Tuesday, April 05, 2005

National - slow learners

Today's Herald shows that after four consecutive elections of decline for National, they still haven't quite grasped the fact that the NZ public don't buy their populist garbage about tax-cuts being some kind of economic panacea.

The Herald polling shows a significant majority of New Zealanders saying that they would prefer investment in Health and Education over tax cuts, with a small but notable minority saying the surplus should be invested in the Super Fund (which already happens). Overall, the "pro-tax cutters" only came in at 35%.

It is clear to me that the shallow arguments in favour of sweeping tax cuts have had their day. People want to see investment in social and economic infrastructure, and understand that none of that comes for free. Good schools, housing, hospitals and transport add far more to the average working family's quality of life than the pathetically small amounts of money that National's 1990s tax cuts provided.

Whatsmore, people are smarter than National gives them credit for. Michael Cullen recently called for National to produce a fully costed alternative budget showing how it would afford:

- tax cuts
- the 'matched' or increased spending on health and education that they vaguely talk about
- massively increased spending on prisons, the military, and police as per various National Party policy pronouncements.
- maintenance of Super fund contributions
- maintenance or increased investment in infrastructure development.

They haven't, and I suspect they won't because it simply doesn't stack up. National fails in the task of being a credible opposition, let alone an alternative government.


Graham Watson said...

Why don't you convince yourself of these results. I'm not going to bother setting you straight as I assume you have been corrected by reading other sites, yet persist in this nonsense.

Do yourself a favour, check with the labour pollster on poll and question design, and what you can take from todays poll before you run off crowing.

I shouldn't really be helping Labour but I feel sorry for you so the advice is free - check with your own experts.

michael wood said...

Poll results aside I do also point to the unprecedented decline in the right's political fortunes over the decade that they have pushed tax cuts at the expense of public services.

That doesn't look like changing so it isn't me you should be feeling sorry for!

Anonymous said...

Hi Michael,
I have just come across your site and you have some very interesting views. You have to be careful with polls, I was polled on Tuesday for a different topic and found that some of the questions were leading in a certain direction. Having not seen the Herald questions I cannot determine whether they were leading or not.

Okay back to the tax cut topic. Why is it that if you want to reduce tax you are classed as a right winger and if you want to increase tax you are classed as a left winger? There appears to be very little logical arguments for it? The whole tax debate is very simple and logical, the main problem is that it is presented poorly to the public.

When the economy is strong then the total tax take increases because more profits are being generated by business, more people employed, more domestic goods being traded, and there are tax surpluses at the end of the year. Therefore because the economy is strong, this is the signal for tax reductions.

When the economy is weak then the total tax take decreases because business profits are down, high unemployment and less domestic goods being traded, no tax surplus or high overseas borrowings. Therefore because the economy is weak, this is the signal for tax increases.

The Labour government has enjoyed six years of unprecedented growth in the economy. The total tax take has increased to the biggest surplus ever recorded in NZ history of 6.4 billion and rising. Surely this is a strong signal for an affordable across the board tax reduction?

On average I do agree with a lot of Labours policies but I just cannot see why you cannot afford tax reductions given the surpluses and economic growth. The word on the street is that there is support within the Labour party for tax reductions (eg Tamiheres 10). Why can there not be affordable increases in Health, Education (for the polled 51%) as well as an affordable decrease in the tax rate (for the polled 27%)? The two are not mutually exclusive, the key is that is just needs to be affordable. We are told regularly that Labours economic policies will ensure that our economy will have continued strong growth. Therefore any decrease in the tax rate should be covered by a continued increase in tax take via strong economic growth.

The last three years the surplus has grown, as well as an increased spending on primary services. Therefore the Labour government has already proved that the surplus can grow in light of increased spending on social services. Surely Micheal Cullen can work out the details to achieve both objectives and make 88% of the people polled happy. I am just surprised that National has not yet come up with the financial models for this because it is clearly achievable. The main focus is to ensure that the ecconomy stays strong to increase the total tax take and balance increased primary spending with a an affordable tax reduction. In this scenario all of NZ wins. Is this not what all political parties should be striving for ???

Next time the Herald commissions a Poll they should ask the question "Would you favour increases in primary services of Health Education as well as a decrease in the tax rate". There would be no surprises what the answer would be for this question.

Toa Greening

Oliver said...

Michael is absolutely right here: tax cuts aren't going to work. What many people fail to understand is that you can have a very, very conservative government that has very high taxes not to maintain a welfare state but for monetary policy purposes.

Anonymous said...

Hi Oliver,
Please explain why high taxes are required for monetary purposes. I am always keen to learn something new.
Cheers Toa

michael wood said...

Hi Toa - I agree with a number of the points you make, but not the conclusions you come to!

Yes, it certainly is correct to say that the strong economic conditions over the past five years have brought about the high surplus, however inherent in that statement is an understanding that during times of weaker economic growth, the surplus will be reduced.

That can happen simply as a result of a change in the business cycle, or unpredictable external economic 'shocks'. Such a shift affects the government books in two ways - revenue declines, and social welfare payments increase. The surplus under these conditions can erode extremely quickly (witness the effect of the Asian crisis on the NZ surplus during the late 90s.

To cut taxes at the top of the economic cycle as suggested leaves the government books vulnerable when things aren't going so well. Additionally, social democratic governments like Labour will want the capacity during slow economic times to stimulate growth through increased government spending. Conservative parties such as National will do the reverse - slashing spending to preserve the surplus, which of course has the effect of slowing growth further (witness how National's spending cuts in the early 90s unnecessarily deepened the recession at that time).

In short, significant tax cuts at this time would potentially leave us with few options and a difficult situation under slower economic conditions.

I do also agree that the whole issue isn't as simple as some make out. For instance, the Budget will confirm some changes to depreciation laws which will effectively result in tax reductions for many businesses and encourage investment in plant and technology - I think that's a perfectly sensible adjustment.

spooks said...

If only it were spent on Health and Education though.
Instead, millions every day, billions every year, on growing out of control welfare. Instead millions in crap education like hip hop tours and twilight golf. The cost of the Wananga will go over one billion by next year.
If only it WERE going on Health or Education. Ha ha f****ng ha.
And don't give us the crap about single digit levels of reductions in welfare. Other comparable countries have slashed and burnt their welfare roles. The COST of NZ welfare is still rising. Still rising even when Labour were handed on a platter the best economic conditions in generations. And you have blown it.

Anonymous said...

I'd love to see 'spooks' actually try to argue to people on the invalids or sickness benefits - which seem to be the main targets of the opposition nowadays - that they should not receive it.

I think that meeting some real people - for a change? - would cool 'spooks'' ardour somewhat.

spooks said...

Three things "anonymous"
1) I am one.
2) The cost has grown astronomically under Labour. The numbers of sicknes and invalids have skyrocketed under Labour. And no-one pretends that all the people on these benefits are genuine. Also, your argument is exactly why Labour engineered people away from the dole, and into sickness and invalids, so that it became less palatable to call them (us) "bludgers". Smarmy tactics, but deliberate tactics nevertheless.
3) We have to have a policies to reduce the massive welfare cost. Labour do not. Labour regard it as a virtue that we are so "generous" with our welfare. This generosity is sustainable only so far. Labour regard it as a virtue to announce an increase to the welfare budget. I happen to think that during the best economic period for generations, it was the time to go the same as comparable countries, and at least halve the cost, if not more. Crazy.

michael wood said...

Spooks - do you realise that spending on Health and education have both risen by around 40% over the term of this government?

Presumeably then if it is still too low by your reckoning, it must have been scandously low when National was last in power??

spooks said...

God I hate it when people put words in my mouth that I haven't said. Where did I say that health and education spending is too low. Well where? I simply said, and repeat, that welfare remains too high. In the best economic times in generations, created out of the pains of the 1980s and 1990s, and handed to Labour on a platter, in these best of economic times, welfare increased in New Zealand at the same time as welfare levels were being shattered in comparable countries. Why? Because Labour haven't got the balls to say welfare costs too much, and to announce policies to pro-actively deal to it.

Anonymous said...


Show us your figures for welfare expenditure in these 'comparable countries' - and don't forget to count in welfare programmes that aren't funded via the central government budget but have a separate basis, like National Insurance in Britain....

spooks said...

No, I will not waste everyone's time posting irrelevances. I've been posting on the internet for far too long to get sucked into that sort of diversion. I will simply repeat, and I ask you to show me that I am wrong, that Labour were handed on a platter the best economic conditions for generations, and in terms of the welfare budget, we have nothing to show for it, where comparable countries have. Under Labour, this is as good as it gets.

Graham Watson said...

Don't 'anonymous' individuals lacking the guts to identify themselves look pathetic.

Or is that your alter ego Michael constructed to make it look like someone out there agrees with your
parroting of Labour party spin?

Anonymous said...

Hi Michael,
Thanks for your reply. I agree that during slow economic growth we can expect surpluses to be reduced. However I still believe affordable tax cuts could be achieved for your next budget as long as the economy is still strong. There are no indicators that the economy is slowing down therefore saving the surplus for a " rainy" day is not a good argument. Even a 1% reduction across the board would ensure that all taxpayers benefit from the strong economy. The predicted increase in last years surplus (1-2 billion) would pay for a 1% decrease and still maintain the 6 billion dollar surplus. This could be implemented 1% each year as the economy allows it. Therefore in the future "if" the economy slows down then any increase in tax take would first come out of the surplus and second not need to be as great as the tax increases that we were hit with in the 90's. A 1% decrease would have the biggest impact on those on the lower end of the socio-economic scale and prove that your Policies are fair for all New Zealanders.

It just seems that the average tax payer is being taxed to the hilt to maintain a huge budget surplus for a "rainy" day. I also question if this is perhaps an issue of political culture where the Left will always lift taxes and the Right will always reduce taxes. Therefore the reluctance of reducing taxes goes against a Left based political culture. It is similar to an argument I had with one of your colleagues on increasing Police in South Auckland and NOT building Prisons in Low Socio-economic areas. The arguments against my reasons were more politically culture based than fact based. Anyway interested in your comments and looking forward to more info on the new depreciation laws.

Cheers Toa

Anonymous said...

As a name, does 'spooks' reveal any more than 'anonymous'? Unless I'm missing something about finding out who he is.

And he's still harping on 'comparative countries' we're not going to be told about.

Beneficiary numbers are down from 390 000 in 1999 to 310 000 now - a decrease of 20%. And many beneficiaries' life prospects have little to do with economic recovery. Economic recovery does not make a blind man on an invalid's benefit see, for instance(although those on that benefit can and often do operate small cottage businesses from home).
So the real % decline in 'economic' beneficiaries on account of economic recovery has been far greater than 20%.

And because the slowdown is going to be soft, as opposed to National's two 1990's recessions, we can be confident similar progress will continue.

I'd be interested as to what percentage of people on the invalids and sickness benefit our promoters of the latest offering from the grab bag of right-wing resentments thinks are undeserving.

Anonymous said...

Hello Anonymous,
I researched the unemployment rate last year and from memory (disclaimer clause inserted here ;-) I found the following. From 1999 onwards there was a significant reduction in unemployment, the decrease was bigger than previous years. There was a significant increase in sickness beneficiaries, the increase was bigger than previous years. There was a big increase in employment which I suspect was more from immigration and less from the unemployed becoming employed. There has been significant increases in tertiary education courses eg Wanaga from 3,000 to 30,000 with many students being classed as previously unemployed. Therefore I believe the low unemployment rate (unemployed vs total work pop) is actually the net effect of unemployed becoming employed, unemployed going onto sickness benefits, unemployed starting at new tertiary courses and higher employment numbers from high immigration.

My hypothesis on the Sickness beneficiary increase is either previous policies were too tight or current policies are too loose (I can not believe we have become more ill) and this has resulted in the large increase (this would be interesting to research further). The multitude of tertiary education providers have taken a high number of previously unemployed, which in my opinion is good for NZ provided the courses are relevant. Finally if you have a high influx of immigrants/expats who are fully employed, start businesses, or self sufficient then this will also drive down the unemployment rate. The results were not quite black and white as portrayed by the various political parties but instead shades of grey.

Cheers Toa