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25
May 2008
Election
Year Budget lacks Vision
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“The
cupboard is bare”… “I’ve
not merely stolen their fox I’ve eviscerated it, strangled
it and thrown it into their back garden.” These were the
retorts of Finance Minister Michael
Cullen during the Parliamentary
Debate on the 2008 Budget.
These
comments are both disturbing and revealing; they not only show
that Labour’s tax cuts are more about the future of the
Labour Party than the future of New Zealand, but they also
reveal the deep disdain that Dr Cullen holds for the right of
hard working taxpayers to keep their own money.
Many
New Zealanders are feeling the pain of the escalating price of
food, runaway petrol prices, and interest rates that have
risen some 60 percent since Labour has been the government 1.
As the Governor of the Reserve Bank has frequently noted, one
of the key drivers of those interest rate hikes has been
Labour’s nine year spending spree. Over that period
government spending has doubled, putting huge inflationary
pressure on the economy.
The
problem created by the government’s profligate spending has
been exacerbated by the fact that far too much of the spending
has been wasteful. This has been such a concern to Treasury
that in their briefing notes to the incoming government they
warned: “There is little information to indicate that New Zealanders
are getting more services and better results from the public
sector for the large increase in resources provided. What
little information exists is not encouraging. Ministers and
the public are frequently surprised by poor performance. One
of the few output measures is the volume of hospital patient
discharges. In the three years up to 2003/04 these rose by
about 5%, compared with a 21% growth in hospital spending. It
is difficult to tell what improvements in health outcomes or
services have been achieved for the additional expenditure on
health, and whether New Zealanders are getting value for
money.”2
The
reality is that in 1999 Labour inherited an economy that was
growing strongly. They have reaped record surpluses year after
year. Regrettably they always found a reason why paying a
dividend to taxpayers in the form of tax cuts was
unaffordable. They have only discovered their present
enthusiasm for tax cuts because they see it as the only way to
avoid electoral annihilation. The irony is that their
new-found enthusiasm for tax cuts comes at a time when the
economy is sliding and the surpluses are shrinking.
The
Labour Party is deeply rooted in socialist ideology. Their
core underlying philosophy does not gel with the majority of
New Zealanders who resent the growth of a bigger
and more powerful government at their expense. They do not
like the endless imposition of nanny-state regulations telling
them what to eat, what to say, and how to bring up their
children. Nor do they like feeling like slaves in their own
country, having to watch their families get poorer as living
standards fall until finally those that can, pack up to find
better opportunities abroad.
Labour
has becomes old and tired, and the cracks - demonstrated by
Phil Goff’s revelations that he has his eye on the top job
after they lose the election - are starting to show.
Roger
Kerr, the Executive Director of the Business Roundtable, and
this week’s NZCPR Guest Commentator, in his analysis of the
Budget “An Analysis of Failure”, puts it this way:
“What
should stand out to New Zealanders is just how little we have
made of our tremendous good fortune over the last few years.
In many ways the current decade feels like a re-run of
the 1960s – the Holyoake years, which we look back on as a
time of complacency and squandered opportunities”.
Roger
explains how Labour has repeatedly stated that their “top
priority” goal has been to lift New Zealand back into the
top half of the OECD, but that the words have been hollow
rhetoric: “The current government has been unequivocal about
its top priority goal: to get New Zealand back into the top
half of the OECD income range.
Prime Minister Helen Clark reaffirmed that goal in
parliament earlier this year.
Finance minister Michael Cullen has said that the
government needs to achieve 4% plus annual growth in real GDP
on a sustained basis to achieve it.
“Measured
against this “top priority” goal, the budget is an
admission of failure. Indeed,
the goal is not even mentioned.
It is not difficult to understand why.
The economy’s average growth rate is falling, not
rising. Over the
so-called forecast period (the next four years) annual growth
in real GDP is expected to average only 2.5%.
At that anaemic rate New Zealand will be lucky not to
fall further down the OECD income ladder, and the income gap
with Australia will almost certainly widen”. To read
Roger’s excellent review of Budget 2008,
click
here >>>
The
problem that the country now faces is that Labour’s changes
to the structure of the tax system are highly progressive and
as such they are the antithesis of what is needed to grow our
economy and improve our living standards. That is not to say
that the tax relief will not be welcome - it will. On October
1st, the tax cuts will put an extra $12 into the
paypacket of someone with an annual income of $20,000 a year,
$16 for someone on $40,000 a year, and $28 for someone on
$80,000. It will also bring forward the Working for Families
inflation adjustments of $4 a child from April next year to
October 1st
3.
But the opportunity to set New Zealand onto a strong path to
growth has been wasted.
Fast,
sustained growth does not happen spontaneously. It requires a
long-term commitment by a country’s political leaders to
pursue policies that encourage prosperity. And the right tax
policy for growth is not progressive but flat.
The
research is overwhelming on this - lower, flatter tax systems
create a direct incentive for people to improve their
productivity by working harder and smarter. It also encourages
investment and entrepreneurship, two other key factors
necessary for growth. That’s why tax cuts that create a
lower, flatter system are not inflationary, while tax cuts
that make the tax system more progressive are.
That
is also why there has been so much support for personal taxes
to be aligned with company tax - at 30 percent. Such a move
would have given a welcome boost to the hundreds of thousands
of small businesses that pay tax at the higher personal rates
and have therefore missed out on any benefit from the much
vaunted lowering of company tax. A large proportion of this
sort of tax cut would have flowed directly into desperately
needed productivity gains for the country.
As
a result of Labour’s progressive tax cuts, economists are
anticipating that the expected lowering of interest rates by
the Reserve Bank in September, to stimulate the economy, will
be put on hold. They have estimated that the higher interest
rates will all but cancel out the tax cuts.
After
nine long years of a backward looking government that still
blames National for its own failure, surely it is time for a
fresh start for New Zealand. We need vibrant and visionary
leadership to not only grow our
economy and lift our living standards, but to inspire and
unite a society that has been wounded by years of divide and
rule, political correctness and an excessive appeasement of
minority interests at the expense of the majority.
That
means leadership that will encourage respect for our
differences but will unite us towards a future where
participation is not enough, where winning and striving is the
name of the game, and where we can rekindle our excitement for
the future and our faith in New Zealand as the very best place
in the world to work, live and raise our families.
This
week’s poll
asks: Do Michael Cullen's tax cuts meet your
expectations? Go
to Poll >>>
If you
would like to comment on this issue please click
>>>
FOOTNOTES:
1.
1,
According to the Reserve Bank, variable house mortgage rates
have increased from 6.69 percent in November 1999 to around
10.71 percent today.
2. 2.
Treasury Briefing Papers to the Incoming
Government>>>
http://www.treasury.govt.nz/briefings/2005/chap4-1.asp
3.
3.
Budget 2008, Key Facts for Taxpayers>>>
http://www.treasury.govt.nz/budget/2008/taxpayers/01.htm#personal
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