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is the message to New Zealanders: under National, tax cuts are
a priority—under National, personal tax cuts are a priority.
Most of all, New Zealanders will be able to believe our tax
cuts, they will be able to trust our tax cuts. Most of all,
our tax cuts will not just be about putting dollars into the
pockets of hard-working New Zealanders. They will actually be
about delivering the right incentives in the economy. Tax cuts
let New Zealanders get ahead in their lives. They encourage
New Zealanders to work hard, to get extra responsibilities, to
save, and to get further education. We believe in tax cuts, we
believe in the power of tax cuts, and we will deliver
them.” - John
that was last year, when John Key delivered the Leader of the
Opposition’s speech about the 2008 Budget.
National Party’s promised tax cuts were the central
component of their election campaign. After nine years of
taunting Labour for not delivering tax cuts, they were very
clear that they would be able to deliver on their promise
because the cost of the tax cuts would be covered by cutbacks
they were proposing to research and development and KiwiSave: “Taken
together, the removal of the R&D tax credits and the
changes to KiwiSaver mean National will not have to borrow or
cut public services to fund our personal tax cuts. This is a
prudent and responsible tax package. National will not
undertake additional borrowing for tax cuts.”
if the cost of tax cuts was already covered by the savings
already made, why were they cancelled in Thursday’s budget?
The answer is that National cancelled the tax cuts because it
was easier than cutting government spending. All those
opposition years of explaining that lower flatter taxes are
vital to driving economic growth and building prosperity were
forgotten when faced with pruning nine years of socialist
spending programmes put in place by Labour.
all of the brave talk of ‘razor gangs’, line-by-line
reviews, and reducing wasteful spending, only $301 million was
saved; meanwhile core government spending is set to increase
from $57,997 million in this 2008/09 financial year to $62,362
million next year, and $65,282 million the year after!
tax cuts – and remember that they were already pre-funded by
the cutbacks to KiwiSaver and the dropping of the R&D tax
credits – were not massive. Just $98 million was needed to
fund the tax cuts next year, $494 million in 2011, and $900
million thereafter. If the incentive effects of lower
flatter taxes are taken into account, the tax cuts should have
quickly paid for themselves through higher growth and
was certainly the experience of the 1984 Labour Government,
which, facing bleak economic conditions, dramatically cut
taxes and government spending to balance out the deficit
within three years. As Roger Douglas put it, “The current
level of Government deficit is one third what it was in 1984.
Back in 1984, we managed to get the books back into the black
within 3 years. Today, with a deficit one third of the size it
was then, it is going to take 11 years to get back to surplus.
Any deficit today has to be repaid with interest by future
generations. The deficit is not huge, but its existence shows
the unwillingness to make modest cuts to return to surplus
cursory examination of Thursday’s budget identifies many
areas of expenditure which hardly resemble “essential”
spending. For instance, does the country really need
hundreds of policy analysts costing us close to $600 million a
year? Of course government Ministers need policy advice, but
does the Minister of Social Development really need $53
million worth of advice, the Minister of Education $32 million
worth of advice, or the Minister of Maori Affairs $26 million
worth of advice?
fact, do we really need more than 200 agencies run by the
government? Is the Families Commission, which costs $8
million to run, really necessary when there are already many
private sector groups doing research on the family and
advocating on their behalf? What about the Charities
Commission at $5 million, or the Retirement Commission at $5.6
million. In these days of gender equality do we really need a
Ministry of Women’s Affairs costing $4.8 million to run? And
given the country’s ethnic diversity can we really justify
the Ministry of Pacific Island Affairs costing $7.5 million a
year to run or the Ministry of Maori Affairs costing $179
taxpayers really be bailing out stadium projects in Dunedin,
Christchurch, Nelson and Whangarei to the tune of $35 million?
And what about the $13 million of taxpayers’ money we will
be spending on the Americas Cup in the next twelve months –
can that really be justified as essential spending? And why
are the producers of big-budget film
and television productions getting $35 million?
about the $158 million appropriated for public broadcasting
services – including Television NZ and Radio NZ – or the
additional $67 million spent on Maori radio and television
services? Are taxpayers getting good value for money for that
do we feel about the $132 million that will be used to fund
legal aid? Do we agree with $102 million of taxpayers’ money
being used to fund environmental research while $71 million is
used for health research?
in mind that the “unaffordable” tax cuts would have cost
$98 million next year, how do we feel about the appropriation
of $550 million that has been set aside for climate change?
Most of this has been ear-marked for buying carbon credits to
give to businesses to get the emissions trading scheme off the
ground. Those who believed that the Government was genuinely
awaiting the outcome of an “independent” Select Committee
review will be disappointed to see that the die is already
cast. And consumers worried about the added cost of an
emissions trading scheme will be especially concerned to find
out that the half a billion
dollar cost is only the beginning of what will be an
enormously unproductive drain on our already fragile economy.
appropriation on its own would have almost paid for the tax
cuts for the next two years. Unfortunately it demonstrates
that rather than looking ahead with a vision for growing the
New Zealand economy and catching up to Australia by 2025 –
as promised after the election – National appears to have
become somewhat captured by the bureaucracy to the point where
they are satisfied with tinkering with their predecessor’s
socialist spending promises rather than implementing real,
badly needed reform.
week’s NZCPR Guest Commentator Roger Kerr, the executive
director of the New Zealand Business Roundtable, outlines the
“appalling economic legacy” that has led to the dire
situation we are in today:
“Core Crown expenses are set to rise by as much as $3
billion this year and to go up from 32 percent of GDP in
2007/08 to 37 percent in the government’s term of office.
Public consumption is forecast to grow every year to 2012 (by
around 12 percent in total) while private consumption growth
is negative each year (falling by nearly 3.5 percent by 2012).
Citizens are being asked to tighten their belts while
the government lets its belt out further”.
goes on to state, “As commentators have been noting, the
government broke a firm election policy commitment in
deferring planned tax cuts.
This looks like a soft option relative to cutting more
of the last government’s poor quality spending.
None of the modest ‘line-by-line’ review savings
represents hard political choices either.
was perhaps most disappointing about the budget was that it
contained few indications of forward thinking to deal with the
need for structural adjustment and substantially lift
productivity growth. There
should also be more urgent short-term action. The forecast
rise in the unemployment rate to 8 or even 10 percent of the
labour force, for example, should not be passively accepted.
It is an indicator that nothing significant in this
regard came out of the Jobs Summit and that more fundamental
changes are needed.
what can be said at this stage is that the budget does not
have an economic strategy that is capable of achieving the
government’s overriding goal of catching up to Australian
income levels by 2025”. To read the article “The 2009
Budget – What’s Next?”, click
So rather than provide a clear vision for how New Zealand is
going to become that prosperous country that we all aspire to,
with lower taxes, greater personal responsibility and more
individual freedom, the budget gave us a stable credit rating,
aspirational rhetoric, and no tax cuts.
all is not lost - we did get a $50 million cycle-way.
And we mustn’t forget the sweetener to the Green Party, the
$323 million for home insulation refits. The problem with
those, however, is that if you read the study on which they
are justified you will find that general practitioner and
hospital records fail to show any real evidence to support the
policy. In other words, while people in insulated homes
‘feel’ healthier there is no empirical evidence to show
that they actually are.
I will leave the final word to Milton
am in favour of cutting taxes under any circumstances and for
any excuse, for any reason, whenever it's possible. The reason
I am is because I believe the big problem is not taxes, the
big problem is spending. The question is, "How do you
hold down government spending?" The only effective way I
think to hold it down, is to hold down the amount of
income the government has. The way to do that is to cut
week’s poll asks: How
do you rate the Government’s budget? Good, satisfactory, or
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Crown Expense Tables
Election Tax Policy
4.Radio NZ, Government
defers promised tax cuts in Budget
5.Roger Douglas, Budget
Medical Journal, Effect
of insulating existing houses on health inequality
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