Tax Cuts or High Wages?

Written By: - Date published: 9:00 am, October 27th, 2010 - 17 comments
Categories: benefits, bill english, election 2008, jobs, john key, labour, national/act government, unemployment, wages - Tags:

At the last election we chose tax cuts and unemployment instead of stimulus and stability – which was the more ambitious, high wage way to go?

National are not fulfilling their government’s core reason for existence: closing the wage gap with Australia.  No, we’re fast going backwards on that score, and it’s predictable: high unemployment causes low wages.

Bill English thought unemployment below 6% was ‘a hoax’ in 1999 – and he’s doing his best to fulfil his own fallacy.  Labour got it down below 3% and wages rose as employment demands tightened – the wage gap with Australia stopped growing like it had with 90s National.  National have got it back up, and the Reserve Bank expects it to remain over 5% beyond 2014 – and most workers are getting below inflation wage rises, if any at all.

It didn’t have to be this way of course.  Labour at the last election had a large number of ‘spade ready’ stimulus projects lined up.  We could have actually done something about ultra-fast broadband, got a lot of rail projects going, environmental projects, maybe even a few cycleways as a minor project… A lot of unemployment would have been soaked up, a lot of useful work for the country could have been done, and there would have been a lot more people paying tax instead of costing us benefits.

Instead we have do-nothing National, who let what stimulus Labour had started slowly peter out, and unemployment rise.  They are spending the Labour government’s 9 years of surplus on tax cuts for the rich, paying polluters in their emasculated ETS, and increasing funds to private schools; and will now find that their GST rise to reduce the deficit falls further short as people stop spending because their pay doesn’t reach the end of the week any more.

With high unemployment the wage gap with Australia is rapidly rising, and the economy is heading back to recession.  National’s rich business mates are getting laws to tighten the screw on workers and get them through tough times; but many of their businesses are doomed to fail – those workers are also the consumers who can no longer afford to buy their goods and services.  Henry Ford understood that he needed to pay his workers well so they could afford to buy his cars, but National have not learnt the arch-capitalist’s lesson.

And so the government’s books will worsen – less tax in, more benefits out, even losing money on not investing in the Cullen Fund.  It could have been stimulus, employment, growth, bounding out of recession – but instead we have a Finance Minister who’s too busy fiddling with statistics whilst the books burn, and a PM who’s just desperate to get a photo with a Hobbit for his scrap-book.

17 comments on “Tax Cuts or High Wages? ”

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  1. Fisiani 1
    27 October 2010 at 9:34 am

    The after tax wage gap with Australia obviously narrowed on 1st October 2010 due to the tax cuts given to all workers. This was delivered by the National Government which is currently riding at 52.5% popularity according to Roy Morgan polling.

    • Colonial Viper 1.1
      27 October 2010 at 9:37 am

      Or maybe you are full of it: people can assess their own prospects/pay packets in NZ and are leaving this country at a faster rate to Australia and eleswhere than ever before.

      This was delivered by the National Government which is currently riding at 52.5% popularity according to Roy Morgan polling.

      Since Roy Morgan doesn’t poll New Zealanders who have left for Australia or who don’t have landlines, I’d expect that.

    • Draco T Bastard 1.2
      27 October 2010 at 12:10 pm

      In reality, no it didn’t. It widened as all the extra taxes were put in place. Higher GST, ACC, inflation, etc etc.

    • Daveosaurus 1.3
      27 October 2010 at 5:58 pm

      Try telling that to all the workers whose taxes went up at the start of the month.

  2. Lanthanide 2
    27 October 2010 at 10:00 am

    “paying polluters in their emasculated ETS”
    Someone has to pay for the ETS. If it wasn’t subsidies given to polluters, they simply would’ve put their prices up to compensate for their increased costs, much more than they have already done.

    I wish we could’ve just had a sensible carbon tax 🙁

  3. Lanthanide 3
    27 October 2010 at 11:05 am

    This is worth a little read:
    http://www.stuff.co.nz/national/politics/4273223/Goff-Gillard-meeting-very-valuable

    “He said an obvious point of difference in moving to steer through the recession was “not to give all the tax cuts to the wealthy – as National did in New Zealand. (Australia) focused on low and middle income earners…”

    He said Mr Swan had relayed his surprise at the tax package recently introduced here, which gave larger proportionate cuts to the higher earners, and had considered it wasn’t an orthodox way to stimulate an economy.

    Mr Goff said apprenticeship numbers in Australia had remained strong, along with skills training programmes, and money had been put into research and development.

    “They have come out of the recession and are picking up on the international recovery very strongly. The gap between the two countries, sadly, from our perspective, is growing.””

  4. The Chairman 4
    27 October 2010 at 11:20 am

    Why the Government needs to think bigger than cycleways

    The Government concedes debt is increasing ($2.1b surplus in 2007/08 to a $13.3b deficit in 2010/11) and unemployment is worsening.

    English admits that without Government’s considerable fiscal stimulus, the already challenging adjustment in domestic spending would have been even more painful.

    However, he says the Government can’t borrow and run deficits of that size indefinitely.

    http://www.stuff.co.nz/business/industries/4233946/Crown-figures-show-tax-cuts-were-lunacy-Labour

    http://www.stuff.co.nz/business/4241400/740m-in-lost-tax-as-Kiwis-go-bust

    And he’s right. However, the economy hasn’t got the capacity to recover without further Government intervention. And with an increasing Government deficit and a declining tax take, the window of opportunity is quickly closing.

    Why borrow to pay benefits when we can borrow to create new jobs, stimulate demand and grow the economy in the process?

    Even the Australian economy is on Government life support. Despite talk of a mining boom and Australia leading the developed world, if it were not for Government stimulus spending the nation would be going backwards.

    http://www.theage.com.au/national/stimulus-spending-keeping-nation-afloat-20100602-wzqr.html

    Our local private sector is hamstrung by debt, dominated by SMEs, and largely lacks the scale, resources, and desire (Boat Batch BMW mentality) to attain the national growth required. Hence, adding to a growing market void reflected in decades of poor economic performance.

    http://rbnz.govt.nz/keygraphs/Fig6.html

    The economic rebalancing we face not only requires a new approach to policy but also highlights the need for Government to constructively look at new ways to broaden and increase its revenue stream while stimulating the economy in the process.

    This necessitates that the Government expand further into commerce with a focus on securing an offshore return.

    Constructively broadening and increasing the Governments return will largely enhance its capacity to accomplish far more for the economy at large – i.e. new jobs, further tax incentives/cuts, larger investments in education/training, more funding for R&D etc…

    New trade deals have opened doors and presented new growth opportunities, but, by and large, the Government is far better positioned (having the resources, scale, and access to cheaper funding) to best utilise the opportunities presented.

    Less Government and the hands off approach have failed us. Proactive and productive Government is the way forward.

    Pitfals to beware of:
    http://www.theglobeandmail.com/report-on-business/ottawa-takes-another-shot-at-getting-rd-on-right-track/article1761323/

    • Bored 4.1
      27 October 2010 at 12:17 pm

      How dare you criticise the scale and vision of the Cycleway, as promised by the sainted John!!

      Actually in all seriousness the integration of proper long distance public transport with local transport i.e cycles etc would do our economy a large future proofing favour. The system to do this is the rail network which also takes care of the issue of long haul freight as well. Why? because the oil is running out and we will still need to move goods from A to B.

      The reality is as you say to have some greater vision, to think bigger than cycleways. In an age of ready energy decline we would do well to have a large scale vision of localisation. Neither major parties can contend with this type of economy, they will either have to envisage it or become irrelevant as it is thrust upon them by energy shortages.

  5. randal 5
    27 October 2010 at 12:02 pm

    kiwis think that somehow there is a magical formula for making more money but the fact of the matter is the pie is always going to be finite and national are always going to use every dirty trick in the book to get their hands on it.
    all the other stuff is hogwash and while the folk are running around debating all these big ideas the tories are just quietly going about their business of grabbing everything they can till they get turfed out again.
    the sooner the better.

    • Bored 5.1
      27 October 2010 at 12:23 pm

      Its all a bit of a laugh with the Aussies always digging up a few more minerals to flog off to support their days at the beach. We too have mines, ours if handled properly are perpetualy sustainable and wont run out. The mined material is called grass.

      Grass as you might notice converts to good protein which if processed / marketed / sold intellegently gives a good return from a hungry world. Its actually a very good basis to build an economy around especially if you can retain the earnings, and expend all support costs within a local economy.

      • Colonial Viper 5.1.1
        27 October 2010 at 12:31 pm

        Although it is pretty hard (impossible) to sustain first world living standards with an agrarian economy.

        Which is why of course NZ’ers have been piling on the debt in order to pretend like their living standards aren’t falling behind and that NZ hasn’t been slipping down the OECD charts for 30 years.

        Of course as a launching pad for a more diverse and technologically based economy its not a bad thing at all, which I believe is your point. But the rocket should have launched a while ago now…

        • Zorr 5.1.1.1
          27 October 2010 at 1:07 pm

          Judging from personal experience through family and an extended family network there is a serious generational disconnect that has resulted due to the neo-liberal capitalist dogma that has dominated our economy since the 80s. All the things that tend to define us as a nation – owning our own property, no 8 wire, self sustainability – are mutually exclusive to such a philosophy.

          Yet we hold on to these beliefs about ourselves, remaining steadfastly blind to the theft that is going on around us. And as the recent Hobbit fracas goes, we are more willing to back a major American studio and a deified public figure over our fellow workers.

        • Lanthanide 5.1.1.2
          27 October 2010 at 1:34 pm

          “Which is why of course NZ’ers have been piling on the debt in order to pretend like their living standards aren’t falling behind and that NZ hasn’t been slipping down the OECD charts for 30 years.”

          Americans have definitely been doing the same, probably to a greater extent. I think that the majority of people living in first world countries across the world have been doing it. Clearly something(s) is(are) fundamentally broken if everyone is required to borrow this way in order to live. Probably a lot of it a culture of consumerism and consumption fed by advertising – people don’t need 60″ TVs to live after all.

        • Bored 5.1.1.3
          27 October 2010 at 4:03 pm

          CV, I could add some pretty important points here:
          1. We cannot sustain a first world living standard with our current arrangements, borrowing etc especially that we now import pretty much all the support structure (i.e bugger all is made here).
          2. NOBODY is going to be able to sustain a first world material consumption society in the near future when the oil is gone.

          What I do know is that we were 50 years ago near the top of living standards worldwide in a far less energy hungry world. The reason we were was because we had a captive market for our farm products and had half the current population. Given the scientific and technical advances we have had since then we must surely be able to at minimum live an equivalently comfortably and healthy life in NZ in the future.

  6. joe90 6
    27 October 2010 at 1:22 pm

    From Tax.Com, Scary New Wage Data

    These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers.