The Dim-Post

January 27, 2011

Gouge away

Filed under: economics,Politics,Uncategorized — danylmc @ 11:00 am

I love this excerpt from Vernon Small’s story about the Goff vs Key fiscal debate:

Goff had signalled Labour would look at ring-fencing losses on investment property so they could not be offset against other income tax.

Key said National had considered and rejected it. At most it would raise $260m a year, but once sophisticated investors restructured their financial affairs ”you might raise $130m if you are lucky”.

He said the Government was borrowing $300m a week.

If Labour borrowed the full $1.1 billion that could rise to about $320m a week.

”Exactly which little pixie is going to deliver that? The answer is a foreign pixie that we have to borrow from.”

Labour countered today, saying Key was planning to ”sell the family silver to foreign pixies”.

Emphasis mine. See, Key is being wise and prudent and fiscally conservative by only borrowing $300 million dollars a week, while crazy, irresponsible Phil Goff might increase that amount by almost 8%! Pixies! Elves! Crazy time!

That point made, while I think the income free threshold is good policy I think it’s a daft idea politically and a textbook case of a general trying to fight the last war. Tax cuts played a crucial role in the 2008 election, when we had nine years of budget surplus without a single tax cut and voters were salivating at Key’s promise that he’d give them an extra $50 dollars a week. Fifty bucks a week! John Key! John Key! John Key!

Three years and three rounds of tax cuts later I think people are jaded about the magical powers of tax relief: each cut has been swallowed up by inflation, GST and various mandatory fee increases, they’ve failed to bring the economic stimulus we were promised and they’ve left the government with a terrifying deficit. I don’t think this idea will be a winner, and I suspect Labour now regrets their GST free fruit gimmick, which didn’t win them any points in the polls but means they’ve got to scavenge up an extra $250 million dollars a year to try and fund it.

These policies preclude Goff from attacking Key on one of his most vulnerable points: the deficit. Key is using the government’s debt as an excuse for the partial privatisation of state assets (of course, if we weren’t in debt he’d introduce the same policy on the pretext of growing the economy). But Key and English are the reason we have this gigantic deficit. John Key’s perceived strength during the election was that his financial genius would transform the national economy, and English was supposed to be this shrewd, wise guardian of the government’s books. In reality they’re proving to be a pair of colossally irresponsible, incompetent fuck-ups – but Goff can’t attack them for their irresponsibility if he’s just going to piss away even more money.

Imagine if Goff had promised to raise taxes on high income earners, crack down on tax evaders and use the money to restore payments into the Super fund and pay down the Key-English deficit. Sure, all the feather-weights in our political class would still be gushing about the color of his hair but I think the wider electorate would respond well to a demonstration of basic competence when it comes to the economy.

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34 Comments »

  1. Dabyl wrote: “Key is using the government’s debt as an excuse for the partial privatisation of state assets (of course, if we weren’t in debt he’d introduce the same policy on the pretext of growing the economy)”

    I disagree. If we weren’t in deficit he would introduce further tax cuts to put us into deficit, and then use the deficit as an excuse for partial privatisation.

    Comment by kahikatea — January 27, 2011 @ 11:25 am

  2. How much longer can we keep calling the Chinese “foreign pixies” before they come down here and whoop our ass?

    Regarding the weekly deficit – I think that both Key and Goff expect this to be soaked up over time by a gradually improving economy, especially with GST at 15%. 2009 and 2010 were surely the lowest ebb for the economy, and the timing of the recovery will determine who gets to claim the credit for it. Key will hoping the numbers start improving this year, and Goff will be hoping things stay depressed until next year.

    Some timely drought breaking cyclonic rain will probably do more for the economy than the collective genius of Key and Goff put together.

    Comment by Pat — January 27, 2011 @ 11:41 am

  3. Wrong title, Danyl. Should have been “Lovely Day”.

    “Oh baby it’s not europe
    But I’m sending you money
    I’m sending you lots of money
    So you can buy a ticket
    You will be my martian honey all the day”

    Comment by Andrew Geddis — January 27, 2011 @ 11:44 am

  4. all sounds remarkably like the downward taxation spiral that’s driving the US of A broke, innit?

    Comment by che tibby — January 27, 2011 @ 11:58 am

  5. You are right I should stop bludging……I only cough up $45k or so per year to the tax man(no fancy dodges here)and get get jack in return. Yeah that’s it….I’ll give up working 60 to 70 hour weeks and kick back with my hand out for some easy WFF coin and reduce my net tax to zip(maybe even have another kid cause it pays to breed)…then I’ll be doing my fair share. Or maybe even better vote for Philly and the Mallardator so they can borrow some more from my kids to pay me now. Cheers….good to have it in perspecive now

    I contend that for a nation to try to tax itself into prosperity is like
    a man standing in a bucket and trying to lift himself up by the handle.
    – Winston Churchill

    Comment by Goon — January 27, 2011 @ 12:22 pm

  6. I disagree with you that the income free threshold is a daft idea. It does have strong appeal whether is it fiscally responsible or not.

    “Imagine if Goff had promised to raise taxes on high income earners, crack down on tax evaders”
    Although your sugestions are reasonable they would never win an election with those policies. Voters want money thrown at them which is why we have midddle class welfare such as WFF. It’s not right but most people look at how policies benefit them in particular especially swing voters.

    Comment by K2 — January 27, 2011 @ 12:28 pm

  7. You are right I should stop bludging……I only cough up $45k or so per year to the tax man(no fancy dodges here)and get get jack in return.

    If you’re paying $45k year in tax then you’re earning at least $130,000 – which is kind of weird for someone commenting from a student PC at a university, but never mind – so you do get to live in a safe, developed economy with a robust infrastructure in which you’re richer than almost everyone else in the country, which is not a bad deal.

    Comment by danylmc — January 27, 2011 @ 12:35 pm

  8. Nigel Lipman: When exactly did you form this theory prime minister?
    Sir Mortimer Chris: To be quite honest Nigel; the pieces only started to fit together last week. I was visiting a factory in Stockport. Literally hundreds had lost their jobs, and no wonder, the place was crawling with them.
    Nigel Lipman: With pixies?
    Sir Mortimer Chris: Yes; sprouts, eleven folk. Which is why I am beginning this campaign.
    Nigel Lipman: I see.
    [pause]
    Nigel Lipman: What campaign?
    Sir Mortimer Chris: The stamp out evil pixies campaign! The public have to be educated on this one Nigel.
    [cut to him being interviewed]
    Sir Mortimer Chris: They’re about two foot tall, and the worst ones
    [he holds up an empty jar]
    Sir Mortimer Chris: are the invisible ones!

    Comment by Pascal's bookie — January 27, 2011 @ 12:53 pm

  9. Crikey old Dickens Danyl, are you channelling the Maritime Union Gen. Second. Joe Fleetwood who incidentally was given a soapbox on RadioPravda this morning to breathlessly call the workers to arms.

    Pish posh to creating depth in our capital markets by allowing partial private ownership in some of New Zealands biggest companies, Pyong Yang dispensed with them years ago.

    Goff and Labour are the parody the media are portraying them as.

    Comment by leon — January 27, 2011 @ 1:05 pm

  10. All Goff ever had to do to make an impression was to repeatedly ask where the recovery went to. You know, the one National promised at the last election when the campaigned on being the only option to turn the ship around. Where is the recovery? Where are the jobs? Why am I broker at the end of the week now than I was two years ago? Where, exactly, is the plan to make the country wealthier? Because the current measures aren’t working.

    Comment by Bearhunter — January 27, 2011 @ 1:09 pm

  11. Pish posh to creating depth in our capital markets by allowing partial private ownership in some of New Zealands biggest companies, Pyong Yang dispensed with them years ago.

    But where are all the galtian supermens? Honestly. Why do the capital markets need the big, bad, nasty, innefficient, doesn’t-know-how-to-pick-winners, gummint’s assets?

    Isn’t the point of them thar capital markets to identify and capitalise shit that ought to be capitalised? Via the awesome powers of the special hand of invisability and efficient pricings and what have you?

    Is it really true that the only thing they can find to put their money into are the winners what the gummint picked?

    You’d think they’d be too emabarrassed to mention it.

    Comment by Pascal's bookie — January 27, 2011 @ 1:19 pm

  12. Wow, Darryl had no idea that Key and English had this impact on your psyche.

    Comment by Tinakori — January 27, 2011 @ 1:59 pm

  13. All Goff needs is staffers who can Google. No good waiting for the media to do their own work. Got to put it in their hands, complete with speech bubbles and pictures.

    e.g.

    2011: We must follow Key’s plan, or we’ll be like Ireland.

    2008: Key’s plan – Be like Ireland!

    http://www.nzherald.co.nz/trade-deal-with-china/news/article.cfm?c_id=1501819&objectid=10510102

    Comment by sammy — January 27, 2011 @ 2:01 pm

  14. 2008: Key’s plan – Be like Ireland!

    I don’t think that included an economy and dependent on a real estate bubble.

    Comment by StephenR — January 27, 2011 @ 2:03 pm

  15. danylmc….wtf. Where did the student pc thing come from? whip it out of thin air like the Goofs coin to pay more to laybouts and bludgers? Fraid to say its very much a self employed pc bought and paid by the sweat of my brow…which hasn’t ever supped from the tertiary teat

    Comment by Goon — January 27, 2011 @ 2:04 pm

  16. In the absence of either of them making any comment on quality of spending and appropriate tax levels to reach that spending (a girl can dream, no?), Key took the win for at least making moves to close the gap between the two. Unless Goff’s top tax rate really is an Aussie 45%

    Comment by garethw — January 27, 2011 @ 2:05 pm

  17. Danyl – I work with a lot of people on less than 50K a year and both the no GST on fresh fruit and veges and the tax-free threshold had them nodding favourably at Labour. I would agree that neither of those policies have yet caused them to switch to Labour from than nice man Mr. Key.

    BUT… Asset sales will stop them voting National. Key seems to think that his personal popularity will carry asset sales. I think he is wrong. Key and his advisors have taken a big leaf out of the GOP’s identity politics of the right and (like Sarah Palin) much of Key’s popularity relies on him being a blank canvas for the “oppressed” majority to project onto.

    Therefore to me, he has made a grave mis-judgment of the nature of his popularity by fronting privatisation – probably the policy most loathed by the elecorate. What he has done is forced people to start looking at him for what he is, not what they would like to imagine him to be.

    Comment by Sanctuary — January 27, 2011 @ 2:21 pm

  18. I think you’re overestimating how much the general public cares about government debt and deficits. When given a choice between racking up debt and cutting entitlements that directly affect them such as interest free student loans, healthcare or pensions the public tends to favour the former rather than the latter. Sure, ‘centrist’ assholes will furrow their brows and right-wingers will jump up and down about it (since debt is really really bad if it’s caused by a left wing party while any surplus is over-taxation) the average ‘punter’ doesn’t really care about debt relative to other issues.

    But yes, Phil Goff created a rod for his own back by not at least giving a vaguely plausible explanation of how to pay for the tax policy, it’s especially dumb because he could have proposed scrapping fat ETS subsidies for polluters and forced National to defend its crappy scheme all over again.

    Comment by Mike — January 27, 2011 @ 2:38 pm

  19. Actually, I don’t really care about part ownership of the energy sector. I think this is a (very successful) diversion. The more important part of Key’s speech was the bit where he said they were going to reduce new spending this year to $800-900m. Which means about a 1% annual increase in government expenditure. That’s going to hurt. A lot.

    Public sector pay claims are already getting interesting. Once the various health sector ones ramp up it could make for an interesting election year.

    Comment by Dr Foster — January 27, 2011 @ 3:02 pm


  20. Imagine if Goff had promised to raise taxes on high income earners, crack down on tax evaders and use the money to restore payments into the Super fund and pay down the Key-English deficit.

    Nah, you and the rest of the commentariat would be snarking about how nobody outside the beltway cares about fiscal balance, and the noise about tax increases would be substantial and from all sectors. You’d be saying what a terrible political strategist Goff is, and how his PR team were softer than a Tip Top in harsh January sun.

    Comment by George D — January 27, 2011 @ 4:23 pm

  21. You seem to have forgottent he golden rule Danyl – you can borrow 100 million dollars a week if you are giving it directly to the rich through tax cuts, but 20 million a week to everyone is outrageous.

    Better to sell the assets owned by all of us and then sell it back to the wealthy who can afford it. Then they can run it into the ground and force the government to buy it back again to save it. But of course these will be ‘ma and pa’ investors – you know all those families that are currently sitting on 10K and thinking about what they could do with it – there must be tonnes of them around.

    Comment by Tim — January 27, 2011 @ 4:54 pm

  22. We could create depth in our capital markets by requiring the major banks to have a NZ subsidiary listed on the NZ stock exchange with at least 30% public shareholding. This is justifiable on the basis of financial security (so the Aussie bank don’t starve NZ of money in the next credit crunch) and also on the basis thatthey benefit from a de facto government gaurantee, and should be listed in NZ in return.

    The banks would squeal, but it would be wonderful for the sharemarket, investment, and the current account deficit.

    Comment by Vibenna — January 27, 2011 @ 5:50 pm

  23. Goon: Danyl’s comment was probably based on looking up your IP address.

    I suspect Labour now regrets their GST free fruit gimmick, which didn’t win them any points in the polls but means they’ve got to scavenge up an extra $250 million dollars a year to try and fund it.

    Luckily for them, they’ve got three years before they need to even think about seriously trying to implement it (three years in which they are also free to scrap the policy if they like). One of the benefits of going into an election you are certain to lose.

    Comment by derp de derp — January 27, 2011 @ 6:48 pm

  24. Imagine if Goff had promised to … crack down on tax evaders…

    Nice thought, but it’s difficult to imagine a caucus that full of people that devoted to minimising their taxes getting serious about a policy like that.

    Comment by Psycho Milt — January 27, 2011 @ 8:47 pm

  25. @derp de derp – Labour may lose the next election. But it remains to be seen if MMP does it’s job and prevents John Key from “winning” the next election. After all, the whole point of changing the electoral system was to hamstring any further radical new right change in this country.

    Comment by Sanctuary — January 27, 2011 @ 9:04 pm

  26. You are still deluded Sanctuary, must be all the sub 50k people you hang with.

    Comment by leon — January 27, 2011 @ 10:27 pm

  27. You are still deluded Sanctuary, must be all the sub 50k people you hang with

    That would be most people in New Zealand. The median income in New Zealand is $27k. The median income for wage and salary earners is $39k. You wouldn’t know that if you read the newspaper or watched the news, so it’s not surprising that the political discourse in New Zealand is so perverted. You might even say delusional.

    Comment by George D — January 27, 2011 @ 11:40 pm

  28. Say again George.

    Comment by leon — January 28, 2011 @ 7:31 am

  29. George, relevant article:

    How much, we asked our group [of high-income lawyers and bankers], would it take to put someone in the top 10% of earners? They put the figure at £162,000. In fact, in 2007 it was around £39,825, the point at which the top tax band began. Our group found it hard to believe that nine-tenths of the UK’s 32m taxpayers earned less than that. As for the poverty threshold, our lawyers and bankers fixed it at £22,000. But that sum was just under median earnings, which meant they regarded ordinary wages as poverty pay.

    Comment by derp de derp — January 28, 2011 @ 8:07 am

  30. i vote vibenna for Minister of Finance!

    and regarding tax evasion: every dollar gained from an evader has a cost called “IRD salaries and overheads”. the cost-benefit ratio on current evasion practices is already pretty low…

    Comment by Che Tibby — January 28, 2011 @ 8:32 am

  31. The imbalance in corporate reportage of Goff and Key’s opening gambits has been particularly blatant, even by the lowly standards of our msm. I wonder which party they’ll be backing for the election ;)

    Comment by the sprout — January 28, 2011 @ 2:18 pm

  32. Only because you and the rest of The Standard authors are raving mad and pathetic. Everything is a fucking conspiracy to you lot.

    Comment by gingercrush — January 28, 2011 @ 2:30 pm

  33. But Key and English are the reason we have this gigantic deficit. John Key’s perceived strength during the election was that his financial genius would transform the national economy, and English was supposed to be this shrewd, wise guardian of the government’s books. In reality they’re proving to be a pair of colossally irresponsible, incompetent fuck-ups…

    I thought to myself when John Key announced his privitisation plan, and qualified it in all sorts of ways, that really, he hasn’t a clue. None of them do. English. Brown-kingcoal-lee, Smith, Carter. None have a nodding aquaintance with anything to do with sensibility. They simply do not have a clue about what should be done.

    Comment by Chris — January 28, 2011 @ 11:20 pm

  34. Er, think you’ll find Cullen and Clark are the ones who racked up the huge mini bar bill that couldn’t be paid as they had also bought a new train set

    Comment by leon — January 29, 2011 @ 5:38 am


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