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Tax cuts, one-off payment, or something better?

Written By: - Date published: 12:45 pm, June 27th, 2009 - 46 comments
Categories: budget 2009, national, tax - Tags:

Budget papers just released reveal that Treasury recommended a package of measures to reduce debt including an 8-year suspension of the Cullen fund contributions, new operating allowances of $1 billion, rather than $1.75 billion and cancelling the tax cuts and giving New Zealanders $1billion worth of one-off payments instead. This either would have taken the form of $300 to each taxpayer or $1200 to each single super annuitant and beneficiary,and $1800 to couples. National turned down the idea. Was it a good one?

It’s a better idea than tax-cuts, that’s for sure. One-off payments (ideally actually split into smaller payments over a couple of months) would have given an injection into the economy when it needed it without locking in a permanent decrease in government revenue as with tax cuts. Jobs would have been saved and, like a zap with an economic defibrillator, it may have helped get the economy ticking over again.

Even better than one-off payments much of which would have bee pissed away on consumer imports, would have been if the government had spent the money itself on large short-term projects to create jobs and improve our productive capacity for the future. A Green New Deal, like the Greens and Labour have called for, and which National hasn’t had the vision to take up.
– Marty G

46 comments on “Tax cuts, one-off payment, or something better? ”

  1. burt 1

    Marty G.

    So what you are saying is that the way to lift NZ out of it’s domestic recession is for the govt to increase it’s ownership of the economy?

  2. Ianmac 2

    Back in about 1937 or so, didn’t the incoming Labour Government give 5 pounds to each worker or was it to each adult? Anyway it had a dramatic effect on uplifting the economy and started an end to the Depression. (Memory is a bit dodgy.)

  3. MartyG 3

    I don’t have a knee-jerk, ideological opinion on that. Whereas you seem to think it’s bad per se.

    But you’re wrong anyway. I’m arguing the government should be expanding the economy by creating sustainable and useful capital, not by buying existing assets.

  4. Anita 4

    Is Labour calling for a Green New Deal?

    I know my news watching is patchy, but that sounds sufficiently visionary I’d like to imagine I would’ve noticed.

    • Zetetic 4.1

      No. They’re more generalised. Want a better home insulation programme. Opposed public sector job cuts. want more on public transport. But no single plan laid out like Greens.

      • burt 4.1.1

        Zetetic

        The way I recall it Labour thought they were better at Green stuff than the Green’s. That was a pillar of their [two ticks Labour] assurance.

        Like Anita I missed the subtle change of position, did it happen last November perhaps?

      • craig 4.1.2

        What about RAM, what’s their recession-busting plan?

        • burt 4.1.2.1

          craig

          RAM are quite open about what they would do;

          $2,000 ‘baby bonus’ to every mum
          Offer first-home buyers a 3% interest state loan
          Lift minimum wage to $15 per hour
          Free lunches in schools serving poor areas
          Free tertiary education plus a student living allowance
          Free and frequent public transport in our main cities
          Offer cheap solar panels to homeowners

        • Anita 4.1.2.2

          GST off food would do more good to the NZ economy and the lives of the poorest than anything that National have suggested so far.

          Add to that cheap loans to first house buyers (stimulating the building industry better than anything National’s suggesting), an increase to the minimum wage (another good stimulus because it’s small amounts of regular additional spending), and increased participation in tertiary education it looks like a damned fine recession busting plan.

          Funding it, as RAM suggests, from a financial transaction tax and tax increases for the wealthiest isn’t recessionary.

          It’s very anti-capital, pro-labour (more so than anything Labour ever suggests) which is why it’ll never happen, but it’d be a great way to manage through the recession.

          • gingercrush 4.1.2.2.1

            Oh yes cheap loans for first time house buyers. What New Zealand needs. More speculation on the property market. And doesn’t Freddie Mac and Fannie Mae ring a bell? That is after all the major cause of this world-wide recession.

            Impose on small businesses (the backbone of this economy) higher employment costs. Gee what a great idea during a recession. If the minimum wage was pushed upwards to 15 dollars that would mean other employees would want increases in their income. During a recession that will merely lead to more lay-offs and businesses moving elsewhere. Nothing would be gained in the extra spending because people wouldn’t have jobs. Going from $12/12.20 to $15 simply isn’t sustainable.

            The rich invest in this country. Taxing them too harshly (which is exactly what RAM would do) would simply drive them to invest elsewhere.

            It isn’t pro-Labour, its anti-capitalist. It isn’t sustainable either.

            • Draco T Bastard 4.1.2.2.1.1

              The rich invest in this country. Taxing them too harshly (which is exactly what RAM would do) would simply drive them to invest elsewhere.

              They can leave – the market will adjust. That’s the whole point of having a free-market.

              And having rich people in the economy drove the present recession. Actually, they seem to have driven all recessions. The Arch Druid Report pretty much sums it up:

              Instead, as the world crossed the bumpy plateau surrounding its 2005 production peak, oil prices moved up and down in waves of increasing violence, culminating in a drastic price spike driven in part by speculative greed, and followed by an equally drastic crash driven in part by speculative panic.

              Sure, he’s talking about oil specifically but I’m pretty sure that it applies to all other financial transactions on Wall Street et al.

          • Anita 4.1.2.2.2

            cheap loans for first home buyers != risky loans for poor credit risks

            cheap loans for first home buyers != increased speculation

          • Pascal's bookie 4.1.2.2.3

            GC

            Oh yes cheap loans for first time house buyers. What New Zealand needs. More speculation on the property market. And doesn’t Freddie Mac and Fannie Mae ring a bell? That is after all the major cause of this world-wide recession.

            Please explain?

            Bear in mind Anita’s very helpful, and quite correct equations. Tell me what you think freddie and fannie did, since they were created, what changed, when, and how much of a role they played in the crisis, seeing you seem to imply the F&F are the major cause.

          • gingercrush 4.1.2.2.4

            PB you know full well that F&F distribution of loans and how those loans were created were a major cause of this recession. Supplying loans to people who simply could not afford them created a real mess. That combined with F&F and other financial institution’s strange ways of supplying money to the markets contributed to the current mess we’re in. The US government not only covered up the troubles F&F were in. They also directed those two companies to supply easy loans to millions of Americans.

            As for first home buyers and house speculation. Just look at Australia. Supplying cheap loans to first-home buyers just drives the costs to others. Meaning New Zealand would have to borrow more money to fund first-home buyers. 3% interest rates wouldn’t even get that money back.

          • Pascal's bookie 4.1.2.2.5

            No GC. I don’t know that at all. In fact, I don’t think you know what you are talking about.

            Be specific about what you are saying please.

            F&F do not, repeat, do not make loans. They guarantee them. There were rules in place that if an institutiuon wanted their loans guaranteed by F&F then a certain percentage had to be made to minorites. Note, minorities, not ‘the poor’. All loans backed by F&F had to meet lending criteria. F&F could not, by law, directly back no doc or sub prime loans.

            All the sub prime stuff that you are talking about was leant out by institutions not using F&F as a backstop. The deregulation of the sector made such loans legal, and the banking sector took advantage of that. Because of the growth in that sector, F&F were losing market share. That loss of share ws why they started, very late in the game, investing in some of the products derived from those shitty loans. But again, it was at the other end of the process, they were not, I repeat again, not making bad loans, or backing them.

            That’s what I know.

          • Anita 4.1.2.2.6

            If someone can safely afford to repay a 3% mortgage then offering them a 3% mortgage is not risky. The problem, as I understand it, is that people were offered mortgages they could not safely repay.

            RAM is not suggesting that people be given mortgages they can’t safely repay, it’s saying that people who can safely repay at 3% (but not at 7%) should be able to get a mortgage and buy their own home. No increased risk but increased home ownership.

          • Draco T Bastard 4.1.2.2.7

            GST off food would do more good to the NZ economy and the lives of the poorest than anything that National have suggested so far.

            Actually, that’s a bad idea as it would cost more to administer than what GST brings in. Would be cheaper and easier just to have the people who’s income is within the lowest tax bracket have their GST refunded from IRD. As they pay GST on pretty much everything just use the basic calculation 12.5% of = and then send out the cheque.

            • Draco T Bastard 4.1.2.2.7.1

              PS. Any ideas as to why I don’t have an edit function?

            • Anita 4.1.2.2.7.2

              Draco,

              You’re logged in, edit doesn’t seem to work when I’m logged in either (and I’ve told lprent and it’s on The List :).

              Try logging out and see if it comes back.

  5. lprent 5

    Completely off-topic. The search re-index finally finished, so the server should be now at its normal loading. Now I can start looking for why the site got suspended at bluehost.

    So far it looks like there is a simple reason. The volume of traffic is staggering even on a saturday after the site has been down for days. I hate to think what it is like on weekdays

    • Anita 5.1

      Did you trip the threshold for traffic volume or CPU?

      Lovely to see you all back btw 🙂

      • lprent 5.1.1

        Thanks.. Nice to be back. It was a pain them suspending the site in the mornings. I had to head to work because that is pretty active at present as well. As it was BlueHost made me late two days in a row.

        CPU. It is averaging about 30% per CPU at present on a dual CPU motherboard running ubuntu server with 2400MHz Operton’s. It is the cost of generating the pages even with SuperCache running.

        We did over 60 GBytes transfer in May. But a basic DSL is handling that without hassle

        • Anita 5.1.1.1

          How much are the sidebars costing in generation? If they’re hurting there are a number of elements that could go.

          Also, is reply threading generation heavy? I imagine it might be if badly coded.

          Yeah, complicated things only ever go wrong when it’s of maximum inconvenience (I always get those phone calls after the final call for any plan I’m boarding :). You didn’t move til after the by-election eh?

          • lprent 5.1.1.1.1

            The cache takes care of things that aren’t changing. It just serves up the same file that it used previously.

            There are two things on the front page related to comments. The count on each post and the sidebar. The main cost is that when any of those change, the whole front-page has to be regenerated. Looking at the pages going out, that is the biggest cost by a couple of orders of magnitude.

            Ummm – thinking about super cache. Just going to run a test

          • lprent 5.1.1.1.2

            Threading isn’t a problem. That is efficient – I checked the code after I turned it on.

            Cache rebuild. Serve a supercache file to anonymous users while a new file is being generated. Recommended for very busy websites with lots of comments. Makes “directly cached pages” and “Lockdown mode” obsolete.

            I thought that might be turned off, but it is ok.

            I’ve just turned off the super-cache compressing its files on disk. It looks to me in the code like it may be uncompressing them before serving (different to the gzip on request). I’d prefer to use a spare gig of disk space.

          • Anita 5.1.1.1.3

            Are you saying that every time the number of counts on a post changes, or any new comment is posted (changing the right sidebar), then the whole page (both sidebars and post and comments and banner) needs to be regenerated? Or that if only the right sidebar changes then only the right sidebar will be regenerated?

            If the former, then lowering the number of dynamic elements anywhere on the page would help wouldn’t it?

            Argh, I’m not sure I’m being coherent 🙂 If someone posts a new comment on a post, then someone views a different post and the server knows it has to serve them a new “Recent Comments”, will it also regenerate the calendar on the left sidebar?

            • lprent 5.1.1.1.3.1

              Yep. The whole page gets regenerated for all pages whenever a comment is added and the page request comes in. To make the site visible to the search engines you can’t use frames (although that shouldn’t be true any longer).

              The code doesn’t break parts of the page down for seperate regeneration. It recalcs the whole page.

              That usually really isn’t a major issue. Comments are added in human time.

              • lprent

                Arrghhh This wouldn’t help in SuperCache

                Garbage Collection

                If expiry time is more than 1800 seconds (half an hour), garbage collection will be done every 10 minutes, otherwise it will happen 10 seconds after the expiry time above.

                Checking for and deleting expired files is expensive, but it’s expensive leaving them there too. On a very busy site you should set the expiry time to 300 seconds. Experiment with different values and visit this page to see how many expired files remain at different times during the day. Aim to have less than 500 cached files if possible.

                I was set to 3600 so it was cleaning every 5 minutes which explains the type of spiking I was getting. I’d prefer it to do a big cleanup infrequently. Now set to 1500 seconds.

              • Anita

                That doesn’t explain a big spike in the middle of the night does it?

                Edit: I’m getting “Cannot open socket” when I try to post comments at the moment
                Re-edit: but apparently not when I edit comments 🙂

                • Anita

                  But now I do seem to be able to post comments, it’s weird, I might go bake something 🙂

                • lprent

                  I don’t think that Bluehost got a CPU ‘spike’. I think that was when someone looked at the stats from the previous ‘night’. They showed The Standard chewing more CPU than they’d like (there are apparently no ‘criteria’) so they suspended the account. Certainly I couldn’t see anything except normal high patterns where ever I looked at in the logs.

                  For Bluehost I suspect that it is simple economics. They provide a cheap and pretty good service, but they get paid the same regardless if people are doing very little or a lot. If Bluehost get a site with a big footprint, then they spike it because they can fit more users in the same resources if they have simple requirements.

                  What gets me is that they were suspending the system then telling me.

          • lprent 5.1.1.1.4

            I just had a peek at some of the text on the generated pages for the root screen. You can see it at the end of the generated code.

            !– Dynamic page generated in 2.383 seconds. —
            !– Cached page generated by WP-Super-Cache on 2009-06-27 15:25:22 —

            That was about 1.2 seconds on Bluehost. But it is pretty acceptable considering the amount of data it is doing. Thats in that page as well. 107 queries.

            Ummm the richard worth has resigned post with 74 comments

            !– Dynamic page generated in 3.391 seconds. —
            !– Cached page generated by WP-Super-Cache on 2009-06-27 15:30:21 —
            There were 58 database queries to make that page.

      • lprent 5.1.2

        Yep. Thursday was our peak day. The highest number of page views we’ve ever had. Higher than anything during the election.

  6. Bill 6

    Was it a good idea?

    Well, beneficiaries were never going to get a tax cut, either under Labour or National.

    So I find it strange that treasury put forward an idea to give beneficiaries a lump sum. I guess they’d have lost all their benefit entitlements that week?

    And any bankrupt beneficiary would have had $200 taken straight off the bat to go back below the $1000 bankruptcy threshold.

    Anyway, I reckon $1200 would have been incredibly handy and have been spent out of necessity more than by any other reason…which would be good for a lot of businesses.

    WINZ caseload and expenditure would have dropped for a spell. Far fewer applications for non-recoverable food grants and the like.

    On the other hand, banks might have been pissed off with all those long term negative bank balances being cleared.

    But at the end of the day, why not just increase benefit levels by a substantial amount? Let’s say to pre-1990 levels for a start and get that money ging around. At the moment, beneficiaries don’t really participate in the pushing around of money beyond the landlord, the utilities companies and the supermarkets.

    Now that Treasury seems to understand the very basic notion of people spending being good for business….

    • gingercrush 6.1

      So why not just increase benefit levels by a substantial amount? Let’s say to pre-1990 levels for a start?

      – Dependency on welfare is a real recipe for success. We Tories might hate Labour on a lot of things. Including putting more and more people on sickness and invalid benefits. But one thing we’re very thankful of is that Labour never changed benefit levels back to pre-1990 levels.

      You’re quite serious though aren’t you Bill. You’re quite happy for thousands to choose not to work but live on the welfare of the taxpayers. After all, those of us that pay tax are clearly evil for actually earning money.

      • Ari 6.1.1

        Yes, thinking that beneficaries should have enough money to buy groceries means that taxpayers are evil. *rolls eyes*

        Nobody wants to be a beneficiary, GC, even if it WERE cushy. (Which it isn’t anywhere near) It’s depressing not being able to be fully independent.

      • Bill 6.1.2

        Beneficiaries are tax payers too GC.

        BTW, why is it expected that everybody should be a happily willing wage slave?

        For those that believe a salary or wage married to some material concept of success will see their human potential fulfilled and eventually lead to freedom I say….”Knock yourself out!”

        Others might rather spend their time productively engaged with concepts of human potential that are completely outside the bounds of the arguably crass and hopelessly crushing examples offered up by you and your masters GC.

  7. OhPlease 7

    The problem with Government spending money in a Green New Deal is that the distributional consequences cannot be predicted or established. The problem is recessions is that they have major distributional consequences. If everyone took their fair share of the -1% growth last quarter , then Weldon and Co’s incomes should fall by say $10,000 , and a person on average wage should have a fall of say $400. You can bet that this does not happen. Instead some people lose 100% with losing their jobs other go unscathed. A one-off payment can to some extent off-set these distributional consequences.

    • Bill 7.1

      So increase benefit levels thereby putting an upward pressure on wage levels which will see more money going around. And insist that business take a hit on profit margins instead of the current mindset which allows for individual well being and security to be slaughtered at the alter of businesses ‘Inalienable Right to Sustain Rates of Extraction’

      • OhPlease 7.1.1

        No, that simply accepts that unemployment will occur – and that what the State does is insure people against the wealth shock through increased benefits. We need to also compensate those people who are not unemployed, but face the increased risk of unemployment. A risk of unemployment – not just unemployment – makes people worse off. That’s in fact why CEOs demand high salaries, they claim that their contracts make their tenure risky and they need to be compensated for this risk. So, I think optimal insurance would target people who are increased risk of unemployment (i.e. low wage workers).

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