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When ‘fiscally neutral’ costs a billion+ a year

Written By: - Date published: 8:59 am, April 5th, 2012 - 30 comments
Categories: debt / deficit, gst, john key, russel norman, tax - Tags:

On Monday, Key said his tax cuts have been “literally fiscally neutral”. In Parliament yesterday, Russel Norman showed Treasury documents showing the 2010 tax changes were to forecast to cost $1.1b in 4 years, actually cost $1.1b in 9 months, and the cost has grown since. Key didn’t want to hear the Treasury numbers, instead waving some ‘billshit’ put together by the Finance Minister.

Key responded that you have to include all the tax changes National has made. In particular, how they credit themselves with a billion dollars for cancelling Labour’s tax cuts that hadn’t come into effect yet when National took office, ie. they preserved the status quo and credited themselves with a billion dollars for it, and how they sneakily started making us pay income tax on our employers’ contributions to our Kiwisaver last year.

But that rather misses the point. Key said that the 2010 tax changes were fiscally neutral. They’re not. Key says you have to consider the other tax changes he’s made. You don’t. They were different decisions. Just because they did some dodgy accounting on cancelling Labour’s tax cuts in 2009 and increased tax on saving in 2011, doesn’t mean they had to give away a net billion plus dollars a year in tax cuts (mainly to the rich) in 2010 at a time when the Crown is running record deficits.

The opportunity cost to National’s 2010 tax package is a billion+ less borrowing each year.

It was National’s choice to make tax changes in 2010, the cost of which has blown out and is running at well in excess of a billion dollars a year. Key should man up and explain why sticking with that tax package is a good idea.

30 comments on “When ‘fiscally neutral’ costs a billion+ a year ”

  1. bad12 1

    the Member for Dipton was on RadioNZ this morning using as economics a new branch of learning up to now not heard of in main-stream economic thinking,

    Encompassed within this new vein of Economics are an updated version of the age old political/economics paradigm, BULLSHIT, and, a brand new theory produced via the hangover from a week-long whisky binge and its resultant hang-over known as UNINTELLIGIBLE WAFFLE,

    The underlying theory of Bullshit and Waffle from Slippery,s Minister of Finance is to simply use it until such time as everyone stops asking Him questions about the economy which it is becoming glaringly apparent He isnt equipped to answer,

    Bullshit and Waffle will now replace Guessing in the National Governments fast shifting restructuring of how the New Zealand economy is to be viewed by the NZ media and the voting public…

    • Lanthanide 1.1

      I really wish we had some media outlets that did non-partisan “fact checking” on politicians statements, like often happens in the US.

    • Draco T Bastard 1.2


  2. ianmac 2

    When a car-salesman spouts a tumble of “facts and figures” at you while talking quickly and tossing in vaguely connected “information” from “surveys” and from “reliable experts”, then it is wise to walk-away. Because if you try to contest his spiel, he will just shift his ground and churn through a different slant but more of the same.
    I thought all that while listening to Bill on National Radio this morning. Get a bike!

  3. John Key is such a smarmy prick.

  4. bad12 4

    Slippery,s false laughter in the House yesterday while being questioned by the Greens Russell Norman over the Billion Dollar hole in the Governments revenue from taxation matched that of Collin,s hysterical,(and false)guffaws of mirth earlier in the day when NZFirst’s Winston Peters began what is likely to be the start of something akin to the Spanish Inquistion over the Boag email leak from Crushers office?, such a death of a political career from a thousand words will be a joy to watch, and, we will see in 6 month,s time if Crusher can sustain the guffaws of false mirth,

    However we digress from the point of the thread,it is patently obvious to anyone who has studied economics for any length past 101 that tax cuts,or more to the point,tax changes when taking the onus of tax off of high income earners and loading that onus upon the low income bracket have two nett losses to the Government revenue from tax,

    In the case of the high income earner the economic truism is that up to 75% of the given tax cut will be lost to the local economy,both in lower economic activity and ultimately in lower tax receipts to the Government from that lower economic activity,

    Obviously,the Slippery National Government believed that it could negate the above effect by simply loading an extra tax onus on spending elsewhere,which as a pile of pixels upon a computer screen might have added up to a simpleton,(Treasury refuse our request to provide to us the number of simpletons in their employ),

    However,the economic DERRR of if we give this amount of tax cuts to high income earners and recoup the amount of those tax cuts by raising GST only works if the SPENDING PATTERNS OF ALL THOSE INVOLVED IN THE TOTAL EQUATION REMAIN THE SAME AS AT THE POINT THAT EQUATION WAS MADE AND AS A CONTINUIM ON INTO THE FUTURE,

    Hello Treasury,how many simpletons did you say you had in your employ???factor into your equation the rise in TOBACCO TAX,and then,factor into your equation the inflationary aspect of every retail price rise on any and every item which also results in those on low and fixed incomes changing their spending patterns as they pay more GST,(which paradoxically means the Government collects less of it,GST that is)…

  5. Ed 5

    A fairly recent Treasury document said that the tax changes had cost around 2.5% of GDP – I think per year. They had separated the effect of the tax changes from the earthquake in doing those calculations. Even treasury must be embarrassed at having been rolled by the politicians into consistently making absurdly optimistic assumptions over the last 4 years. Funny how they didn’t make similar mistakes (or at least not as persistently) under Labour-led governments.

    • Draco T Bastard 5.1

      All that extra surplus that the last government got was a similar mistake by Treasury – it’s just in the opposite direction.

      • Lanthanide 5.1.1

        “All these left-wing policies are surely going to wreck the economy! Mark ’em down boys!”

        “All these right-wing policies are surely going to boost the economy! Mark ’em up boys!”

  6. bad12 6

    Who would have thunk it tho,rack raising the tax on A product to ”save” the addicts using the product from its effect could help derail a Governments flagship taxation policy,

    One only tho has to have a good background understanding of such addiction to know what the end result would be and it sure as hell wasn’t the intended one,

    Simply put,such addicts when over-taxed by as much as 40 bucks each a week might initially attempt to quit the addiction and gosh a whopping 2% of tobacco users successfully did so,(anyone care to do the calculation about just how high the taxation would have to be to force the other 98% to quit),on the other side of that tho,lies the equation of how many young people take up and become addicted to the habit,this also happens by coincidence to be 2% of those between 16 and 18 who will admit to the fact,

    Meanwhile back in the jungle,the 98% having lost $40 in tax from their income changed their spending habits and kept right on using the product attracting the rack raised tax,

    Perhaps Treasury,or even the member for Dipton could add those two little figures, X number of smokers x $40 per week,as well calculating in the multiplier effect of that money traveling its previous pass through the economy and then tell us all just how much Government has lost in revenue from effectively having swooped on such money at its source and not at the usual points as the money transited the local economy…

  7. fatty 7

    it will become even less fiscally neutral as less people hog more of the money and the poorer majority have less to spend….as a result there is less gst coming in.
    i try to black market everything i can now, I avoid gst if at all possible…i will be more than happy to contribute tax again when we have a govt that spends their money on useful things

  8. bad12 8

    Of course we have been addressing the 1 billion dollar baby of the National Governments deficit in tax revenue caused by its ”literally fiscally neutral” tax changes from the point of view of such a fiscal position being a mistake, an accidental miscalculation derived from circumstances beyond the realm of it being possible for the Government to have forseen so to speak,

    To what extent tho do we ascribe to the Slippery National Government DELIBERATION when we come to address Slippery’s Billion Dollar Baby,

    We well remember prior to the tax changes taking place Slippery’s Minister of Finance,the Member from Dipton boastfully telling the Parliament that ”the plan” was carefully costed so as to guarantee fiscal neutrality within the Governments tax take and the Member for Dipton further inflated the boast by adding that even the lowliest of benificiaries would not be negatively effected by them,

    Over inflating His ego even further Slippery’s Minister of Finance asked the House at the time to show Him where anyone would be worse off after the tax changes and He would cancel them,

    Phill Goff called that bluff a couple of days later by pointing out the fact that at the point of the first price rise on any item that those on Pensions and Benefits bought from a retail outlet they would begin to pay MORE GST than what the Government had compensated them for and so would lose real spending power at that point,

    Slippery and His minister of Finance answered that little economic conundrum how???with ignorance of course as it would appear in their minds that such people just dont count….

  9. jack 9

    I think the public will stay in denial for awhile but will slowly come to realise that Key is robbing them with that tax cut. By Key saying with confidence that the tax cuts are “neurtral” when they are not tells me he thinks he is riding high in the polls. I have been watching him in Parliament and his arrogance is astounding by avoiding to answer questions or gives half truths or complete lies. I am counting the minutes when he goes. I voted for him in 2008… SORRY NEW ZEALAND!

  10. fatty 10

    “SORRY NEW ZEALAND!”…say sorry to all the children you forced into poverty

    • rosy 10.1

      Fatty, he just did.
      jack – Great to see you’re getting yourself informed. I reckon no-one who sees Key in parliament will believe the ‘nice man’ impression portrayed by the MSM.

      • fatty 10.1.1

        sorry for the cheap shot but Donkey in power has cost me 2 years interest free on my student loan…i have no time for anyone who votes/voted national. (truth be told I’m probably not going to pay back my student loan, I’m gonna get a chinese wife and live in a decent country)

        • infused

          You are what’s wrong with the country.

          Leave you parasite.

          • McFlock

            The attitude of the modern National supporter. 
            Infused is just bitter that young qualified people like fatty can make something of themselves overseas (not so much in NZ), while Infused hasn’t managed to steal enough (sorry, that should read “create enough wealth”) to qualify for tax residency in Switzerland or Monte Carlo.
            If national weren’t such small-minded and bitter pricks, more people would stay in NZ.

            • fatty

              Too true Mcflock…I am far from a parasite, a smartass maybe, but not a parasite.
              I began my university studies to get a degree and become a social worker here in NZ. Turns out I was better at studying than I thought…I also realised that social workers in NZ are used as a tool by the selfish in power to keep the poor where they are, rather than improve their lives to any great degree.
              I refuse to be part of the problem and work my arse off for nothing (crap money, no satisfaction and no real change).
              As i said infused, I’ll go to another country, one that values social workers, one that has empathy for those who struggle…a country who knows who the real parasites are.
              The real parasites are the ‘wealth creators’…those who hog the resources, they suck from the majority and take take take.
              They perpetuate the culture of disentitlement.
              I am not what is wrong with this country…I am more than prepared to give to this society, but the wealthy parasites just take take take.

            • infused

              Not at all. I’m sick to death of freeloaders like fatty, and he’s admitting it. Go overseas if you can, but pay your shit off.

              Way to miss the point, both of you.

              • Colonial Viper

                The freeloaders are the elite wealthy. Sucking up the economic surplus created by workers’ labour and keeping it for themselves.

              • McFlock

                Infused, you’re like a shopkeeper who abuses people because they take the free sample but don’t buy anything.
                The reason many of them leave is because the storekeeper is an abusive jerk. But it would never connect in his brain that if he didn’t demand a sale for his “free” samples, but instead concentrated on providing a courteous and pleasant environment in his store, he would make more money.
                Rather than giving people like Fatty a bill for $30k or more, and reminders every year even before their study bears fruit, and skimming it off their paycheck, the nation would make its money back simply by not being arseholes. To put it in terms you might understand, Fatty isn’t a “freeloader”. Fatty is a “customer” that the government is on the brink of losing because the government is a jerk.

    • jack 10.2

      Fatty, You could also say since I didn’t vote National in 2011, I did act on those words “sorry”. Those that didn’t vote should say “sorry” because they put Key back in power by only 1 vote in Parliament. John Key is a derivative trader, he sells what has never been created. Proctor and Gamble sued his employer, a bank in Australia , for selling shonky derivatives and won.. closing Key’s employer down. Now he’s in charge of a 67 billion dollar “corporation”, the government. Too bad voters seem to think they get their information from sound bites the way Rosy explained.
      Things are going to get much worse.

  11. Bored 11

    Went to see Nicole Foss talk in Wellington today…. she said that burst “bubbles” were incredibly bad news leading to deflation and the rediscovery of the pricing mechanism. That is where we are headed and Double Diptonn does not want to see it.

    She also went on to say Iceland has done very well by telling the banksters to forget the “debt” and to p.off, something Greece by its proximity to the rest of Europe cant do.

    That amongst a lot more wisdom, what a wonderful intellect is Nicolle.

  12. jack 12

    Bored, I went to Youtube and listened to Nicole Foss. Quite an intellect and descrbing everyone in denial. Sounds like New Zealand. What is this about Iceland refusing to pay their loans and better off because of it? This is a different twist

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