Starve the beast

Written By: - Date published: 12:39 pm, December 14th, 2010 - 50 comments
Categories: public services, tax - Tags: ,

Let’s face it. A government doesn’t accidentally spend $15 billion more than its revenue while cutting billions in taxes. The unsustainably high deficit is intentional policy, not happenstance.

In good times and bad, National’s answer is always to cut taxes:

Economic good times and record surpluses? ‘Hardworking Kiwis are being overtaxed by that greedy Michael Cullen’

Recession and record deficits? ‘We need tax cuts to boost the economy’

It doesn’t seem to make sense that your answer to two diametrically opposite situations would be the same. Unless, of course, your objectives aren’t those stated.

The rightwing wealthy elite hates public services. They believe that if you aren’t worthy enough, as measured by the market, to afford something you shouldn’t get it. And they especially hate paying the taxes to buy these public services. Being narrow-minded they can’t see that they benefit from living in a society where the less well-off get education and healthcare and a minimal income safety net.

The problem, rightwingers discovered, as they fought the creation of the welfare state in the middle of last century, is that poor people get to vote too. And they love public services. The social wage is as valuable, if not more valuable, than the market wage for many people. For the poor, public services provide some relief from the massive inequities created by the market.

But, by and large, the poor pay taxes too. And few people enjoy it. So, the Right hit on a strategy. Rather than decrying public services as inherently wrong as they had, they focused on persuading people that, rain or shine, they need tax cuts. It turns out that it’s quite easy to convince people that they should have more money in their pockets, if you don’t make them aware of the consequences. Polls regularly show big support for tax cuts but big opposition to the statement ‘would you support public service cuts to pay for tax cuts’.

But the Right knows there’s no such thing as a free lunch. The objective of the tax cut mantra is to create huge deficits that then need to be ‘fixed’ with spending cuts. This is what American conservatives call ‘starve the beast’.

Grover Norquist put it colourfully when he said “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

This is what is happening all over the world. During the boom years, governments everywhere cut taxes, even Left ones like Labour, who at least cut them to the bottom end more. It seemed like they could afford to, with the massive surpluses they would otherwise have been running (except the UK and US, which ran deficits even in the boom years). Along came the great recession and more tax cuts, this time to stimulate the economy – even though the evidence is that greater government spending is more stimulatory.

Now, the deficits are out of control here and abroad. Does anyone say ‘hey, lets just return tax levels to where they were when we didn’t have a structural deficit?’ No. Because the Right has been very very successful, with the centre-Left’s meek acquiescence, in making raising taxes nearly impossible. Instead, the ‘only solution’ is austerity cuts to public services.

There’s no crisis without opportunity, and this crisis is playing perfectly into the right’s hands. We’ll be told that ‘extravagant’ public services are no longer affordable and health and education will get big cuts. We’ve already been softened up for welfare cuts. And asset sales will also become ‘necessary’ to pay off our debts.

We’ve been here before – 20 years ago. Starve the beast worked then, and it’s working now.

50 comments on “Starve the beast ”

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  1. mickysavage 1
    14 December 2010 at 1:19 pm

    Did I see Pansy’s arm firmly up her back so that her resignation would drown out what economically is much more significant news?

    And if my accountant drove the business into deficits and had no plan to fix the problem I would get a new accountant.

    • Colonial Viper 1.1
      14 December 2010 at 1:22 pm

      Are you looking at Bill English when you say that.

      • Clarke 1.1.1
        15 December 2010 at 8:16 am

        Probably not – the difference between Bill English and an accountant is that the accountant is qualified to do their job. Bill? Not so much.

  2. Colonial Viper 2
    14 December 2010 at 1:21 pm

    Great synopsis. And what are the Left going to do to make the public realise that we need to create an equitable productive society capable of raising incomes for the many, and not just cutting taxes for the few.

    As for raising tax revenues: CGT, estate tax and much more progressive PAYE please (where new upper bands are set at 5x, 10x and 40x the median wage, but the first few thousand earned a year are taxed at 0%). Oh and return GST back to 10%, the regressive tax that it is.

  3. big bruv 3
    14 December 2010 at 1:26 pm

    Yep…big spending cuts.

    An immediate end to the interest free student loan bribe.
    An immediate end to the working for families bribe.
    An immediate end to long term dole bludgers receiving the benefit
    An immediate end to the DPB.
    Get rid of 75% of government departments / ministries, sack all of the public servants who work in those departments / ministries and save the tax payer a fortune.

    That is only the start……Labour created the problem by letting a history teacher play with the countries finances during an economic boom (and led us into recession well before anybody else in the world).

    I just hope that Key and the Nat’s are brave enough to make the hard choices, they have the support of the public, they have plenty of political capital it is time they started spending some of it.

    The reality is that it will not matter how tough it is, the Nat’s will be be back in power after the next election.

    • marsman 3.2
      14 December 2010 at 1:38 pm

      From ZERO Public Debt to $15BILLION Public Debt. Bill English has done it again, he’s inept and he’s mismanaging the economy !

    • Lanthanide 3.3
      14 December 2010 at 2:27 pm

      Expect an immediate and sustained uptick in the number of Kiwis going over to Oz.

    • Zaphod Beeblebrox 3.4
      14 December 2010 at 2:28 pm

      If its low debt you want you may have to start voting Labour.

    • Irascible 3.5
      14 December 2010 at 3:11 pm

      NZ let a money speculator / gambler combined with a treasury minion who holds to a discredited economic theory control the economy and it all turned to crap with a record budget blow out and a promised cycleway as the only means of rescue.
      The hard choice for Key & company is to admit their failures and follow Pansy into botanical oblivion.

    • NickS 3.6
      14 December 2010 at 3:23 pm

      An immediate end to the DPB.

      Followed by a rise in government spending on policing, courts and prison as those utterly without (and with the will to do so) take from those with. But hey, it’s not like the DPB is relatively cheap compared to the costs of imprisoning people in conditions that meet NZ law, combined with all the other costs of crime, and unemployment obviously doesn’t exist either.

      And have you made that donation yet bb?

    • bbfloyd 3.7
      14 December 2010 at 5:49 pm

      you really are boring old fart big bruv.. you obviously lost your cognitive abilities along with your eyesight long ago… now you’re reduced to not much more than telling stories about when you were in the war…. the boer war.

    • Draco T Bastard 3.8
      14 December 2010 at 6:50 pm

      This is what your “solutions” will bring about BB. Total devastation.

  4. Policy Parrot 4
    14 December 2010 at 2:03 pm

    The question is, will there be another 1990-style “crisis” which forces National to sell off state assets to balance the books?

    Then the wealthy win twice – lower taxes and access to bargain basement SOEs. Of course, it will be promoted as Mum and Dad investors, perhaps the Hotchins for example?

    • Colonial Viper 4.1
      14 December 2010 at 2:05 pm

      LAB need to get ahead of this curve.

      • big bruv 4.1.1
        14 December 2010 at 2:15 pm

        And how would they do that Viper?

        Borrow even more?
        Hand out more tax dollars earned by working people to bludgers?
        Impose crippling tax’s on anybody who earns more than the average wage?
        Bring back compulsory unionism?

        • Lanthanide 4.1.1.1
          14 December 2010 at 2:29 pm

          Support people into jobs, thereby raising the tax take and lowering the welfare expense.

        • Colonial Viper 4.1.1.2
          14 December 2010 at 2:39 pm

          bug bruv, whether you like it or not, people fall on hard times and need support. We are a society which should not tolerate poverty when we have huge capital resources at our disposal. $1.7B for SCF, $9.1B for rich tax payers over 4 years, etc. People can only succeed if they have the resources at their disposal to pick themselves up and dust themselves off. That part of it is their responsibility but society should understand that most people do better with support and encouragement.

          Cunliffe is clear on where our economy needs to make society both richer and fairer with those riches. A more diversified, higher value add economic base.

          Taxes should also go up on those who earn more than 5x, 10x and ~50x the NZ median income. That’s at approx $130K p.a., $260K p.a. and $1.3M p.a.

          Hard to cripple them with taxes mate, don’t fear there will still be plenty of bubbly and ham in the pantry over Christmas.

          • big bruv 4.1.1.2.1
            14 December 2010 at 2:57 pm

            Viper

            People do fall on hard times, on that we agree, however those same people should have made provision to care for themselves when those hard times come along.
            It is simply not acceptable for them to expect their fellow Kiwis to bail them out time after time.
            You are also right when you say we should not tolerate poverty, we should not tolerate laziness or those who do not make the best of the tax payer funded education they receive.

            You say that taxes should go up at 5x 10x and 50x, how much should those taxes go up by Viper?

            History does not support what you say or the constant stream of lies coming from Cunliffe, Labour would once again hammer the middle class and offer huge bribes to the idle and the lazy.

            • Colonial Viper 4.1.1.2.1.1
              14 December 2010 at 3:06 pm

              however those same people should have made provision to care for themselves when those hard times come along.
              It is simply not acceptable for them to expect their fellow Kiwis to bail them out time after time.

              Wage suppression makes it impossible for large groups of workers to create their own safety net of more than a few weeks of savings. So your suggestion of self-insuring against hard times is impractical.

              Funny you use the term ‘bail out’. SCF bond holders, Southland farmers, kiwifruit growers all seemed OK with it.

              You say that taxes should go up at 5x 10x and 50x, how much should those taxes go up by Viper?

              History does not support what you say or the constant stream of lies coming from Cunliffe, Labour would once again hammer the middle class and offer huge bribes to the idle and the lazy.

              You must have missed the part where workers are the ones who have to apply their labour to make a living. They are not idle nor lazy. 160,000 unemployed would get straight back to work tomorrow – except Bill and John have no economic plan for creating jobs and is letting that human resource rot.

              As for how much taxes should go up by? 1956-1964 income taxes in the US for top earners was 91%. The period where the foundations of the middle class were built and wealth permeated through vast sections of US society: not just the very top.

              In fact today, 5% of Americans own more financial wealth than the bottom 95% put together. That top 5% has made their huge wealth on taking the fruits of the productive labour of the bottom 95% and returning them the least pay possible. Often offshoring American jobs in the process. Who did you say was lazy again?

              History does not support what

              Never knew you were a historian mate.

              • big bruv …
                14 December 2010 at 3:23 pm

                Your reply reeks of left wing socialist ideology..

                “Wage suppression makes it impossible for large groups of workers to create their own safety net of more than a few weeks of savings”

                What utter rubbish, what makes it impossible is the theft that is over taxation, interest free student loans, working for families and the mindset (fostered by nine years of a Labour government) that the “state” (here read tax payer) will bail out those who do not take personal responsibility for themselves and their families.

                You also put words in my mouth (if I did that to you I would be banned), I am on record as saying that SCF, Farmers and Kiwifruit growers should have been left to their own fate, if they cannot cover themselves with business insurance then tough luck.

                • bbfloyd …
                  14 December 2010 at 5:55 pm

                  big bruv.. your comment reeks of rank stupidity, compounded with an incurable bigotry… get a life… somewhere you will be happy… uganda is on the lookout for a social welfare minister.

            • Lanthanide 4.1.1.2.1.2
              14 December 2010 at 3:10 pm

              “People do fall on hard times, on that we agree, however those same people should have made provision to care for themselves when those hard times come along”
              Show me how someone on minimum wage can make provision to care for themselves when hard times come along.

              If your answer is “get a job that pays better than minimum wage”, please show me a society in which there is no minimum wage. Hint: trick question, it requires everyone to be paid $infinity.

            • Draco T Bastard 4.1.1.2.1.3
              14 December 2010 at 7:00 pm

              however those same people should have made provision to care for themselves when those hard times come along.

              My nephew has house insurance which includes redundancy/income insurance. They refuse to pay. So, he made provision but it’s not helping. His savings have been used up due to the recession. He works as much as he can but he’s still close to losing his house. What else can he do?

              BB, you’re an ideologically blind idiot.

    • Bored 4.2
      14 December 2010 at 2:15 pm

      Mr/s Parrot, the policy analysis from me is that buying an SOE is a really good idea as people must have these services provided…so far so good. But when the people can no longer afford these services…down she goes, investment devalued or lost. Mum and Dad Hotchins will say that the “market” has found its level, but they wont like it….they might ask something unique like having the state “fund” and “subsidise” those who cannot afford their services. Welfare…but now who is going to pay the tax bill, not us they say. Take on debt….but eeeekk theres no credit to be had because the system is bankrupt.

      Interestingly in the above scenario you are creating the preconditions Leninists and fascists love, the opportunity to provide legitimacy from a defunct system.

  5. tsmithfield 5
    14 December 2010 at 2:20 pm

    “A government doesn’t accidentally spend $15 billion more than its revenue while cutting billions in taxes.”

    Actually, the tax cuts are fiscally neutral, so your comment about cutting taxes is not accurate if you are talking about the whole revenue stream.

    I suspect there is timing issues with GST here. People get their tax cuts before the government picks up the GST increase.

    • r0b 5.1
      14 December 2010 at 2:25 pm

      Actually, the tax cuts are fiscally neutral, so your comment about cutting taxes is not accurate if you are talking about the whole revenue stream.

      Actually they really really aren’t.

    • lprent 5.2
      14 December 2010 at 2:30 pm

      You don’t believe Bill English do you? The only thing he is economical on is the truth – surely even you recognize that by now.

      Oh I see r0b has pointed out a relevant link.

    • mickysavage 5.3
      14 December 2010 at 2:31 pm

      TS

      The cuts were not fiscally neutral unless growth exploded and confidence was immediately restored. They did anticipate a $1b deficit in the first year even if conditions were optimal.

      Conditions are way worse. There is a big hole in the accounts and no sign of how it is going to be filled.

      Unless the nats start selling everything …

      • tsmithfield 5.3.1
        14 December 2010 at 3:13 pm

        I don’t object to pinging off a few things at all. So, if National wanted to go down that route there would be no objections from me.

        Allowing for growth in the projections is a reasonable assumption given the low base we are coming from.

        Of course, factors such as the earthquake and the impending drought were unknowns at the time. OTOH, the government stands to gain a windfall from the earthquake in the future with GST revenue from all the repairs, increased PAYE income from busy builders etc. So, things should turn around fairly quickly I expect.

        • Draco T Bastard 5.3.1.1
          14 December 2010 at 7:09 pm

          I don’t object to pinging off a few things at all.

          That’s because you’re stupid.

          There’s a reason why the government does all the government services – it’s because they’re not commercially viable but are essential.

          • tsmithfield 5.3.1.1.1
            14 December 2010 at 8:26 pm

            So on principal would you refuse to sell any government assets, including unused schools etc, no matter how good the business case?

            • Pascal's bookie 5.3.1.1.1.1
              14 December 2010 at 8:33 pm

              That’s not what he said at all. He said he doesn’t think the business case stacks up.

              Whereas you said you think selling assets to pay for a budget hole created by a poorly designed tax package is something you could support.

            • mickysavage 5.3.1.1.1.2
              14 December 2010 at 8:43 pm

              Labour also had a major drought in 2007-08 that caused the bookd to not look so good.

              And TS on principle I would tax the rich rather than sell community assets. And we are down to the bone in terms of what we can sell.

              • tsmithfield …
                14 December 2010 at 9:56 pm

                If we sell assets and repay debt then we have less interest to pay and thereby more to put into social needs.

                • Colonial Viper …
                  14 December 2010 at 10:00 pm

                  If we raise taxes and repay debt then we have less interest to pay and thereby more to put into social needs.

                  We’ll also still own our own country as a sovereignty bonus.

  6. big bruv 6
    14 December 2010 at 2:28 pm

    lol….

    r0b quotes the standard as a source……hardly independent or known for it’s accuracy.

    [lprent: It is a source that is known for linking their posts to relevant numbers. In this case Keith Ng who I observe as being addicted to accurate numbers.

    BTW: If you don’t like it here then I’m happy to enforce a voluntary (or involuntary) ban. But if you want to stay here then it’d pay you to argue on a different basis like actual numbers or analysis. Slagging off the site on no other basis than you’re too lazy to pull your head out of your arse is a fast way to wear out my tolerance. ]

    • Lanthanide 6.1
      14 December 2010 at 2:32 pm

      If you actually bothered to follow the link, you’ll see it is based around Keith Ng at Public Address.

      How about you actually rebut the article and opinion with some facts and analysis, instead of mindlessly slagging it off because it’s from “the standard”?

    • big bruv 6.2
      14 December 2010 at 2:50 pm

      Lol…..oh yes Iprent, and you are so well know for your tolerance.

      [lprent: No I’m not.

      My role here does not require it, which is why I don’t bother trying to feign it and I usually rather enjoy being more than a bit of a pain when people violate the bounds of behaviour.

      Attacking the site or authors when you’re too lazy (or too incapable) to figure a valid argument is one of the things that I specifically don’t tolerate. Read the policy.

      But you know that, so now you’re starting to waste my time and I have very little tolerance for that either. ]

  7. clandestino 7
    14 December 2010 at 3:22 pm

    A good reason for tax cuts is the ability to further pay down debt and increase savings. The lower tax take, lower household consumption data after the GST increase, and sustained consumer deleveraging is evidence it is working, slowly. The borrowing really isn’t an issue for me, just inflate, devalue, import less made in china crap and less oil thus nurturing manufacturing and alternative energies. Right now, a high dollar is only good for travellers and getting that new 3DHD 55 incher under the tree, 0% down 48 months to pay of course.

    Now if more people would only join Kiwisaver, increase savings and deepen our capital markets, we might actually get some private sector investment in this country’s talent, unemployed and potential industries. Also, mandate the Super fund to invest a % in long term growth sectors in NZ, so in 2025 we won’t be paying through the nose for our parents nappy changers.

    Captcha: Logical. Damn right it is.

    • Colonial Viper 7.1
      14 December 2010 at 10:04 pm

      The lower tax take, lower household consumption data after the GST increase, and sustained consumer deleveraging is evidence it is working, slowly.

      Yeah but its the same exact evidence that we are sliding deeper into recession.

      A good reason for tax cuts is the ability to further pay down debt and increase savings.

      Yeah but its sorta silly coz individuals can pay down private sector debt while the Government racks it up due to low tax revenue.

      All you are doing is swapping private debt for public debt. You are moving the problem, not solving it. And the rich get richer all the while, as the general tax payer gets burdened with more and more public debt.

  8. joe bloggs 8
    14 December 2010 at 4:16 pm

    The … deficit is intentional policy

    Yup, a policy of intentional $4b earthquakes is right up there amongst your best conspiracy theories Eddie

  9. Rex Widerstrom 9
    14 December 2010 at 5:30 pm

    It doesn’t seem to make sense that your answer to two diametrically opposite situations would be the same. Unless, of course, your objectives aren’t those stated.

    While not arguing against the broad thrust of your conclusion Eddie, I think you’re underestimating the role of stupidity, and hubris.

    We’re talking a Cabinet comprised of Paula Bennett, Judith Collins, Anne Tolley… hell, even John Key has only ever been successful making money off of other money, he’d have no idea how to run a productive enterprise the size of a corner dairy let alone a country.

    English has a commerce degree but (aside from the fact that those who have one tell me it’s not a lot of practical use unless you’re an accountant) he was captured by Treasury over 20 years ago when what’s needed in a Finance Minister is a healthy mistrust of Treasury so they’re always forced to offer up a range of options and opinions not just the prevailing line of thought.

    But all that wouldn’t be so bad if they realised their limitations and sought advice. However that’s where the hubris comes in. I’m sure Bennett and Collins, for instance, both sit there thinking how much better they’d be as PM, with their exciting “stop all benefits payments and offer the unemployed work building the prisons that will house them when the prison building work dries up” scheme.

    The clowns are in charge of the circus while the country is walking the tightrope.

  10. Carol 10
    14 December 2010 at 7:30 pm

    Hmmm… well Duncan Garner said on TV3 news tonight, that the government needs to stop blaming the recession and the last Labour government, and start owning the problems with the economy. However, this comment didn’t make it to Garner’s print version of the story. It’s probably in the accompanying video:
    http://www.3news.co.nz/Government-borrowing-250-million-per-week/tabid/421/articleID/190868/Default.aspx

    The TV3 news item and the print version, did feature a short quote from Goff:

    “We’re borrowing money to keep people in jobs and in their entitlements – that position can’t stay forever,” says Prime Minister John Key.

    ACT says massive cuts are needed, and Mr Key won’t do it.

    “I don’t believe they have the courage to do what’s right,” says ACT’s finance spokesman, Sir Roger Douglas.

    Labour says it is proof the October tax cuts were not affordable.

    “They are effectively paying for tax cuts for the wealthy by borrowing,” says Labour leader Phil Goff.

    So Mr English departs the stage for 2010, and the signs for 2011 are slightly better – but only just.

    • Pascal's bookie 10.1
      14 December 2010 at 8:05 pm

      ‘Overwhelmingly 92 % said they are likely to stay in NZ; but there are still a few there, 5%, said they will move to Australia and 2.3% say they will move somewhere else’.

      Oh well that’s all right then! 7.3% is a total minority and the ‘not leaving’ win this one easily!!

  11. Deadly_NZ 11
    14 December 2010 at 10:38 pm

    I’d go to Aussie but Blinglish has stolen all my money :-((So i wonder how many of the 92% are in the same boat.. You see they did not ask the right questions…

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  1. The Standard: posted on 13 December 2010 at 11:50 pm