Red Alert

Dear Liza

Posted by on March 17th, 2012

The Government has continued to spout the line that its tax ‘switch’ in 2010 was ‘broadly revenue neutral’.

This is an outrageous claim.  It was nowhere near revenue neutral.

According to the IRD’s 2011 Briefing to the Incoming Minister (BIM), Government tax-take dropped from 35.1% of GDP to 31% of GDP during National’s first term.  In a time of high borrowing, and a projected $12 Billion deficit, a drop in the tax base of more than 10% is plain irresponsible. Falling revenue means we don’t have the funds to support our schools and hospitals.  Either that, or we have to borrow to fund them.  This ain’t good.

The ‘broadly revenue neutral’ claim has been relegated to the status of a bad joke by the honesty of the Government’s own tax officials.  In their 2011 BIM, officials made clear that only about 1.5% could be blamed on the Global Financial Crisis.  About 2.5 percentage points of its 4% revenue drop can be directly explained by Government policy changes (ie the 2010 tax package).

To use the phrase ‘broadly revenue neutral’ in this context beggars belief.  It is an abuse of the English language.

How ‘broad’ can ‘broad’ get before it the Finance Minister will admit it is simply *not* revenue neutral?

Blaming the hole in the accounts on the Canterbury earthquakes or the Global Financial Crisis is no longer a credible excuse for the $12 billion deficit.

Though not widely reported, this drop in tax-take is big stuff.  It is likely to have wider consequences.  Sadly, it fits with the picture of a government bereft of a credible plan for managing our economy.


41 Responses to “Dear Liza”

  1. Tracey says:

    David

    Can a reason for the drop in tax take also be attributed to the rise in unemployment?

  2. andy cunningham says:

    Yes it’s a bad joke, I agree, and the asset sales will plug the gap………Golly that’s a good strategy [not]. What would Labour do to sort this out?

  3. PatsyW says:

    Or maybe its due to the casualisation of the workforce therefore pay rates are less or the big boys and corporates not paying/avoiding tax.

  4. OneTrack says:

    Are you saying that you are telling David Shearer that one of the Labour party policies for the next election is to raise tax rates? If so, by how much?

  5. softstarter says:

    That’s a good question Andy and you’re right, the asset sales will be a fudge.

    Anyway. I read many years ago the Greens proposed a Capital Gains Tax and that could be an answer. Apparently, this Green party policy from many moons ago (and still in their manifesto I hear) is a ‘progressive’ form of taxation that is alive and well all over the developed world but would cause such a paradigm shift in New Zealand that the main two parties have ignored it for decades.

  6. Nick K says:

    Our GDP is about $170Billion. 25 of that is about $3.5Billion. That still makes the deficit about $9Billion. Of course the government would have a surplus if they raised the top rate to 70%. Why doesn’t Labour promote that?

  7. Spud says:

    :mrgreen: Nice title, now that I get it! :mrgreen: :mrgreen: :mrgreen: !

  8. softstarter says:

    Why stop there Nick? Why not make it 90%? Why do you think that won’t happen?

  9. indiana says:

    Air NZ also posted lower revenue figures recently. If that is a trend in other companies due to the low performance in the economy and the collapse of other companies, then one would naturally expect a loss in tax from PAYE collected and company tax. What wool are you trying to pull over us?

  10. David says:

    With the tax switch part of it was removing the depreciation on rental properties and the end of the month will be the first year of full implementation. This I seem to remember is worth about a billion dollars in extra revenue according to treasury.

  11. well, well, well says:

    NickK 10.34am – would the Government really have a profit if they increased the top tax rate to 70%?

    I doubt it because the following would happen:
    1 Productivity would drop substantially
    2. Tax minimisation schemes would increase.
    3. Tax Accountants would get richer.

  12. Fortran says:

    Good that the Greens policy on CGT has been adopted by Labour.

  13. John W says:

    The direct beneficiaries of Nact policies are a tight wealthy sector of multinational investors and banks. We slide downhill increasing our debt whilst borrowing freely from them. A custom made gravy train with tax relief to support their profitability.

    Today is an Irish day of celebration. The Irish recently had their economy crashed by Multinational bankers – the same path john Key was pushing for NZ.

    The Irish also had a more significant crash when occupied by English profiteers who stripped wealth from that country for hundreds of years. In the 1800s a blight hit the potatoes grown by the poor peasants on their traditional land but paying rent to the English gentry who were given tracts to collect wealth from.

    “Thomas Gallagher points out in Paddy’s Lament, that during the first winter of famine, 1846-47, as perhaps 400,000 Irish peasants starved, landlords exported 17 million pounds sterling worth of grain, cattle, pigs, flour, eggs, and poultry — food that could have prevented those deaths. Throughout the famine, as Gallagher notes, there was an abundance of food produced in Ireland, yet the landlords exported it to markets abroad.”

    Eventually over 1 million Irish died and another million emigrated, some to NZ.

    John Key says it is OK to sell off our and assets land and have profits sent offshore. Meanwhile we borrow. His budgeting is not for the public purse but for other interests.

    To continue..

    “More than a century and a half after the “Great Famine,” we live with similar, perhaps even more glaring contradictions. Raj Patel opens his book, Stuffed and Starved: Markets, Power and the Hidden Battle for the World’s Food System: “Today, when we produce more food than ever before, more than one in ten people on Earth are hungry. The hunger of 800 million happens at the same time as another historical first: that they are outnumbered by the one billion people on this planet who are overweight.”

    The equity of wealth and income in NZ is widening and there is no discussion even addressing this. It won’t go away with trickle down which is still being implied as the answer.

    Meanwhile the lies continue, the PR firms employed to swing the votes keep the masses calm, and the plunder continues.

    Remember John Key and Goldman Sachs.

  14. David Clark says:

    @Tracey, @Indiana IRD officials suggested that about 1.5 percentage points of the 4 percentage point drop could be attributed to the Global Financial Crisis – in line with other OECD economies. The remaining 2.5 percent relates to policy decisions the government has taken. That is the shocking part.

  15. Matt says:

    Until the Labour Party recognises that government expenditure is INCOME to the private sector, it might begin to realign itself away from daft economics. I am amazed that not ONE single, clearly uncapable, person within either the Labour Party or its research unit have had anything remotely accurate to say about economic policy…

  16. Nick K says:

    To the commenters above who questioned my theory on raising the top tax rate – if David Clark is concerned the tax changes/cuts have led to a worsening deficit, then all Labour has to do is push them up substantially and – BINGO – we will have a large surplus.

    Won’t we?

  17. Matt says:

    @ Nick K, and why should a surplus be the goal?

  18. Tax_the_ rich says:

    Please raise the tax rate to 39% on anyone earning more than 50,000 so that the extra revenue van be given to people who don’t work. Thanks.

  19. ghostwhowalksnz says:

    Nick K using your ‘analysis’ the government could slash spending by $12 bill , and kiss borrowing $300 mill a week goodbye.
    Whats stopping them, are they not ‘the government’ who won two elections.

  20. Jeremy says:

    Interesting how few people have seen the connection – Rodger Douglas cut the top take rate (remember 66%), and the following year tells the country we are bankrupt – unless we sell assets! followed by Ruth Richardsons claim Labor made up figures and without asset sales, user pays and “ruthenasia” service cuts we will go broke (thought Douglas was supposed to fix this).

    Cullen Raises taxes and is repeatedly berated for running surpluses and only giving chewing gum cuts as the balance sheet improved. He also copped it for the skill shortages or low unemployment if you like and restoring a basic level of public service, and making it accessible to kiwis.

    Guess its back to normal then when Bill English cuts taxes (one year delayed) and then claims we have a hole and suddenly need to sell the same assets he was caught on tape prior to the 2008 election claiming they would sell(even with a surplus) but it would have to wait until the ground work (Tax cuts, bailouts) had provided an environment where people would believe they are a necessary evil. Apparently only 20% ‘want’ to believe him.

  21. Ivy says:

    So why exactly is Mr Shearer announcing that he’s not going to keep the policy to raise the top tax rate above $150k? When we have one of the lowest top tax rates in the OECD?
    That policy would have been a good way to start filling the holes in the bucket.

  22. Jack Ramaka says:

    The problem is we need to get back into balance and some form of social equilibrium.

    Muldoon with his Think Big Projects started us off on a slippery path, we were in the 1970′s at the top of the OECD rankings an efficient food producer with tight import controls.

    Roger Douglas freed up the economy doing away with farm subsidies which were a nonsense and removing import restrictions, which allowed cheaper imports, subsequent to this foreign exchange rates have shifted from fixed to floating.

    Then we had the ASSET SALES, the BNZ which was privatised but the Government somehow guaranteed, which led to the famous WINEBOX ENQUIRY which went no where. And other ASSETS which went sideways at discounted rates. There was no real long term strategy of where the country was going and how to preserve our infrastructure for the benefit of all New Zealanders long term.

    The Australians took over our banking system and have made some wonderful returns with the boom in the housing market and the growth of mortgages.

    With the increasing costs people with less income are really struggling especially with the GST increase. The Government needs to balance it’s books internally, the problem is National’s plan is flawed as they continually want to squeeze the less well off and give hand outs to the wealthy.

    Welfare was paid out to investors in South Canterbury Finance, why were the taxpayers guaranteeing Finance Companies for imprudent lending practices.

    The wealth transfer is continuing, in general terms our exports=imports with accompaning surpluses or deficits.

    However we now have large sums being extracted from the economy with profits to Australian Banks and Foreign Owned Corporations.

    Selling further ASSETS just destroys our sovereignty further and places the control of our economy further in the hands of foreign corporations.

  23. Jack Ramaka says:

    How much does the Prime Ministers Office spend on PR Consultants to feed the NZ Public Propaganda.

    We need some good clear financial articles written in laymans terms.

    The propaganda spouted that Roger Douglas saved New Zealand from economic ruin is hogwash, we sold NZ Assets for a pittance and the returns are now being expatriated overseas.

    A country is like a well run household or a small business, at the moment we are leaking oil all over the place, with the financial problems spilling over into social areas.

  24. Al1ens says:

    “occupied by English profiteers who stripped wealth from that country for hundreds of years.”

    It was English land to do with what they wanted.

  25. David Clark says:

    Above, Pete George (National Party cheerleader and most recently a member of Peter Dunne’s Party) has linked David Farrar’s response to my post.

    Farrar has basically argued that: 1/ the tax-changes in 2010 were not the only ones that contributed to this picture. And 2/ that the Labour Party might have run tax policy to similar effect if they had been in government.

    Responding to point 1/ – while the 2010 tax changes were not the only ones National has overseen, the fact that the 2010 changes were heralded as the biggest shake-up of the tax system in 25 years, highlights their significant influence.

    And citing other changes made under the watch of the same National Government earlier in its term is hardly a convincing defence.

    On point 2/ it is simply not relevant to speculate about what may or may not have happened had another party been in Government.

    Sooner or later, National has to stand up and be accountable for the decisions it has made.

  26. John W says:

    Al1ens

    “It was English land to do with what they wanted.”

    Does that apply to India also.

    Since when was Erie “English Land”

    The English used mercenaries from several countries to keep Ireland under English subjugation with many bloody battles, for over 500 years.

    A little reading of history may help understanding.

  27. al1ens says:

    “Does that apply to India also”

    Yep, And America, Canada, lots of Africa, lots of Asia, Aus and NZ amongst others.

    “Since when was Erie “English Land””

    Good queen Bess and Ollie Cromwell know the dates better than I, but certainly English land up ’til they were given independance.

    “The English used mercenaries from several countries to keep Ireland under English subjugation with many bloody battles, for over 500 years.”

    Nobody argued she wasn’t a cruel Mistress, but just think if all those peasnts never fled to the US, noraid would never have collected so much money to fund the ira.

  28. al1ens says:

    Enough of 1916, I’m much more interested in 30-9 :)

  29. Pete George says:

    “Pete George (National Party cheerleader and most recently a member of Peter Dunne’s Party”

    Oddly snarky comment. I’m not a National cheerleader, my main focus is cheering for what I think is good for Dunedin.

    I’ve cheered for you David, when I think you’ve deserved it. And Clare.

    What is your biggest priority, cheering for yourself, Labour, or Dunedin North?

  30. David Clark says:

    @Pete George, I think it’s a fair call. I have heard and read your rhetoric on supporting good ideas from both sides etc. but am yet to see any evidence of supporting Labour policy or people. I’ve seen ample evidence of National Party cheerleading, both on the campaign trail and since. That said, I very much look forward to your proving me wrong!

  31. Jack Ramaka says:

    Looks like Double Dipper English’s financial forecasting models are not working too well.

    Anyway it doesn’t matter John Key and Bill English got re-elected which was the main objective. Have another turn.

    My main concern is where are we headed, if selling assets is the only remedy we have got serious problems on the horizon.

    The tax structure needs to be properly looked at if we are to have a fair and equitable society, why should one sector of the economy be getting all the cream and the other sector be getting hammered.

    If there are people abusing the welfare system they need to be brought to account and social agencies need to be trying to get some work schemes going whereby people are actively employed. In this country all we want to do is import cheap goods from China which puts the profits into the bigger companies and then throw NZ people on the scrap heap.

    The USA has realised that they can not compete with China’s slave based manufacturing industries and their fixed exchange rates, hence they have encouraged the devaluation of their currency to get their export sectors and manufacturing sectors going.

    Our floating exchange rate which is manipulated by overseas currency traders and hedge fund operators is killing New Zealand’s exporting and manufacturing sectors. John Key should understand this if he understands basic International Trading. China are doing well as they control their exchange rate, can someone explain why our exchange rate is so strong when the economy is supposedly so weak.

  32. Jack Ramaka says:

    The facts in NZ are that the wealthy English Landowners sent their sons to New Zealand to buy large tracts of land for farming, these purchases of Maori Land were assisted by the Settlor Governments either by fair means or foul.

    Similar to the Highland Clearances in Scotland whereby the British Army cleared the Scottish Highlands of their people put them on boats and dumped them on the beaches in Canada etc. hence the large number of early Scottish settlors in NZ.

    They often say NZ is more English than the English.

  33. Jack Ramaka says:

    New Zealand is John Key’s little Piggy Bank

  34. Pete George says:

    “but am yet to see any evidence of supporting Labour policy or people.”

    You don’t remember me actively supporting the Monday-ising bill?

    Over the last week I have generally supported David Shearer’s speech (although quite a few phrases he used would sound at home in most politician’s speeches).

    Admittedly I didn’t with “completely new New Zealand”, I think we are better to improve what we have rather than make major change which will inevitable have downsides and unforeseen consequences.

    “I know there is some expectation that I will bring the whole plan here today and lay it all out, but that’s not the way I intend to put our policy together.”

    I agree with that. I also agree with Shearer’s positive pragmatic politics, Peter Dunne was actually an ealier practioner of that approach.

  35. Jeremy says:

    @ Jack -”can someone explain why our exchange rate is so strong when the economy is supposedly so weak.”

    easy, The US has aggressively devalued to stimulate manufacturing and place a barrier on imports. There is a real fear that a currency war could start if the Euro is devalued. Gets a bit trickier there with the two tiers, watch for UK to recover faster than the PIGS. We simply cannot compete if this fear is realized, so while devaluing would provide an advantage it is debatable whether now is the time, it will fall naturally as farm prices start to temper (or fall). That’s the arguable part, the political part is that having a high dollar preserves the value of New Zealand held assets (including farms, houses, business, SOEs). In case anyone missed it – it is the asset holders rather than income earners who have supported and financed National since the party began.

  36. tracey says:

    So is everyone saying the tax cuts really were neutral, or not?

  37. Spud says:

    Hi Tracey :-D

  38. Tracey says:

    Hi Spud!!!!!

  39. John W says:

    Allen
    I read your reply with interest. Apart from justifying invasion and occupation for profit on whatever grounds not specified, the starvation of inhabitants for commercial gain is similarly not justified.

    Learning from history can be taken in many ways dependent on how you wish to use that resource for shaping a better path forward.

    I take it you may accept what the English have done as OK. If so then application of similar principles ( or lack of ) becomes business as usual?