, john key, labour, national - Tags:

One of the first rules of politics is don’t set yourself up to be snookered; don’t position yourself in a way that your opposition can and will undercut, don’t run attack lines that your opposition can and will invalidate.

National has repeatedly done this. They ran on tax cuts as their sole platform when it was blindingly obvious that Labour would not only cut taxes but would do so in a way that benefits low-income workers leaving National’s eventual policy not only looking underwhelming but also creating situation where they are taking money off vulnerable Kiwis to give tax cuts to the wealthy. They ran an attack line that Labour has no policy or no strategy to deal with the emerging world financial crisis when they have (as any fool should assume) been working their arses off creating a serious response. Now, it is National that looks flat-footed. Their ‘economic package’ is exactly the same vague, pro-rich, tinkering as it has been for at least a year, unaltered by recent events, while Labour is proposing a genuine strategy for dealing with a long-term recession.

In my varied work-life, I’ve been a speechwriter. One of the first things a speechwriter has to keep in mind is the content must not be out of date when it is delivered – it makes your speaker look overwhelmed by events, out of the loop, naive. That’s exactly how Key and English looked yesterday as they lambasted Labour for having no strategy for dealing with the crisis while offering none themselves even as, a few blocks away, Clark was detailing a program of infrastructure construction, labour up-skilling, and idle capacity utilisation akin to the policies that got the world out of the Great Depression*.

It is Labour that has shown it understands the situation we face, that the outlook for the world economy has altered dramatically over the last few weeks. It is Labour that has shown has both the will and the tools to deal with it. It is National that is out of touch and bereft of ideas.

*(it is these policies, not the deposit insurance, a confidence-building exercise than anything, that will make the real difference, more on that later)

25 comments on “Labour takes bull by the horns, Nats left standing ”

  1. Spot on. It was interesting to see the two campaign launches yesterday. Labour’s was about substantive solusions to the crisis.

  2. IrishBill 2

    “*(it is these policies, not the deposit insurance, a confidence-building exercise than anything, that will make the real difference, more on that later)”

    Agreed, I was surprised that there hasn’t been more made of this in the media.

  3. randal 3

    natoinal is full of talk…all they want is a high dollar so their mainstreet mates can make enough money to go to the south of france every year. they dont give a hoot about anyhting else.

  4. Greg 4

    SP – “creating situation where they are taking money off vulnerable Kiwis to give tax cuts to the wealthy.”

    I think it is important to remember that unless you have a flat tax system this is not the case. With a progreessive tax system you’re making higher earners pay more than their fair share of tax. The idea is that the more you earn the more you use the goods and services that the government provides (drive more etc etc) so therefore if you earn twice as much as someone else you should pay twice as much tax. But with a progreesive tax system you pay more than that, maybe up to 4 or 5 times as much tax (very roughly). Now this is unfair, but it will depend on your political philosophy as to whether you think its right or not. But the notion that National is “taking money off vulnerable Kiwi’s” is untrue. They are simply redistributing wealth less. The wealthy still get taxed by a lot more than they should if we were to live in a ‘fair’ country.

  5. randal 5

    hey greg you can only drive one car at a time and live inone house at a time. If higher earners have received more than their fare share of the boutny of the earth then it is fair that they pay more tax. I mean what do you need all that money for? bribing grandkids to love you…browbeating the bank manager…come on greg…tell us all.

  6. Chris 6

    randal i support progressive tax but greg makes a point and it’s unfair to spin it so simplistically

  7. Greg. We live in a real world, not some theoritical one (which itself is not ‘natural’ but also a legal construct). Any change in the tax system is a change from a status quo. Under National’s proposed changes from the status quo (ie the current legislation), the wealthy get more money at the expense of those on lower incomes

  8. Paul 8

    but we don’t live in a ‘fair’ country in that sense – we live in one where we believe in social justice, that we should look after those in our society who are less well off – not some culty Randian sink-or-swim world

    On the other hand I do have issues with the deposit insurance announcement – I understand that short term they can’t ‘do it right’ because parliament is not in session. But I’d rather have a US style system with caps on insurance amounts (a max amount per bank – if you have $2M in the bank you should need to spread it around and diversify to pick up govt insurance on all of it) and associated oversight of bank’s operating practices – the US FDIC requires insured banks to keep to minimum liquidity requirements and particular banking practices (doesn’t help much in the current situation but stops banks going crazy with our money because whatever they do the govt will pay up) – if a bank steps outside these rules the FDIC will step in and take over

  9. Pascal's bookie 9

    Greg’s point:

    1)assume the fairness of flat taxation,

    2)use that assumption to declare that progressive tax is therefore an abberation,

    3)therefore policy comparisons should be made with the non existent flat tax regime, rather than with the system a new policy would be changing.

    I’m not convinced.

  10. rave 10

    Labour sedates bear, Nats covered in bull….

    Greg its not philosophy but reality. High income people are not living off their own labour but that of others. I would have thought you’d prefer having some of taxed back than having the lot taken back, no?

  11. Pat 11

    Isn’t the Deposit Insurance Scheme effectively another tax?

    We have been told how safe the main 4 Aussie Banks are (all ranked in the world top 20) so the chances of deposits being at risk is minimal. But the 5 main Banks in NZ would all have deposits well in excess of $5B, for which they will pay 0.10% to Government coffers, so effectively the Kiwi investor will now pay 0.10% extra on deposit rates. Disguised as an insurance, but really a tax.

    The government stands to rake in a huge windfall under this scheme.

  12. higherstandard 12

    Rave

    I am a high income earner living off the back of my own labour.

    I don’t begrudge paying tax – why do you want to take all of my earnings ?

  13. higherstandard 13

    Pat

    The DIS is in reaction to other banks doing the same thing overseas – it would be a poor look to not do it when Australia has and might give the wrong impression despite there being little to no chance of the banks in Australia or NZ failing.

    The reality is if things get so bad that the major banks in NZ and Australia fall over it’s game over and the DIS would be close to meaningless anyway.

  14. Daveski 14

    To a certain extent, I think there is an element of truth in the fact that Labour have responded more coherently.

    Partly, this is due to the fact that the Nats were stymied by having focussed on tax cuts for so long that they had to at least follow through or get laughed out of the election race.

    However, what’s more interesting is the similarity between the parties – SP is spinning the differences like it’s chalk and cheese when the reality is quite different.

    Weeks ago, this site was spinning BS about National’s infrastructure plans and how irresponsible it was to increase debt levels to 22%. Infrastructure spending is now good.

    On the other hand, Labour introduce an envy tax (so SP can change the status quo) and the Nats barely tinker with it.

    Also of interest is that you have overlooked the breach of convention – Labour should have discussed the bank guarantee rather than using it as an election pledge but I doubt that we can expect any criticism of Labour from SP 🙂

  15. Pat 15

    HS – I understand that. But watch this space for the deposit insurance to become legislated as compulsory, and as economic conditions improve, another tax has crept in without us really understanding the long term implications.

    For most Kiwi Mums and Dads the horse has bolted. Where was the deposit insurance regime when the finance companies were running rampant. The government can introduce it now, safe in the knowledge that the chances of them having to pay out is minimal.

  16. Greg 16

    Randal – “If higher earners have received more than their fare share of the boutny of the earth then it is fair that they pay more tax.”

    Fair share of bounty? Sometimes people work hard to get that bounty. Life ain’t all luck my friend.

    Pascal – “Greg’s point:

    1)assume the fairness of flat taxation,

    2)use that assumption to declare that progressive tax is therefore an abberation,

    3)therefore policy comparisons should be made with the non existent flat tax regime, rather than with the system a new policy would be changing.”

    That wasn’t my point. Progressive tax is not an aboration. I did assume the ‘fairness’ (making the point that fair and morally right can be considered to be two different things) of flat taxation – and justified it. My point was that SP’s argument is simplistic and emotive.

    Rave – “Greg its not philosophy but reality. High income people are not living off their own labour but that of others.”

    Thats not true. The majority of high income earners work hard to get there. Its not some game of luck. Ever noticed that the harder you work the luckier you seem to get? You seem to be suggesting that high income earners exploit those working for them to get into that position. Thats sounds like an argument of envy to me.

  17. randal 17

    how can aflat tax be fair when the more one earns the less one pays?

  18. randal, the “flat tax” normally refers to a fixed %ge of income, versus progressive where the lower portions of your income are taxed at a lower rate.

    Greg, to bring this back on topic, consider the current wealthy elite who received their money through stupidly overpaid jobs in financial institutions which are now collapsing through an extended period of poor management and decisions motivated by short term financial gain.

    They are lucky, because the set those pay rates before everyone knew that the pay rates being dished out were unsustainable.

    It’s certainly true that if someone is on a high income, that the person employing them considers their value added to be worth it. However given that we can observe large discrepancies between profitable (or, profit-leeching) sectors of the economy, and considering that there is a high barrier for individuals moving between sectors (ie, re-training time – and the associated risk factors), there can be little chance for horizontal parity between sectors. So, these people are “lucky”, and perhaps the market does eventually correct that – but I’d wager much more slowly than, say, competing manufacturers improve their products or lower their prices.

    So your comment about the “fair share of bounty” is correct within a field; people often work hard for higher salaries, harder than others in their industry. But there is an element of luck, too – the factors that decide whether the industry you’re in is highly paid or lowly paid is largely out of your individual control.

    High income earners end up paying more tax, but to balance that, they’re getting more money, too. Both things they should be proud of; that they have the skills and dedication to take home a big salary, and that they can support the infrastructure of the country at the same time despite paying one of the lowest overall tax rates in the OECD.

  19. Matthew Pilott 19

    Pat, you say for most kiwi mums and dads the horse has bolted. While it is true than many people have lost not insignificant savings through investment in high-return/high-risk finance companies, the horse has not come close to bolting. Think about what happened with the finance companies, and then imagine if it were a run on the main banks of New Zealand. No comparison, not close.

    The DIS merely assures people they needen’t worry about such a prospect – whether the banks choose to use it is another story. That it exists probably means they won’t actually do so… Think about it and I’m sure you’ll see why!

    And for the record, if you think a progressive tax rate is socialist then you should think a flat tax is as well. It’s pretty obvious why this is the case.

  20. Pascal's bookie 20

    “Oh Poll tax, how I loves ya, how I loves ya
    my dear ol’ poll tax”

  21. rave 21

    If high paid people are employers their high income comes from the people they employ. That’s why they are called employers. They can borrow from the banks, rent plant and machinery, but if they cannot get people willing to work long enough to return a profit on their investment, they make a loss. The debate is over whether they perform any socially useful role or not. I would say not, that when workers own and control enterprises they make better and more socially useful decisions on what to produce.

    If high paid people are self-employed, then some of their income is due to their own labour, but I would suggest that the “high” component of it is due to a privatising of social investment and spending redirected into their pockets, whether its farmers, public servants or tradespeople. Usually this redirection process refers to ‘rent’ or the premium gained from being able to exploit a monopoly in resources, services etc. eg medical doctors.

    I think its fair for society to recoup this social investment from individuals and its a fair cop for those who have illusions in their entitlement and no sense of their social obligations.

  22. Flat taxes are bad for the economy, and the country. 5 reasons:

    1. They shift the tax burden from the rich to the middle class, which has to pay disproportionately higher taxes than they would under a progressive tax regime.

    2. Sales taxes are by nature regressive, because tax eats up a larger percentage of income for those who have to spend a higher percentage of their income on necessities.

    3. Results in cuts in social spending and prompts moves towards user-pays. Despite rhetoric, user pays in some areas is not the best method for control of a finite resource, especially when such resource use is life-vital rather than through choice consumption.

    4. User-pays inevitably leads to further hardship for those on lowest incomes. Their spending is restricted, and those industries who rely on their spending also lose out. The 1991 benefit cuts for example cost the economy an estimated $2 bn.

    5. There are many resources paid for by the state that are disproportionately used more by those who are well off, i.e. public marinas, state highways, national parks. Middle class and rich people generally enjoy better use of government funded recreations services like parks etc. because they are more likely to have time to enjoy them.

  23. Daveski. Labour isn’t proposing more borrowing for it’s infrastructure spending. A few weeks ago it didn’t look like there was going to be a capacity for more infrastructure building, as this internaitonal crisis continues it is looking like there will be.

  24. randal 24

    no one has answered the question what do they want all that money for?

  25. Draco T Bastard 25

    You seem to be suggesting that high income earners exploit those working for them to get into that position. Thats sounds like an argument of envy to me.

    Greg, it’s got nothing to do with envy and everything to do with reality. As one multi-millionaire said to me “You’ll never get rich working”. You can certainly become well off but you’ll never get the same sort of income as you can get when you have others working for you.

    Sam Vilain:

    randal, the “flat tax’ normally refers to a fixed %ge of income, versus progressive where the lower portions of your income are taxed at a lower rate.

    No it doesn’t other wise the people who go on about the fairness of flat tax would be trumpeting the fact that we already have one. Once GST is taken into effect we all pay about 30% tax.

    rave:

    ..that when workers own and control enterprises they make better and more socially useful decisions on what to produce.

    And how to produce it as well. Chances are, when left to the workers who have to live in the community, pollution will be more of an issue and so less polluting methods would be used.

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