NZ Centre for Political Research

Mr Bolger's tenure as KiwiRail chairman also came into question at the weekend when Transport Minister Stephen Joyce said its governance needed refreshing.

Cullen to take on top NZ Post role

Former prime minister Jim Bolger will be replaced as chairman of NZ Post late in the year by former finance minister Michael Cullen.

Mr Bolger's tenure as KiwiRail chairman also came into question at the weekend when Transport Minister Stephen Joyce said its governance needed refreshing. His current term expires in June.

There has been speculation that Dr Cullen, who is deputy chairman of NZ Post, would be stepped up to chairman, and 3 News confirmed tonight that would in fact happen when Mr Bolger's term expires in October.

Prime Minister John Key was asked by reporters today about Mr Bolger's future with KiwiRail and whether he would be re-appointed, but Mr Key said he couldn't confirm anything, other than to endorse Mr Bolger's performance.

"I think he has proved himself to be a very effective chairman of a number of SOEs (state-owned enterprises), whether it has been KiwiRail or New Zealand Post."

NZ has too many Govt agencies - Key
NZPA

Prime Minister John Key says New Zealand has more government agencies than a country its size needs and has signalled there could be several mergers to reduce their number.

The state sector consists of 41 departments and ministries, 84 statutory Crown entities, 11 Crown entity companies, 17 state-owned enterprises, 31 tertiary education institutions and numerous "schedule four entities" like the Lottery Grants Board.

The Dominion Post said today the mergers were understood to include rolling the National Library and Archives New Zealand into the Internal Affairs Department, merging the Food Safety Authority with MAF, and amalgamating the Foundation for Science, Research and Technology with the ministry of the same name.

Mr Key told journalists today that ministers could make some decisions next week about a wide range of agencies across the state sector. He was convinced there were too many.

"New Zealand looks out of place with other similar countries in terms of the fragmentation of state agencies and the number of agencies," he said.

He had no information on possible job losses or savings, but "when you have large fragmentation you also have duplication of administrative and back-office support functions."

Mr Key would not rule out the reports about which agencies were being examined and singled out science agencies, saying there was duplication between the Ministry of Research and Technology and the Foundation of Research and Technology.

The ministry was set up in the 1990s to give the Government policy advice and the foundation to fund science research.

Mr Key indicated that this policy/funder split would end in science, but possibly not across the entire state sector.

"This is not an ideological exercise, this is really about saying how do we deliver the best service for the New Zealand taxpayer - how do we make sure it is affordable and how do we deliver efficiency."

The paper said consideration was also being given to amalgamating Women's Affairs into either the Social Development Ministry or the Labour Department.

Past National party leaders have called for the abolition of the Women's Affairs Ministry, but Mr Key said today it was a relatively small ministry and he wanted the Government to focus on where the most gains could be made.

Labour Party state services spokesman Grant Robertson said mergers would be a breach of National's pre-election promise that it would not radically reorganise the structure of the public sector.

Mr Key disagreed.

"What I said in the campaign was there wouldn't be radical reform and I would not describe anything I have seen as radical. Governments over their life time will always look at bringing some entities together and breaking some apart..."

The Government was trying to get a more efficient state sector at a lower cost and this would require some mergers and an investment of about $2 billion over the next two years in new technology.

Mr Key said Cabinet had not discussed the issue today, but its business committee would do so this evening and it was possible that final decisions would be taken next Monday.

The work had been based on reviews by ministers of their portfolios and there could be more mergers further down the track than those announced next week.

Shared services instead of complete mergers in some cases might also be considered.

http://www.nbr.co.nz/article/nz-has-too ... key-119798

Fran O'Sullivan: Taking National's temperature an offer too tempting to refuse
4:00 AM Saturday Jan 30, 2010

Disclosure: It's not often a professional journalist gets asked to reveal their voting intentions, which Cabinet Ministers they rate - or, most tellingly, disclose which talking point they associate with which particular political party - all as part of market research for the governing National Party.

But this week I was randomly selected by National's pollsters Curia Market Research to do just that.

Usually, I give phone canvassers a brusque "No". (There are only so many times you can give a polite response to people who want to sell you devices to extract the warm air from your roof space and so forth). But because Curia polls for National, I played along.

The timing of the poll was instructive.

On Monday, Prime Minister John Key announced his mini-Cabinet reshuffle. Anne Tolley's tertiary education portfolio was given to rising star Steven Joyce. Environment Nick Smith lost the high-profile lead climate change negotiating role to Trade Minister Tim Groser, who in turn shed his conservation portfolio so he had more time for his overseas roles.

Tolley is clearly out of her depth and Smith has been overloaded with demanding portfolios including ACC. But irrespective of their effective demotions, the Prime Minister left their front-bench positions intact.

But behind the scenes Curia has been deputed to take the temperature by asking Kiwis to rate the performance of the front bench. It's a fair bet that Key, Economic Development Minister Gerry Brownlee, Commerce Minister Simon Power, Health Minister Tony Ryall, Police Minister Judith Collins and Attorney-General Chris Finlayson will have achieved relatively high ratings on the way they perform their roles.

Finance Minister Bill English will likely have been marked down, not through lack of performance, but because of the flak he copped over the ministerial housing scandal.

Nick Smith is likely to have been marked down over his combative approach to handling the controversial ACC changes. In Tolley's case, her very invisibility in the role will have caused many to mark her down.

The intriguing aspect of this particular poll is respondents were also asked to rate the performance of two second-bench Cabinet Ministers: Foreign Minister Murray McCully and Joyce, who holds the transport and communications portfolios. Opinion was not sought as to the merits of the remainder of the 20-strong Cabinet. This suggests that Key may well be thinking about shuffling his front-bench to bring forward proven performers.

Both McCully and Joyce are proving to be able ministers.

McCully is applying his proven strategic skills in the international arena and has forged excellent relationships with his foreign counterparts. Joyce has strong managerial skills and importantly gets things done.

Tolley is such a weak link that it would make sense to dump her from the front row. But neither McCully nor Joyce can turn on the verbal ferocity which Smith displays on a good day and which makes him an asset for attack-mode politics.

What the Curia poll results will do is provide Key with greater confidence that he can take the public with him when he does finally shift Cabinet rankings - even if those who miss out disapprove. I also got the sense that Curia is road-testing the "party's talking points" - that is the messages that Key repeatedly uses to ram home his strategies.

This week's poll asked respondents to say which party they associated with particular attributes such as "better at ensuring jobs", "strong on crime", "does best for New Zealand in international forums" - and so forth.

What was notable about the highly selective list of attributes is that they appeared designed to push public opinion towards National - not elicit responses which would steer punters towards Labour.

For instance, there was no question seeking respondents to match a political party to the message as when Phil Goff this week set out to associate with Labour: "Looks after the interests of the many - not the few".

On February 9, Key will outline his programme for the year when Parliament reopens.

National's plans to grow the economy and broaden the tax base so it can fund cuts to company and personal taxes will be outlined. But the exact detail will not be revealed until English unveils his next Budget.

Inside sources suggest the Government is already testing the water by polling on various options such as raising GST and whacking property investors.

Helen Clark was frequently slagged for her poll-driven approach to politics. But Key's National Government is every bit as poll-driven and much more sophisticated in its application of the dark arts.

Yesterday I invited David Farrar - who runs Curia - to comment on this week's poll and what was behind the National motivations. Farrar declined.

Farrar also runs the popular Kiwiblog and has been tipped as a possible panel member for the upcoming Agenda series on TV3. Maybe he will be more forthcoming on television.

Who Wants to Tax a Millionaire?
Veronique de Rugy from the February 2010 issue here:
http://reason.com/archives/2010/01/13/w ... illionaire

The “millionaire’s tax” will affect more people than you think.

Supporters of health care reform need money—a lot of money—to pay for it. So it’s not surprising that they would try to get it from the people with the most money to spare. Hence the so-called millionaire’s tax, a levy embedded in the House health care bill. As the noted philanthropist (with other people’s money) and House Ways and Means Committee chairman, Rep. Charles Rangel (D-N.Y.), explained, lawmakers are targeting big earners because it “causes the least amount of pain on the least amount of people.”

That’s the theory, anyway. In fact, the millionaire’s tax is a good example of how poorly some politicians understand the policies they propose.

At press time, the Senate was still debating the bill’s details. But the health care bill that the House narrowly approved in November included a 5.4 percent tax on the portion of gross income (which includes capital gains and dividends) that exceeds $500,000 for individuals and $1 million for a couple. The surtax would apply to tax years that begin after December 31, 2010. So the first sign that the tax will hit more than millionaires is the fact that it targets half-millionaires from the get-go.

The idea’s main selling point is that the in-crease would hit only 0.3 percent of tax filers —roughly 400,000 people—yet would raise $460.5 billion over the next 10 years. Congress’ Joint Committee on Taxation estimated that the new rate would affect only 1.2 percent of relatively small business owners, including sole proprietorships (that is, businesses owned by just one person), partnerships (owned by a few people), and S corporations (which have up to 75 shareholders). But because the tax isn’t indexed for inflation, over time it will apply to more taxpayers as inflation affects income levels.

Sound familiar? It should, because this is how the alternative minimum tax (AMT) became such a nightmare. The AMT was created in 1969 to prevent just 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes. Because it was not indexed for inflation, it came to affect an ever-growing share of the population, prompting Congress to pass a patch each year limiting its reach; next year, without the patch, it is projected to strike 27.4 million Americans—nearly 20 percent of the country’s taxpayers. And even with the patch, the AMT hits far more than just millionaires: In 2009, it swept up 4 million families living in high-tax states who merely took multiple deductions for dependents and houses.

The same process would happen with the millionaire tax. According to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution (not exactly anti-tax organizations), by 2019 the number of taxpayers subjected to the health care bill’s tax will have doubled. If inflation hits harder than the center’s analysts assume, the number will be even higher. Either way, it will keep climbing, gradually assimilating more and more people who never thought they’d be considered super-rich.

And many people classified as millionaires aren’t millionaires at all. Out of the 300,000 or so joint tax filers earning more than $1 million, about 90 percent have small business income. That’s because 75 percent of America’s small businesses are structured as pass-through entities and pay their business taxes at the individual level. So the $1 million isn’t going into those individuals’ pockets; it’s money they use to run their businesses. To avoid the new tax, those businesses would have to adopt a new structure and start paying the complicated corporate income tax.

As income taxes increase on very productive people and small businesses, they will be less willing to hire or keep employees. The top tax rate on business owners who pay taxes as individuals, as opposed to corporations, is now 35 percent. It is already scheduled to rise to 39.6 percent on January 1, 2011, and under the House bill it would rise even higher, to 45 percent on taxable income of $500,000 for singles, $1 million for couples. With state taxes, some combined rates could exceed 55 percent.

An acquaintance who manages a hedge fund told me, via email, “Economically, the play will disincentive folks like me to work—the tax now puts me well over the 50% tax bracket, will give me an incentive to find better tax strategies to protect my wealth and earnings and ultimately lead to a DECREASE in jobs for the U.S.”

That’s what has happened in states that have adopted their own millionaire taxes. In 2008, for instance, Maryland created a millionaire bracket subject to a 6.25 percent tax. When added to other state and local taxes, Marylanders could be hit with a rate as high as 9.45 percent. That didn’t worry the state’s governor, Martin O’Malley, who predicted that the 0.3 percent of filers affected would be “willing and able to pay their fair share.”

O’Malley was wrong. One year later, a third of the millionaires had disappeared from Maryland tax rolls. According to The Wall Street Journal, about 2,000 $1 million income tax returns were filed by the end of April 2009, down from 3,000 in April 2008. Where have these millionaires gone? Most likely to a state with no millionaire tax, such as neighboring Virginia.

Would the same thing happen if the millionaire tax went federal? It isn’t clear, the University of Michigan economist Joel B. Slemrod says in his 2000 book Does Atlas Shrug? The idea that heavy taxes on top incomes would entail huge economic distortions is somewhat ideological, he writes, and isn’t rooted in serious empirical evidence. Unlike the conspirators in Ayn Rand’s novel Atlas Shrugged, who escape government oppression by going on strike, real-world business leaders tend to keep on working and paying their taxes.

It’s harder to move to another country than it is to move to another state within the same country. What’s more, the U.S. tax code is extremely punitive toward wealthy taxpayers who move abroad. The United States is one of the few countries in the world that taxes its high-earning citizens on their income regardless of where they earn it or where they live. And because some Americans abroad have tried to renounce their citizenship to escape the worldwide tax treatment, in 2008 Uncle Sam imposes an exit tax on those who want to escape.

This exit tax, worthy of authoritarian regimes, could very well dissuade Americans from leaving the U.S. This means they would be stuck with no choice but to pay the millionaire tax in the U.S.

Council of Economic Advisers Chairwoman Christina Romer is more pessimistic, or at least was. In a 2007 article written with her economist husband David, she concluded that tax changes—on millionaires or anyone else—“have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.” In other words, when you raise taxes, the economy shrinks. Weighing these factors, at the very least a millionaire tax is likely to be astonishingly inefficient.

It is also unfair, and it would be unfair even if it were indexed to inflation. According to the Congressional Budget Office, the top one-fifth of households already pay 69 percent of the costs of the federal government. Now the millionaire’s tax is being tasked to pay for more than half the cost of the House bill. Is it really fair to place that much of the burden on just 0.3 percent of the taxpayers?

Contributing Editor Veronique de Rugy (vderugy@gmu.edu) is a senior research fellow at the Mercatus Center at George Mason University.

John Key's economic myths are busted

There are at least six economic myths subscribed to by John Key and most of our current crop of politicians.

This is clear from the PM's various public comments and reinforced in an interview he gave to the New Zealand Herald after returning from holiday in Hawaii yesterday.

Key said raising economic growth would be the government's main focus this year. He also mentioned lower taxes, getting better value for money from the state sector and made the obligatory comment that he wanted to see wages lifted.

His comments come ahead of a major economic speech planned for February 9th when parliament resumes and are a depressing but not surprising omen for the 2010 budget.

If we want prosperity for all New Zealanders then Key is on the wrong track. Here's the problem.

Myth 1: Economic growth brings prosperity.

Economic growth is Key's main objective and the implication is it will raise living standards and leave us all better off. Not true. As New Zealand saw under the Clark Labour government living standards did not rise even after almost a decade of strong economic growth.

Improvements for most came only after the Working for Families package was introduced as effectively a taxpayer subsidy on low wages. Michael Cullen famously quipped that for most of his tenure as Finance Minister company profits rose at twice the rate of workers' wages.

Before Working for Families the proportion of families suffering hardship or severe hardship almost doubled under Labour while the benefits of economic growth were corralled by the wealthy.

The myth is busted.

Myth 2: Productivity increases bring better wages.

This is one of Business New Zealand's favourite mantras. Chief Executive Phil O'Reilly trots it out at every opportunity and politicians follow his line. But it's not true. Unite Union's Mike Treen has pointed out that between 1978 and 2008 productivity increased by 80% while workers' wages dropped in real terms by 25%.

The myth is busted.

Myth 3: The rich carry most of the tax burden.

A recent Herald editorial quoted figures to say the top 3% of earners contribute 26% of New Zealand taxation. Thank heavens for the generosity of the wealthy is the implication. But just a minute.

That 3% of earners have personal control of huge chunks of our productive economy. I'd be happy to call them generous if they had, by their own singlehanded toil and sweat, created that wealth but of course they didn't. It was accumulated wealth from the work done by low and middle income earners.

The myth is busted.

Myth 4: Low taxes mean better prospects for everyone.

This is where John Key's commitment to lifting wages comes from. He really means increasing take-home pay by reducing personal taxes and will do so in this year's budget.

The most likely outcome will be small reductions in income tax for most people (aside from the rich who will get huge cuts) but a corresponding increase in GST will suck far more from the pockets of the low and middle income families to pay for the big tax cuts for the well-off.

Lower taxes inevitably mean more expensive social services such as health and education.

The myth is busted.

Myth 5: More foreign investment is what we need.

The dangers of foreign investment have never been clearer but the ideologues blunder on stupidly and John Key wants to make it even easier for foreign investment to come in and take over what's left of our existing infrastructure.

Our current accounts deficit (usually very high) became a surplus briefly last year as the profits repatriated overseas by foreign owned companies decreased in the recession. The irony is this only happens in a recession.

It will soon return to the free-market "normal" whereby the four million human sheep (that's you and me) are once more farmed successfully for the profits we deliver to wealthy local and overseas capitalists.

The myth is busted.

Myth 6: A bloated public sector is dragging us down.

Slashing public spending is the stuff of wet dreams for ACT and National and yet it is the public sector in every country which is dragging economies out of the financial mire created by the greed and stupidity of private sector financial cowboys.

New Zealand has an efficient, well-run public sector but John Key will do his best to cut spending, cut services and drive down quality to open opportunities for more private sector involvement.

We are beginning to see this already in health and education and the 2010 budget will accelerate the trend.

So is our public sector bloated? Journalist Gordon Campbell pointed out this week -

"If one looks at page 128 of the Treasury Half Yearly update, the table for government core spending as a proportion of GDP was 32.4 % when National left office in 1999 - and the ratio then fell when Labour took office, and stayed below previous National government levels for the next eight years, The ratio only surged in the year to June 2009 - to 35.5 per cent - at a point nearly sixteen months into a very deep recession."

(Recessions always see public spending increase as a proportion of GDP as the private sector shrinks)

The myth is busted.

And so the Prime Minister blunder on toward a budget which will see more wealth for the wealthy at the expense of the rest of us.