National's $11.5bn Black Hole

There seems again to be a little bit of fiction floating around about the budget surplus - that we can somehow afford $4bn a year of tax cuts, because we have a large budget surplus now.

We have a large budget surplus today because:

• we've enjoyed five years of unusually strong economic growth. That's easing back now.
• Labour has set realistic fiscal limits and stuck to them - constraining public spending growth to below that of the economy.
• Labour made a policy decision to cut debt and save for the future.

The Budget surplus (OBERAC net of NZ Super fund returns, which get invested back into the fund) is forecast to decline as follows, on current policy settings (at 8 August):

2004/5: $7.8bn
2005/6: $6.8bn
2006/7: $5.6bn
2007/8: $3.4bn
2008/9: $4.4bn

If you take a round $4bn off the last three years of this, you see that you end up like this:

2006/7: $1.6bn
2007/8: -$0.6bn
2008/9: $0.4bn

All three numbers are too small to meet National's stated commitment of making payments into the NZ Super Fund from the budget surplus. They'll force the surplus down to the point where the government is borrowing billions every year to pay for tax cuts. This is a truly shocking set of numbers.

We have a large surplus because of high growth. The economy is slowing and the surplus is shrinking, as it was always going to do eventually. To then promise a $11.5bn hit of a tax cut is ludicrous.

To try and explain it another way, look at this figure (page 27 of the PREFU, split in two for easier viewing). It shows that over all the four years, on current estimates, there is a net borrowing requirement of $1.0bn. If National gets elected and implements their insane fiscal policies, that will jump to $12.5bn.

They claim they'll cut spending growth - but it was already tight as a drum under Labour, if you take an honest look at the accounts. Unless they start slashing services, they won't be able to do it.

Yes folks, $11.5bn more debt from National. That's close to Think Big all over again - and what do you get for this round? Absolutely bloody nothing, except a few bucks in your pocket. It's the same as the amount to be put into the Super Fund over the same period. Borrowing to save. Fan-bloody-tastic.

So we would have a additional $11.5bn debt lump, or cuts to service, or a mix of both.

Comments

[pacman]

You forget that they will be saving $1 bn a year from not introducing the flawed student loan intrest free scheme...

[JW]

National will just use the rising debt as justification to slash social spending and sell off state assets.
Get into debt, and they believe it will be an easier sell to the public when they want to hock off state assets and put a few more children into poverty.

[Jordan]

pacman - wrong.

The budget surplus figures above do not include Labour's student loans policy. They do include the provision for new spending out of which the student loans policy will be funded.

And $1bn/yr is three times the cost of the policy, in any case.

[dogsbody]

Jordan,

- "They claim they'll cut spending growth - but it was already tight as a drum under Labour"

For God's sake man, I just snorted coffee over my keyboard!

JW,

Can you please explain how selling state assets makes the country poorer, assuming that a proper market price is achieved? i.e. how is the state holding assets any richer than the state holding the equivalent market value in cash?

[Jordan]

Dogsbody: we've had increases of a couple billion a year. That is tight by historical standards and has seen public spending drop as a % of GDP.

You don't have to like the facts, but you should not take it out on your innocent wee keyboard (or your nose) when you get it wrong and are confronted by things you'd rather not hear!

[Paul]

Hey this is good.

We now know without a shadow of a doubt where the line in the sand has been drawn.

Some bollocks about more money in individuals pockets, read "shite load for rich - pittence for the poor"

And aparently socialst hell hole with nanny state trying to shove a pacifier up our jacksies.

At least the voter can now decide.

[JW]

Dogsbody,
What i am saying is, putting the country into debt is creating the perfect opportunity for those on the right to make a case for selling SOE's, the majority of the public do not want sold, so as to pay off the debt. Simple.

[Simon]

Bean counters of the world unite!

Sell the SOEs and that will save $7.5 billion over the time period. Sink the sale proceeds into the Cullen fund freeing up another $12.2 billion. That’s nearly $20 billion. The Cullen fund will quickly make better returns that those SOEs wot need retained earnings reinvested to keep afloat.

Tax cuts piece of cake.

[dogsbody]

Paul,

The question is what is the appropriate and fair level of taxation: How proposed rates happen to differ from existing ones is completely irrelevant (beyond the cheap propaganda value).

So rather than valueless "tax cuts for the rich" jibes, tell us instead what the tax rate(s) should be, and then try and justify them.

[dosgbody]

JW,

I don't think National would use a fiscal deficit to try and justify selling state assets. It would smack of desperation and economic incompetence.

Such sales would instead have to be presented as an opportunity, perhaps offering ordinary Kiwis the chance to buy some shares at a discount.

[tim barclay]

Eat that borg collective. This package is all about giving all tax payers relief and providing a fair break if you want to work harder, get that promotion, upskill get a second job. Not just a few that the borg say "deserve" tax relief because they chose to have babies.. DESERVE tax relief, indeed, that is what your ad says. Who do you think you are. This is fair to all New Zealanders not just ones the borg says deserve tax relief. That word deserve sums up the borg, but they used the word in their ad not me.

[Mark]

I don't think you can use those budget surplus figures as any tax cut which is not calculated on what the surplus may end up in the future.

For example, every dollar returned to the New Zealand tax payer if spent will accure 12.5% in GST revenue for the government (New Zealand has a low savings rate - I believe it's under 5% but could be wrong).

This does not include the incentive of paying less tax on each dollar earnt, means that some people will worker harder and earn more money. This is a good incentive for people to move into full-time work espcially since employers are crying out for more workers.

[rightkiwi]

I have read all this carefully and it is, to be polite, a load of crap. You clearly do not know how to read a set of accounts. Nor do you understand that finance for capital projects should be long-term. You ignore the savings National has pledged to make (including the harm Labour's student loan nonsense would do to the cash position). And you do not seem to be able to grasp that an economy is dynamic, and that forecasts more than a couple of years out are pointless - the forecast is the one figure you know will not be hit (just as when a pregnant woman knows that the due delivery date has a 95% change of NOT being the day the baby will be born).

Keep trying mate, but the amazing thing today's announcement has shown is how over-the-top Cullen's budget surpluses have become.

[tim barclay]

Yes I am afraid the borg collective is only capable of doing a static analysis, but then they want to freeze evryone on low pay topped up by welfare. Given that Labour run the politics of envy it suits them politically to have this great sea of poor people dependant on a portion of their living standard supported by welfare.

[sagenz]

jordan forgetting the "unallocated" spending is just like you. with unallocated spending you have just comprehensivley proved nationals wonderful tax plans are completely affordable

[Paul]

Tim,

"freeze evryone on low pay topped up by welfare"

How does nationals $12 a week extra for low income people suddenly make them not on a low income?

Simple question. the rich get a hell of a lot richer, the poor are also aparently now not poor, it's amazing how far that extra $12 is going to go under National.

[Mike]

Nice work jordan, good to see someone has done their research

[Gooner]

Haven't you all lost sight of the real issue here?

And that is that both parties are trying to run the country spending your money for you. The economy in this country is not the Government of whatever persuasion. It is the workers; the small business owners and the mums and dads who get off their backsides to make a living for their family and themselves. We need less government in these peoples lives, not more. Goverments need to stop making our decisions for us. Plain and simple.

[bobrien]

Paul what do you call rich.

I earn $80000 per year and support my wife and 3 children under 5.

Does that make me rich?

By the way to justify that income I work long hours and frequently have to travel.

[Paul]

Bob,

I have no doubt that you do work hard and long hours etc etc fantastic for you.

But we are in almost the same situation, minus 1.5 children, and I do consider ourselves well off, but that is all relevant. My old man earns about $27K (I can't quite remember before gooner or Tim jump down my throat)

Considering that the average income is well below that, and many many kiwis earn far less than this, we are well off.

[Paul]

Funny,

how Rod Oram, Gareth Morgan and Tim Hazeldine on Campbell had a go at the gnats tonight.

But we'd hate economists to be critical.

As Gareth Morgan points our, the economists can work out the money, who spends what, who taxes who etc etc, and it comes back to the voter and they are egalatarian by nature.

[PaulL]

Bah. There will be no deficit if we don't spend the unallocated slush fund. And growth rates will rise - in the long term the country will be better off.

The average NZer doesn't see someone on $50K as being rich. Most aspire to that level of income themselves (or more) - there aren't too many people who expect to earn $27K all their lives. Those who do presumably have either ignored their opportunities, or completely failed to learn new skills in their time in the workforce. Or made a lifestyle choice to stay at that income level.

[ZenTiger]

Yes Paul, some are well off. That is not to say rich. National have said rich is $100,000. Labour say even $50,000 is rich. Especially if you don't have kids.

This isn't about telling the well off people to shut up and pay what is asked. The well off and the rich already pay the lions share of the tax. Even after the adjustments they still will.

But the break points National have set sound fair. Fair in that we don't begrudge people that have worked hard and had a few breaks and are doing ok. We wish them well. They still pay the bulk of the tax, and that is appreciated.

And the rich? National say $100,000 plus. I'll go with that. There's still a few of those, and they'll pay a good share into the kitty. Thanks.

But what about the poor? It isn't fair they are not getting the help they deserve. Is it just a question of taxes though? Is 39% or 42% really the tipping point?

I don't think so. It is how the government is structured, and the culture of service delivery. The government gets tonnes of money, and it just pisses it away.

How many small business start-ups were deprived because global giant EDS got a million dollar welfare payment from Labour? How many more from Hubbards? The money from TWO corporate welfare deals would have helped countless start-ups.

How many businesses did IRD close down after charging DOUBLE the tax owed in penalties? I work with a lot of accountants. The number of cases they could recount where the client paid back the principle, and got no respite from IRD is not just sickening, it is CRIMINAL. The number of businesses with money lost to excessive fines from IRD is worse.

The problems of bad judgements from CYFS indicate a more serious problem, where families are destroyed. People with the power to help, instead hurt.

TVNZ have a $52,000 booze up. Tip of the iceberg. That money would make a difference to Women's Refuge.

Half a billion dollars spent on Wananga over 6 years. If they had only had half the money, but controlled outcomes, you would have 250 million in the kitty to help with student loans.

Why not throw that money into a trust fund and see who needs their student loan simply written off, due to their financial situation over the last three years. How many people genuinely need that kind of help rather than a blanket interest free deal?

Its lip service to the environment and lip service to road safety. We could have all low income houses with free insulation for a cheaper price than the first years Kyoto payments - saving energy and improving asthma problems in our kids. All motorways could have had median barriers installed after 6 years in Labour, to make a real difference to the road toll, rather than millions of dollars in TV adverts about speeding.

These stories are repeated throughout the service. Look into the failures in the social service and we see the true problem preventing us helping those in need. There are success stories, but far too many failures and wastage for any government not to be treating this as the number one problem facing the country.

Well, that's the way I see it.

[tim barclay]

National's tables give people an incentive to earn more money and keep it. If you want to stay on $27,000 forever then I suppose baying for handouts from the Government is your lot. Well vote Labour then. National says get a second job, upskill, do overtime and when you do we will not tax you more than 20% and if you are on welfare support we will keep your effective tax rate below 40% (i.e. the same as the top rate). Now how is that bad. But I accept the borg are polling well and their politics of envy and making everyone frightened and dependant on the state works well in this little country. Internationally we are only talking about a change in the makeup of the Gore Disrict Council, so I do not care really.

[Paul]

Tim

back on plaet earth, pre tell, how does one one $27,000 rise up the ranks - to use your words - to earn more money.

Hey what's with the Borg talk, you're sounding like the Forman boy out of That 70s Show, with his obsession with Star Wars.

If by what you are saying, is that unlike your gloating of only a few weeks ago, that the public are now backing a leftist govt option, then yes that is what the polls are showing.

if you mean that you have private polling of the Star Trek fan club, please lets keep that your little secret.

Nice to see the politics of envy has the lowest unemployment rate in the OECD, with strong growth and a very strong verging on overheated economy. But that's what you expect to see from a socialist hell hole Nanny State isn't it.

Funny to see everyone from Dickie Prebble to Gareth Morgan (and that fantastic Magnum PI meets John Holmes moustache), give Helen the points win.

With dear old Dickie giving Helen, begrudingly, a unanamious points decision. I have to disagree with that strange TV1 panel tonight though.

Brash did not win on race, as I have pointed out he's flat out lying, but nobody's pointing that out - it's too easy to bag Maori for shit not even of their own doing.

[tim barclay]

Helen sat there and shouted at Brash egged on by her crowd. I can see how she rose to the top of the Labour caucus. The TVNZ web site on the programme gave 60% for Brash. I could not stand to watch her frankly. So far as rising through the ranks goes well I guess it is not too hard for most people but some will not or cannot. So stay on $27,000 forever and bay for welfare from a Labour Government. Even better go on welfare if $27,000 is all you can earn working, go on a sickness benefit, go to prison, many do.