Peter Harris is an old mate who used to work for unions and then Michael Cullen. He is a progressive thinker and I often agree with him. Don’t on this one but his points need to be considered.
Posts Tagged ‘Kiwisaver’
Hi RA readers – I’ve been off air a bit lately due to running around the country on the post- Budget speaking tour, and because my laptop died!
Today parliament shifted into a new stage of the Budget debate – the Appropriations Bill that legitimises the Supplmentary Estimates (amended spending lines) between Budgets 2009 and 2010. It was remarkable for what it does not say – nothing about a plan for protecting jobs or lifting incomes during the worst of the Great Recession. No new ideas over there.
Quick feedback from the Budget tour: spoke to about 20 groups, a mixture of Labour-organised public meetings, community sector groups and businesses. Hard to tote up exactly but would have seen close to 800 people face to face: groups of 160 down to about 25, plus individual business site visits.
The feedback was clear: most Kiwis understand that by the time inflation of 5.9% next year eats away the tax swindle, and wage growth is held down, they will be worse off. That includes increased govt charges like ACC and ECE, plus power bills, rent and higher mortgages. The Government made the classic mistake of overpromising and under-delivering. Kiwis hate the rise in GST. They know the tax cuts aimed primarily at the wealthy are unjust and inefficient.
Was it a coincidence the govt’s polling fell 5% in the week after the Budget?
Second, businesses and commentators understand that the Budget lacks a real plan for jobs, incomes and growth. Fiscal prudence matters, but it is no substitute for a strategy to address the yawning triple deficit around the savings gap, current account deficit and innovation deficit. Gutting Kiwisaver, the R and D tax credits and NZSF prefunding made these worse. The Govt’s innovation package, which represents only 39% of the value earlier striped out, has been almost universally panned.
Third, the added debt from the unaffordable tax cuts has opended up $1.1 bn fiscal hole over 4 years, $9.2bn over 12 years, and that makes the job of turning the boat around ever harder. National will seek to fill this “strategic deficit” through asset sales and service cuts. Don’t let them!
Future posts are going to broaden out somewhat to the rlated issues of monetary and fiscal settings that surround the needed economic strategy.
We all know Budget 2010 was full of broken promises – from NOT raising GST – to being “fiscally neutral” while borrowing an extra $1.1 billion to fund tax cuts - to being “fair” while giving a third of all those tax rebate $ to the top 5%.
Most people now realise that the gains they thought they might get are more apparent than real: the proof – even on the Governmnet’s own numbers average gross incomes don’t catch up with inflation unitl 2014! That’s two elections away!
Most now know the results are economically desultory – the current account blows out to 7% of GDP, growth is static (taking 7 years to accumulate a measley 1% extra), and what empoyment growth there is is largely unrelated to Budget meaures.
What has become clearer as the debate has progressed is just how cynically National has attempted to buy votes through a Budget increasingly seen as highly political. John Armstrong - who is no Labour acolyte to say the least – politely nailed that in Saturday’s Herald.
The game afoot is this: fool middle income voters into thinking they have a win. Push through much larger tax cuts for the upper end under this smokescreen. Deliberately stretch the government balance sheet by borrowing more to fund the cuts. Begin compressing public services, but slowly, and hope the rosy glow lasts until the election…
But Bill English could not help the Freudian slip about selling off KiwiBank. (As if anyone believes that a mom-and-pop share issue would mean shares didn’t end up in institutional hands eventually – remember Contact Energy?)
This is important as a foretaste of things to come: extensive privatisation of assets the public already owns, and deep Budget cuts to balance the books that this Government has deliberately run up by cutting taxes too far. Both add up to shrinking the state, and with it the essential services that all Kiwi families need.
Budget 2010 is not a step change, and not a step up. It’s a set up - a sucker punch for the full flowering of the Right’s agenda should New Zelanders allow them a second term.
After the beehive-spin induced euphoia wears off and the hangover sets in, middle New Zealand will reach for the Berocca and try to work out what the Budget really means for them.
Not to add to the inevitable headache, but here are a few of the facts of life for the morning after.
- For at least 3/4, and maybe 90% of the country, by the time they eat a whopping 5.9% inflation next year (Treasury Budget forecasts, not NZLP numbers!) they will be worse off until at lesst 2012/13. For a family with 2 kids on $72k for example, $55 a week worse off.
- That inflation will feed into mortgage costs and rent rises. It will result, quite rightly, in pent up wage demands from workers who have gone without wage rises for the last two years.
- While its ok that the middle income brackets got some income tax relief, and would have likely got more relief from us, the tax cuts are way too skewed to the top. You just can’t get around the fact that someone earning a $million a year gets $1000 a week back. That is going to make the haves/have nots gap wider. And that gap will inevitably worsen over time, undermining the Kiwi dream and taking us further from the “fair go for all” kind of place we want to be.
- That is made worse by the underlying agenda of shrinking the state and the services it can provide. We have already seen home help for the elderly branded “low quality” spend and cut. Health’s new money in the Budget is, we reckon, about $270 m short of standing still given next year’s inflation forecast. That means more cuts to the services and more pain for the vulnerable.
- My personal gripe is early childhood education. What has the Govt got against quality preschool education? Why is it swiping $100m pa from that? Labour will lead in this area and every family with young kids will hear us.
- Rebalancing the econmy is way undercooked. Take away the smoke and mirrors of the tax switch, and we are still left with residual taxt incentives for property and LAQC avoidance mechanisms. Proof: LAQCs sheltered $2.3 billion of taxes in 2008. The tinkering in the Budget trimmed only $70m p.a. of that.
- There is STILL no credible plan for growth in this Budget. The National Govt seems intent in relying on “passive” instruments. I have no problem with dropping the company rate – provided the fiscal balance can support decent public services (personal view – see “About” on the blog site) – but that cannot be enough to get the export sector going on its own. What about the R and D tax credits?
The strucutral problem remains: we don’t export enough, we don’t save enough, and we don’t innovate enough. As an economy we are short on capital, technology, skills and IP. Budget 2010 does not fix that. Time is short and the job is urgent. When NZ wants positive action, Labour will be ready to lead.
As the bubbly wears off in the Beehive and the Berocca gets passed around the country; the poor, the forgotten middle class and the structural problems of the economy have not been moved forward by this Budget.
It remains a suger-coated tax swindle.
It remains a step back, not a step up, and certainly not a step change.
Budget 2010 is a tax swindle, a lost opportunity and a massive broken promise to New Zealanders.
It rewards the wealthiest, but swindles the middle class by gobbling up their small change tax switch in the highest (5.9%) inflation in decades.
Most Kiwis tax cuts will be wiped out by inflation before they even get to the checkout.
By the Government’s own figures an average wage earner will be $30 a week worse off after inflation and a person on $70, 000 will be $45 a week worse off.
The tax cuts are unfair; a third goes to the top five percent and fifteen percent goes to the top one percent. People in the middle and bottom will go backwards after inflation.
The upper income tax cuts are unaffordable. The Government is borrowing an extra $450 m next year, and a billion over 4 years.
This Budget therefore breaks a string of hollow promises:
- not to raise GST
- to leave the “vast majority” of Kiwis better off – most won’t be after inflation and rent taxes
- to be fiscally neutral: the Budget borrows $450 m next year to fund upper income tax cuts
- to return to prefunding superannuation when in surplus (no prefunding until 2019, surplus 2016)
- to compensate pensioners and Working for Families recipients for ST (this a one-off, not indexed)
- to maintain Health and Education: wrong – Health is some $300m p.a short of keeping up. Education some $200m p.a short; including a savage $120m cut to Early Childhood Education.
- to rebalance the property/business tax divide: this is underwhelming – building depreciation is partially taxed, but there is no ring fencing of losses; and the changes to LAQC and PIE rules are minor.
Overall the Budget fails both tests of fairness and growing jobs and incomes.
Lower and middle income earners are left behind while the top end reaps a windfall.
The old, the young, the sick and frail are left worse off.
The Government is borrowing to favour its mates, once again.
It is a tax swindle, a lost opportunity and massive broken promise.
It’s Budget Day. You’ll be hearing lots from us over the next few days and I hope many of you will join our Finance Team live here on Red Alert tonight at 8.30 pm.
Most New Zealanders already understand that a Budget that (at best) delivers only marginal gain to middle and lower income earners and a whopping great windfall to the top end, is not fair. It is however, precsely what you would expect from National.
Equally important, the Budget as it has been foreshadowed will not fix the underlying problems of this economy: lack of savings, skills, innovation and exports. These are exactly the themes Labour is pushing – as reflected in todays Dominion and Herald (note the Herald got the headline wrong).
If you don’t believe me on this – just refer to Swtizerland’s IMD World Competitiveness Ranking, which shows NZ slipping back for exactly the reasons Labour has been saying.
Think about it, if the problems are insufficient savings, exports, skills and innovation, how on earth is raising GST and an income tax windfall for the wealthiest possibly going to address that?
It proves our underlying critique of this visionless National Government - they had “nine long years” to think up policies to take the country forward, to deliver on the step change they campaigned for – and so far, nothing.
On Thursday evening at 8.30pm, I will be hosting a discussion with other members of the Labour Finance team about the Budget. This will be filmed and streamed live at: http://labour.org.nz/budget2010
There will be the ability for those watching to chat with others around New Zealand who are also tuned in. We will be monitoring the comments and will hopefully be able to answer some of your questions during the session.
If this works well, then we hope to turn it into a regular feature.
If you’d like to be automatically reminded prior to the event just fill in your email below.
Phil’s speech in Nelson yesterday can be found here.
Obviously I think it is a good speech. It is exactly the kind of speech an Opposition Leader should be making in the lead up to the Budget in the middle year of the electoral cycle. It lays out the fundamentals of Labour’s approach to the economy and gives an indication of our priorities, and the areas where we are doing further work.
Actually it does have a number of quite specific commitments as well. In particular re-focusing tax cuts to middle and low income earners, changes to monetary policy, restoring government contributions to Kiwisaver and the Super Fund, restoring incentives for R&D.
Looking ahead we are finalising a fairer tax package. This includes investigating raising the thresholds for a top tax rate to around $100,000. Phil does not rule out reversing the increase to GST, but we are also investigating the possibility of removing it from fresh fruit and vegetables.
One area that has not received much attention in the media are Phil’s comments on overseas investment.
Foreign investment will continue to be important and encouraged. In particular we need to attract good greenfield investment that has a net benefit for New Zealand. It can bring factories, jobs, technology and other gains – that’s good investment. However our overseas investment legislation should not allow loss of control over strategic assets and areas which are natural monopolies within our country.
We need to ensure we maintain New Zealand control over key export areas.We should not allow cumulative purchases of farms that would allow control over Fonterra, for example, to slip out of New Zealand. We need solutions that harness our own capital, our own talents and brains and skills, and invest in them so that we do better at earning our way in the world.
This is an area which will be getting more attention over time, and is one that I know a lot of New Zealanders are very concerned about.
Overall this is a very substantive speech, and gives a strong indication of the territory Labour is staking out when it comes to the economy.
Peter Harris has done an interesting guest post over at Policy Progress on New Zealand Superannuation. Peter puts forward a compelling argument that the Brash Taskforce was wrong to argue that NZ Super is overly generous. He draws on data that shows average post-tax pensions in OECD countries to be about 70% of earnings after tax. Here in NZ it is 42%, making us the 5th lowest in the OECD.
Peter argues that the universal nature of New Zealand Superannuation makes it more equitable than equivalent arrangements in Australia, where differentials in earnings during someone’s working life are replicated in their retirement.
In defending the universal nature of NZ Super, he quotes Michael Cullen, who argued that providing basic income security in retirement is both the least and the most citizens should expect from the state. In other words it is the state’s role to ensure pensioners don’t live in poverty, but it is not the state’s role to ensure that their earnings in retirement reflect their earnings during their working lives.
Peter’s final comment focuses the debate not on whether the scheme is generous or affordable, but how we should pay for it:
By any standard, New Zealand Superannuation is affordable and sustainable. A programme that costs at peak no more than 10% of GDP is both. The legitimate question is whether that is the priority that the citizens want. Debate that by all means, and debate how it is to be funded, but please, as a matter of analytical rigour, do not prejudice the path of that debate by making the assertion that our scheme is “generous”.
For me that last comment is the critical one. How are we going to pay for it? Over the next 10-20 years the number of people over the age of 65 will roughly double while the number in the workforce will stay about the same (although it goes without saying that as we live longer more and more people are likely to continue working, thus paying PAYE tax, beyond the age of 65).
National cut contributions to the NZ Super Fund last year and has yet to demonstrate how it will make up the shortfall. Both John Key and Bill English are playing the short game on NZ Super – they’re kicking it to touch for a future generation to deal with.
Based on what we have heard so far from the Government, Budget 2010 will not deliver the jobs and the future New Zealand needs.
Instead of jobs, it will reward the few at the top and put more pressure on many families and small businesses.
The Government’s intention to raise GST on every New Zealand family will mean extra pressure when many are already finding it tough to make ends meet.
And borrowing to fund the tax cuts for the top end would be madness when Kiwis are being told to tighten their belts for another round of cuts to health, education and other front-line services.
Worse, fiddling with GST won’t tackle the real problems. It won’t address the fundamentals that matter.
New Zealanders know our country is not paying its way. We are not exporting enough. Our current account is bleeding red ink. Exporters are struggling to survive a wildly swinging exchange rate and unstable world markets.
Rather than saving and investing in real businesses that create value and jobs, Kiwis borrowed heavily to bid up each other’s property prices.
And when the Reserve Bank raised interest rates to cool inflation, it sucked in more hot money that just made that problem worse. That’s why Labour is committed to rebalancing the economy to rebuild savings and exports.
The next Labour government will be different because we will focus on jobs, growing the economy and higher incomes for New Zealanders.
That means investing in our people, their education, and their opportunities to get ahead.
It means boosting innovation, technology and R&D, and helping grow the new businesses that will be the stars of tomorrow.
The real issue is how to grow wages and reduce the pressure on small business and family budgets.
Labour will offer a better alternative, one that will put people first, act with integrity and plan for the longer term.
Labour believes that Budget 2010 should be about good jobs, a growing economy and a fair go for all. Lets see how Bill English measures up…
A lot of focus today on the Aussie tax proposals. And especially on the lack of the expected level of company tax drop.
Almost none on their decision to lift the employer superannuation contributions from 9% to 12%.
In NZ we have very poor and badly directed savings. We own a much smaller proportion of our own economy than the Aussies and therefore any trade balance of payments surplus leaves the country as foreign owners of our businesses profits. And we lack capital for small start up and rapid expansion businesses. So either our ideas or our young companies are sold. The stock market is much more limited than I remember it 30 years ago both in terms of companies listed and proportion of kiwis investing.
In the early 1970′s Roger Douglas did the design work on a scheme that was world leading. The Aussies built on it. The National Party under Muldoon abolished it.
Michael Cullen with a bit of help designed Kiwisaver. A good start in that it has a system going. But again the National Party under Key have gutted it.
It is time for a rethink. My solution would involve a compulsory Kiwisaver. We would use the Aussie system where the employers pay the contribution as part of the remuneration package as they do the PAYE. I would grow the % to the Aussie 12% over five or six years.
Michael didn’t want compulsion mainly because he saw that it would be an excuse for the National Party to scrap or means test NZ superannuation. My answer to that would be to attempt to do an accord whereby both major parties agree to leave it unchanged for say 20 years, and then possibly shift to an inflation rather than a wage based indexing.
That way all individuals and the country would be much better off. We would redevelop our own capital market, own more of our assets and rebalance consumption and savings.
Please read the box to the right and above this posting headed “About”.