Spin-busting: Govt could have used surpluses for tax cuts

Written By: - Date published: 2:37 pm, October 6th, 2008 - 28 comments
Categories: economy, election 2008, labour, national - Tags:

With the economic situation deteriorating the surpluses the Government has run for the first eight years have turned to a deficit. National’s line now is that the Government ‘suquendered’ these surpluses when it could have been cutting taxes. As if when the Government runs a surplus it takes the extra money out and burns it.

What actually happened? The Government used those surpluses. The $2 billion a year for the Superannuation Fund comes out of the operating surplus, as does other capital investment. The Government reduced net debt from $22 billion in 1999 to $2 billion in 2008. The fact that there were structural operating surpluses allowed the Government to fund the Working for Families tax credits, Kiwisaver, other new spending and the $10.6 billion tax cuts package that started to take effect last Wednesday. National now supports all of those spending programmes.

If we had done what Key is saying we should have done (he doesn’t really believe it, of course) and used all the operating surpluses on tax cuts then there would be no WfF, no Kiwisaver, none of the other spending increases, no Superannuation Fund, no additional capital investment like the extra billion Labour put into transport in 2006. And we would still be holding all that extra debt. National doesn’t want to acknowledge it but there’s always a trade-off with tax-cuts, something else has to be given up.

Hypocritically, National both supports the policies that have been paid for by the surpluses and says we should have had tax cuts instead. They just hope the voters won’t consider that. Once again, their argument depends on their audience’s ignorance.

28 comments on “Spin-busting: Govt could have used surpluses for tax cuts”

  1. vidiot 1

    And just in are the Treasury Figures:

    Key figures from the fiscal update include:

    * Gross government debt to rise from 17.4 per cent of GDP to 24.3 per cent by 2013 against the Government’s target of 20 per cent of GDP on average.

    * Growth expected to be only 0.1 per cent by March 2009 before lifting to 1.8 per cent and then 3.3 per cent in the following two years.

    * The budget deficit (OBEGAL) forecast to be $64 million next year rising to $1.7 billion by 2010 and staying in deficit for 10 years.

    * A cash surplus of $2 billion in the year to June falling to a projected cash deficit of $5.9 billion in 2008/2009 and further deficits over the next four years rising to $7.3 billion by 2012. In the May budget cash deficits were forced to average $3.5 billion.

    * Dollar to decline in value by 22.7 percent by 2013.

    * 90-day interest rates falling from 8.8 per cent to 6.3 per cent by 2013

    * $496 million is all that is left in next year’s budget for new spending promises

    * Unemployment tipped to rise above 5 per cent by 2010

    * Inflation forecast to rise to 4.5 per cent by March 2009 before falling back to just under 2.5 per cent.

    * Tax revenue for the next three years to be lower on average by around $900 million.

    * The government reported a surplus for the year to June 2008 (OBEGAL) of $5.6 billion.

    So who ate all them pies ?

  2. higherstandard 3

    Or Gerry ?

    Although I suspect Nicki Haggar has secret emails to show that John Key or Don Brash are at the bottom of this

  3. NeillR 4

    Oh dear, oh dear. So instead of a tax cut for all New Zealanders, we got lumped with the horrendous WFF, which turned the middle class into welfare beneficiaries. And on top of that, more bureaucrats to oversee the whole mess. Yet in the face of massive forecast budget deficits (which make the whole WFF unaffordable) you attempt to justify the greatest economic vandalism the country’s seen since universal unemployment entitlements and the DPB.

    [lprent: Yawn – yet another troll. Looks like this one wants to roll the world back to the stone age. And its previous comments show the same level of ill-informed neolithic logic.

    I couldn’t believe an earlier comment that this pinbrain made. He said that there had been out-of-control inflation under Cullen. It seems kind of obvious that it missed the 1970’s, 1980’s, and even 1990’s. Must have had a direct time-warp from the 1950’s, because I remember what massive inflation was like here. When I started work it was heading towards 20% – not 5%. This dillbrain probably thinks that a Honda City is a high performance car]

  4. noxxano 5

    Stop defending that bastard Cullen. Labour´s goose is cooked and you bloody know it.

    Go now, go now, and maintain some decency (maybe toomuch too ask)!

  5. randal 6

    natoinal are supposed to be the party of business but so far there is not one proposal for new business. they are just going to creep round the national accounts and slice off anything they can get their greasy hands on. Its not trickle down its slurp slurp gimme sum more.

  6. well, you’ve convinced me noxxano. my fact-based economic arguments are just no match for your bile.

  7. Noxanno, your intellectual veracity is compelling.

    Kiwis shouldn’t try and resist the the approaching tide of free market fascism, but just learn to accept it, and do what your told. And ffs, be happy about it. Otherwise you are a commie.

    Go back to Kiwiblog, where your intellectual contemporaries might have anything more than utter cynicism and contempt for your bile.

  8. lprent 9

    I think noxxano is merely a refugee from the World of Warcraft. Or a bastardised bit of pig-latin where he pressed ‘n’ for the first letter rather than ‘p’. Does sound like a person you’d want to avoid because of the pox afterwards

  9. randal 10

    gee you are a tough guy noxious. calling the minister of finance bad names. does it make your puny little ego swell with vainglory you putrid little piece of shit

  10. NeillR 11

    “I couldn’t believe an earlier comment that this pinbrain made. He said that there had been out-of-control inflation under Cullen.”
    You attack the messenger rather than deal with the question. Ignoring your abuse for a second, can you tell me what it means when Cullen sets an inflation target at mid-range of 1-3% over the medium term, but we have only been able to achieve that once in the last four years?

    [it means that the world has witnessed an unprecedented increase in the price of the fuel on which our civilisation runs. You have to show causation, NeillR, merely showing something bad happened when a govt was in power is not enough. Govts are not omnipotent. SP]

  11. Funny debate.

    Cullen ought to be praised as our best finance minister, bar none.

    Because Labour has refused to jump on the tax cut bandwagon and invested in superannuation and paid off debt over the past 9 years NZ is in a very good position to ride this out. Unemployment peaking at 5%, we should be so lucky. Government debt will go up to 24% of GDP, this is far better than historical levels.

    And what do the right bray for,

    1. Tax cuts,
    2. Less bureaucracy,
    3. Less Government,
    4. More freedom for private enterprise, including the freedom for merchant bankers to charge excessive fees and destroy institutions.

    This sounds just like George Bush’s USA where the world’s current economic problems have originated.

    I look forward to the day when a right winger will apologise and say they are wrong and the centre left idea of the role of Government is actually the better role.

  12. lprent 13

    NeillR: NZ is pretty open to world markets in particular for incoming investment and cost increases on imported goods. It also have a floating exchange rate.

    Over the last 6 years the NZ/US exchange rate (which a lot of our imports are denoted in) has been down as low as under 50c and over 80c. On its own this has caused massive changes in imported inflation. Not to mention it has made my exporting ‘interesting’.

    We have also had major changes in fuel prices, a major housing price boom and bust, major changes in interest rates, and a steadily tightening skills shortage with consequent wage rises. These all also feed inflation.

    None of that is fully under any government control. What is surprising is how little inflation there has been. The reserve bank has been doing an awesome job.

    Now remember that I’ve lived through real inflation when we were hitting 20% annual inflation and massive interest rates. I’m afraid I think that your ideas are totally screwed. I’d suggest that you wake up and do some economics so you can appreciate exactly how good a job the reserve bank has been doing.

    BTW: Cullen doesn’t try to control inflation. That is Bollards job. Perhaps you should add some self-education about the responsibilities inside the governance structures in NZ.

  13. Bill 14

    I might say that I don’t know why I didn’t see this on the TV news…could it be that it was not regarded as news!? Nah, surely not.

    “On Saturday, clearly aware that they could be facing the worst economic crisis since the 1930s, the four leaders (of Germany, France, Italy and Germany) backed Sarkozy’s call for a global summit to draw up a new international financial system to replace the one adopted at Bretton Woods in 1944.

    Sarkozy urged a summit of the G8 countries, together with China, India, South Africa, Brazil, Mexico and Indonesia, by next month at the latest.”

    http://www.guardian.co.uk/business/2008/oct/06/europe.germany

    And, if you wanted to contemplate just how much shit might eventually be hitting the fan, it seems that it was not just mortgages that were packaged and sold on, but credit card debt too! An interesting, well worth the read analysis is at http://www.counterpunch.org/ by Paul Craig Roberts, former Assistant Secretary of the Treasury in the Reagan administration.

    Go, John, GO!

  14. lprent 15

    ms: Exactly – the current low level of government debt is a awesome achievement. Not only have we killed the massive debt left over from the Muldoon government, we have also started to minimize the forward debt by starting to deal with the liability of an aging population with our superannuation scheme.

    Of course the implications of this are probably beyond some peoples level of understanding. The last thing we need is some irresponsible policy from the Nat’s destroying that for a short-term electoral advantage. But that is really the hallmark of the Nat’s. They have a strong track record of trying to destroy the economy over the last 30 years. The current lot look just as fiscally irresponsible.

  15. milo 16

    Gee Lprent, what you have just described sounds a lot like “intergenerational theft” to me. Why should a 30-year old suffer to pay for previous governments (including Lange’s squandering of our foreign reserves in 1984), as well as her parents’ pensions?

    Meanwhile, the two words that seem unknown to this Government are “productivity growth”. Leaving ideology aside, that is one of the major problems with Working for Families. It is a very inefficient method of transfer payment, and this inefficiency directly hits economic productivity. Oh, and that train company looks like such a productive expenditure now, doesn’t it? Unlike previous Labour governments, this one seems to have given up on growing the size of the pie, and instead thinks the economy is a zero-sum game. They are currently being proven wrong in spades.

    Sigh, but why bother with arguments? When you accuse the Nat’s of “trying to destroy the economy” over the last thirty years, you are probably not amenable to arguments from facts or logic.

    Well, what about history then. I seem to recall that when the Nat’s took over in 1990, Labour was faced with a forecast $5 billion budget deficit, and apologised by saying “it’s only a forecast, we’ll manage it, that’s what governments do”. And here we are, 2008, facing cash deficits of nearly $6 billion, and the best we get from the Finance Minister is “steady as she goes”.

    Is this farce or tragedy?

  16. Pascal's bookie 17

    I hear hooten has discovered Keynes. Which when filtered through the needs of a tory hack, ‘means spend more and cut taxes’, presumably when the good times come back we revert to the ‘cut taxes, spend less and flog off the assets to pay off some of the debt’ plan.

    But this Labour government has wasted the good times, so can’t be trusted in the bad.

    Are they evil, stupid, both, or just made of fail?

  17. lprent 18

    milo: Most measures about productivity are a bit narrow. For the country as a whole having almost everyone who can employed, doing so, and paying taxes for the intergenerational debt seems like the most effective way of raising ‘productivity’.

    Besides you’re daft. The Cullen fund is meant to peak on its outgoings in about 2050. Isn’t your hypothetical 30 year old also going to be a a pension bludger then? Oh thats right, they aren’t a bludger because they’ve paid (partially) for it in their taxes today.

    The actual beneficeries of the Muldoon stupidities about super are pretty much on it now. Perhaps you’re suggesting that we should throw them off the pension and put them back to work to pay for their excess in 1975 onwards? I can see that going down well with the 30 year olds when they get their parents bludging off them.

    The actual answer is to make sure that the short-sighted fools from the Nat’s don’t get control of the treasury benches.

  18. milo 19

    Yes Lprent, I agree most measures of productivity are a bit narrow. And so is this silly idea of GDP per capita. Or for that matter GDP purchasing power parity. Why not toss them out in favour of gross national happiness. Or maybe we could just measure the proportion of left wing votes as a proxy for national prosperity … .

    And it’s a bit rich to diss somebody for not knowing much about economics on another thread, and then to say the economists have got it all wrong on productivity measures on this thread. But I guess, consistency, hobgoblins, and all that. Mind you, it is the blogosphere, and I’m sure I’m equally guilty !

    But on my hypothetical thirty year old – I don’t think they’ll be getting National Super. The long-term playing out of the Kiwisaver policy will see to that. Just as compulsory super ensure the pension is means-tested in Australia, so Kiwisaver will lead to means testing in New Zealand. So they will get to pay again.

  19. NeillR 21

    NeillR: NZ is pretty open to world markets in particular for incoming investment and cost increases on imported goods. It also have a floating exchange rate.
    True, but these have little relevance to the state of inflation in the country. We have had excessive non-tradeables inflation for years – it sat above 3% for six years from 2002. Cullen is responsible for what happens in the domestic economy and he’s been a profligate waster.

    Now remember that I’ve lived through real inflation when we were hitting 20% annual inflation and massive interest rates. I’m afraid I think that your ideas are totally screwed. I’d suggest that you wake up and do some economics so you can appreciate exactly how good a job the reserve bank has been doing.
    You think i haven’t. And the condtions we are currently experiencing are the most similar i can remember since Muldoon. And for good reason – Cullen and Muldoon are cut from the same cloth. If it moves, tax it and then give some of it back and make the electorate feel grateful for their gain.
    And if the PREFU is anything to go by we are faced with the same result as the Muldoon years – low growth, high inflation and an economy that is a basketcase. Incidently, pretty much the same as when National came to power in 1990.
    And the RB has done a poor job since Bollard took over in 2002. They failed to raise rates fast enough when the housing market took off, and failed to act at all during 2005 when Cullen was out of control on his spending.

    BTW: Cullen doesn’t try to control inflation. That is Bollards job.
    Of course he does. Bollard is just the civil servant who gets to implement Cullen’s (and by extension – Labour’s) policy with respect to inflation (independently of course – *snigger*). The policy targets agreement is a pact between the government and the Reserve Bank, but the RB doesn’t tell the government what it’s contents will be.

  20. Milo

    You should reread your history books or at least get one based on reality.

    Muldoon squandered the country’s financial reserves. When Lange took over there were two weeks of reserves left and the Forex market was closed AND Muldoon refused to devalue even though he had been voted out.

    I am no fan of quite a bit of what the Lange Government did but their hands were tied by the shenanigans of the so called economic miracle worker.

    The country is in tremendous shape.

    Growth has been higher than that in mineral rich Australia.

    And productivity has not gone up because we are getting towwards full employment. If you sack 100,000 kiwis from their jobs you would be pleased with the productivity increase but appalled by the social carnage.

    The only chance for your 30 year old to get super is to keep supporting labour. The Cullen fund and kiwisaver are there precisely to address this problem. A merchant banker would never do this because it would make the next 3 months figures look slightly worse.

  21. milo 23

    mickysavage: Lange said he was going to have a large devaluation. As a result, a huge number of people took positions against the New Zealand dollar. Yes, there was a constitutional crises, as Muldoon (in caretaker mode) said I’m not devaluaing, let’s wait and these positions will reverse, as people won’t be able to maintain them. Lange won the day. So the reason reserves were so low was that Lange had effectively donated them to currency speculators, by enabling them to bet on a sure thing – a pre-announced devaluation. Stupid. Stupid. Stupid.

    Labour set up an enquiry into those issues straight away. Guess what happened? They closed it down before it reported. They wouldn’t have done that unless the results of the enquiry were damming to Labour.

  22. noxxano 24

    Whatever the argument in favor of Cullen is, the truth of the matter is that the arrogant professor of History is about to be retired as Finance minister. His demeanour towards the Kiwi electorate is very much to blame for the upcoming demise of the Labour Party.

    I look forward to reading the socialist stalwarts lurking around here after election day. Enjoy!

  23. Felix 25

    That’s “Doctor of Social and Economic History” to you, little brain.

  24. Ari 26

    If we had done what Key is saying we should have done (he doesn’t really believe it, of course)

    Oh no, he really does believe we should have cut taxes instead of paid off debt. Perhaps he realises that cutting taxes would be mutually exclusive with the policies he now supports, or perhaps not. Or perhaps he doesn’t really support them, he just knows he has to swallow a few dead rats to win the election.

  25. Phil 27

    he really does believe we should have cut taxes instead of paid off debt.

    With interest rates around the world falling, and inflation on the way up, now is exatly the time to be taking advantage of being in debt.

  26. Milo

    You can’t have been around then. In 1984 catatonic people in Hospital realised that the NZ dollar was overvalued and needed to be devalued. Despite losing the election Muldoon refused to do so even though he received specific instructions to do so. This was the closest thing we have ever had to a constitutional crisis. The old bugger almost killed the economy with think big and the wage and price freeze, he then started to dig the grave by refusing to devalue and was only stopped when McLay offered to be sworn as a caretaker PM to do what was necessary. How you can blame Lange for this is beyond me.

    In any event there were no overseas reserves left, the economy was in that bad shape.

    Typical debate, Cullen gets criticised for “squandering” an opportunity when the reality is that he has done extraordinarily well. And the right try and spread the blame away from where it should be laid, at the feet of their leaders for historic events.

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