Opposition plan to rein in debt a stretch at best


In 1991, the then Minister of Finance Ruth Richardson presented probably the most infamous fiscal budget in New Zealand history. It was called the Mother of all Budgets. Controversial among even her colleagues to the point that it led to notable members of her National Party resigning from Parliament; from the National Party, the social service cuts that the budget enacted were some of the most savage in New Zealand history.

30 years later, with COVID19 afflicting the world and New Zealand, having managed to largely freed itself from the pandemic, trying to get its house back in order, National Party Finance spokesperson Paul Goldsmith wants another Ruthanasia-esque slash and burn.

I find it quite striking that Mr Goldsmith is so keen on this plan. This is particularly so when one considers that the same party has just indicated it is not keen on the idea of a health system overhaul, which would among other things;

  1. Better allocate funding for projects and resources
  2. Improve efficiency of monies distribution throughout the system
  3. Provide greater accountability to the Government and taxpayer

There are other Government ministries and departments that could do with an overhaul of how they work. One is Ministry of Social Development. I have described the issues facing them in various articles here, but it needs to be said that the legal framework under which M.S.D.’s umbrella agencies such as Study Link, Work and Income New Zealand, Child Youth and Farmily Service need to be reviewed as well.

There is more to achieving savings though, than simply cutting expenditure. If the investment in appropriate services by the Government is not adequate, this can create additional unintended issues by locking up monies by throttling those services. Simple as it may sound, the lack of willingness by politicians to understand this is really quite incredible.

But I do not think anyone should be dreadfully surprised that National are trying failed methods for the umpteenth time to lower debt. The Government of Prime Minister John Key promised “a brighter future” for New Zealanders at large. Whilst it is true that this was certainly the case for the rich top 3-5% of New Zealanders, the vast majority of New Zealanders saw little or no meaningful improvement in their financial situations.

The $80 billion in cuts being proposed by National are – to put it very mildly – deep. Their Treasury spokesperson Paul Goldsmith suggested that within one decade his party would seek to reduce debt to below 30% of Gross Domestic Product.

To achieve that National have two choices:

  • Significant tax increases, or – more likely;
  • Significant cuts to public services across the board

Based on their philosophical stand point and strong aversion to increasing taxes, massive cuts across the board to public services are far more likely. But is it possible that those cuts will be so deep as to cause lasting damage to health, social welfare, education, policing, housing and other areas with a social focus?

Quite.

The last time such cuts were made, they were in the Mother of All Budgets presented by Mrs Richardson in 1991. Ruthanasia as it was crudely named by social activists at the time, was a systematic demolition in a single budget in 1991 of a solidly constructed welfare state. Social benefits were cut across the board; user pays were introduced for many requirements in hospitals and schools; state housing was handed over to companies under Government contract in all but name.

My generation of New Zealanders were in primary and intermediate school when these were announced. Having seen the intergenerational social effects of the framework of the welfare state being so deliberately assaulted, I think the push back would be substantial from both centrist and leftist New Zealand.

But am I sure that National cares?

No.

Taxation in 2020: my thoughts on a socially taxing matter


Tax. A three letter word of a thing whose collection was the job of someone Jesus apparently had sympathy for when nobody would. A thing loathed by libertarian and right wing parties, but seen as essential by many on the left. So, about this interestingly controversial thing called tax, that gets peoples hackles up for different reasons without fail at every election. I believe New Zealand needs to revisit that Tax Working Group report and make some serious decisions.

But before then, we have an election campaign approaching and I think in light of the Green Party tax announcement on Sunday, it is time to state my thoughts.

Goods and Services Tax (G.S.T.) is one tax that people from all parts of the political spectrum seem to agree is a hindrance. For the low income earner the few extra dollars that is paid as a result of G.S.T. is possibly the difference between being able to afford an essential item and having to scrounge around for a couple of extra dollars. Lower income earners also as a result find it much more difficult to invest and/or save. I personally believe G.S.T. should be cut to 10%. I will explain later where I believe the other components of the tax system can make up for the subsequent loss of revenue.

Every election, National and A.C.T. have campaigned on doing something about lowering income tax. One can be fairly confident that the 2020 election will be no different. Not surprisingly they will target the upper income tax brackets – shown below – and say that the tax cuts will benefit all New Zealanders. The current brackets are:

  • $70,001+ = 33%
  • $48,000-$70,000 = 30%
  • $14,001-$48,000 = 17.5%
  • <$14,000 = 10.5%

Instead of further cutting the top tax bracket and giving higher income earners an even bigger slice of their incomes, I propose broadening the income range across which the tax brackets are applied. I would support something similar to the brackets below:

  • $150,000+ = 37.5%
  • $67,001-$150,000 = 30%
  • $33,001-$67,000 = 20%
  • <$33,000 = 10%

But simply fiddling around with the income and goods and services taxes is not imaginative and ignores other potential tax instruments that may assist this country. At this point, I give New Zealanders four options from which one needs to be chosen:

  • A Capital Gains Tax. Prime Minister Jacinda Ardern has already ruled it out under her watch, but would she have second thoughts if Labour found themselves reliant on the Green Party for support or in the improbable position of governing alone? And this is certainly not to say there are no supporters for a C.G.T. The New Zealand Herald explored some of the arguments they were putting forward.
  • A Wealth Tax. Graeme McCormack of the Human Rights Commission wrote an article for Noted last year in which he explored how a wealth tax might work in New Zealand – his suggestion was for a 1% tax on citizens net assets (excess of assets over liabilities), exceeding say N.Z.$10 million
  • A Land Tax. Bernard Hickey wrote a column for Newsroom which looked at how a land tax could work in New Zealand. He envisaged a low level broad-based one as being the fairest method. Mr Hickey thought that it would cause an immediate 10-20% drop in land prices. Thus if a section were worth $200,000 land only before applying a land tax it might now be worth $160,000-$180,000.
  • A Luxury Goods Tax. I would assume luxury goods to include vehicles worth over say $150,000; boats worth more than $100,000; any privately owned helicopter, aircraft that is used for non-work related; jewellery worth more than $100,000.

I acknowledge a C.G.T. is a double-edged sword and even if one did get introduced, if it was poorly planned then the wrong parts of the tax payer spectrum might be unfairly targeted. Having a politician no encumbered by coalition partners might be a prerequisite as well. Whilst for reasons of levelling the playing field enough that low income players enter drive a C.G.T., its complexity may be its undoing. The McCormack article article examines a wealth tax, which could be set on net citizen assets exceeding $10 million. This along with the potential land tax explored by the Bernard Hickey article seem to me like the most promising ways in which tax reform could contribute to a fairer society. A luxury goods tax is perhaps the most vulnerable tax to critics who claim it is about envy since the chattels involved will be specifically items that the lower and middle class can only dream about, never mind trying to save enough for one.

 

New Zealand Fiscal Budget 2020


New Zealand Treasurer Grant Robertson must have been a tangle of emotions on the night before the 2020 Fiscal Budget which was delivered on 14 May at 1400 hours. So much riding on probably the single most important budget in a generation: the one that gets New Zealand out of the COVID19 mud pit.

New Zealand’s economy has taken a battering. Of that, there is no doubt. Unemployment may reach nearly double digit percentage figures, with Air New Zealand shedding 3750 jobs; 150+ at the Hermitage Hotel in Mount Cook Village; 300 at Ngai Tahu; and another 240 when Bauer collapsed the New Zealand magazine industry. Thousands more are going in the hospitality sector where the forced closure as a result of COVID19 has sent many restaurants, bars and cafes to the wall.

On one hand he had an unprecedented licence to spend on measures to get the economy going again. On the other Mr Robertson would have been nervous about whether he got the balance right between a big spend up and having enough in the bank for 2021, in case COVID19 did not clear out as fast as hoped for and to cover unforeseen emergency expenditure. And then some how dancing between the two hands, the knowledge that no matter which way he sliced and diced the pie, someone would not get enough support and might have valid reasons to be grumpy.

So, what did Mr Robertson’s Fiscal Budget 2020 do:

  • For people like me finding out that the Government has thrown another $3.2 billion in wage subsidies to businesses was very welcome news – most budgets do little for me, but this one honestly has
  • Kainga Ora has been allocated funding to build another 8,000 houses
  • 11,000 additional jobs will be created with a $1.1 billion fund to support environmental projects’
  • $1.6 billion for vocational training for those out of work and school leavers

Notably the Government had $50 billion it could have spent on New Zealand yesterday. It appears to have allocated around $30 billion of that money, leaving $20 billion in reserve. If I had to guess, Mr Robertson is wanting to make sure that there is enough in the Treasury in case COVID19 is not as finished as we think and a second wave – God forbid! – hits, in which case that is very sensible thinking.

Whilst no Fiscal Budget ever pleases EVERYONE, that was more so the case today. So many people and industrial sectors needing significant help and simply not enough money to help them all, whilst still having enough in the Treasury for a rainy day situation in 2021. Also New Zealand is very vulnerable at the moment. We are busy trying to deal with a damaging economic hit caused by a pandemic that has already taken nearly 5% off the economy, so should we have a major disaster like an earthquake or large volcanic eruption, it would be catastrophic.

Whilst not on the Government’s agenda, there are other ways we could help grow the fiscal pie, which the Government needs to consider in the near future:

  • Increase investment in research, science and technology to 2% of G.D.P. – with money being prioritized for medicine, renewable energy, alternatives to finite resources
  • Bringing back a permanent nation wide apprenticeship scheme
  • Legalize cannabis and establish the industry in poorer regions such as Gisborne, Northland and the West Coast
  • Redefine infrastructure as energy, railways, merchant marine, and invest accordingly instead of just building roads

So whilst the Government has played a largely welcome Budget in 2020, as always there are things that it could have improved on or been willing to give a try. Many New Zealanders want to see meaningful socio-economic change and are sick of the neoliberal model that only supports the very wealthy, and those with greater means than others. This cannot happen if the Government is not prepared to make changes.

 

The $7.5b question: tax cuts; election spend up; something else?


The biggest government surplus in a decade has political and economic commentators thinking: What will Treasurer Grant Robertson do with a $7.5 billion surplus?

A few certainties arise even before that question can be considered:

  1. 2020 is election year and there will no doubt be thoughts of holding at least some of it to throw at election promises in a years time
  2. Certain parties who do not need to be named are going to want – and indeed have already promised – tax cuts, specifically income tax cuts
  3. With a shaky world economy getting ever more jittery with every passing month and the domestic economy not looking so hot, economists and some politicians are suggesting that the government needs a spend up to get things moving

I have long had ideas about what to potentially spend on in the past, which have been largely social areas such as health, education and social welfare. My understanding is that the calls in 2019 are for greater investment in infrastructure critical to the 21st Century.

This suits me fine, as I have a few ideas of what it could be spent on:

  1. Research and development of a potential biofuel programme relying on the waste stream for an appropriate fuel source – take several years to get this started, but if successful modest scale biofuel plants could be established in Auckland, Wellington and Christchurch
  2. Research and development of a Waste to Energy plant for the West Coast, which would be self sufficient in terms of electricity use
  3. Examine electrification of the South Island segment of the Main Trunk Line
  4. Invest in 5G technology nation-wide instead of letting the telecommunications companies do so for reasons of national security
  5. A substantial acceleration of the billion tree programme that was announced by the Government in 2017
  6. Support a mini-home scheme

But what if the Government decided on tax cuts? Whilst there might be enough to justify some I am personally against income tax cuts because the wealthiest are always the winners, when all should be able to gain fairly from them. Such a move would certainly not be welcomed by the left wing of New Zealand politics, who believe with justification that this would only favour the very few.

A more intriguing alternative is one that almost never seems to be up for discussion. Despite the right talking about fiscal responsibility, under the last several New Zealand governments significant debt has been accrued and much of it is still outstanding. Has the ever so radical idea that New Zealand should actually pay moreĀ  of it back not strike one as a useful idea?

2019 New Zealand Fiscal Budget run down


Yesterday Treasurer Grant Robertson announced the 2019 Fiscal Budget, which is delivered in late May. It sets down the spending priorities for New Zealand.The Government made a promise that the 2019 Budget would be a budget about “well being”. Many people on the centre-right thought that the whole idea was all just fluffy feel good spending with little practical value.

At a first glance there appears to be little unexpected expenditure. Defence, education and a number of portfolio’s that have had recent major announcements knew not to seriously expect much more than what had already been allocated. As noted in other articles, the Defence Force is getting P8 Maritime Patrol Aircraft that can watch our waters, but also perform search and rescue. At some point in the next couple of years a solid decision will be taken on what shall replace the C130 Hercules as our major transport plane.

Not surprisingly the major beneficiaries of Budget 2019 have been those who need social welfare assistance from the Government. One of the several measures introduced is to index benefits to wages, which stands to affect about 339,000 individuals and families.

Schools were a surprise winner. Despite the teachers being on strike and Minister for Education Chris Hipkins being adamant there is no more available, $1.2 billion has been set aside for maintenance and upgrading of school property. This will help fund new class rooms for expanding schools, new/replacement buildings.

Perhaps the biggest loser was health. Few significant announcements appear to have been made. I was wondering if there might be money for upgrading hospitals and a modest top up of the District Health Boards following issues in recent years around funding calculations.

There was a very welcome investment of N.Z.$1 billion for railways, as an acknowledgement of the significant but under appreciated role that they play in our economy. Hopefully it will lead to Kiwi Rail better utilizing the South Island track network, which could easily allow more freight to go on rails instead of via road.

National and A.C.T. invariably cried foul on the apparent lack of regard paid by the budget to the economy. This demonstrates to me that they clearly have not latched in any way onto the fact that from Day 1 this Government has said that it will have a stronger focus on the well being of people. It is an attempt to provide redress for the socio-economic consequences of National’s market drivenĀ  philosophy. From those with family in mental health institutions, to those struggling to get their children through school and retirees concerned about being left behind in the digital era, this Budget appears to try to address their needs.

On a cautionary note though, the budget, whilst nice for those in income poverty and having issues with mental health, does raise – again – questions about the wisdom of removing the Capital Gains Tax from the table. Going into election year with National and A.C.T. nipping on Labour’s heals, the money taken from a C.G.T. would have gone some distance ensuring New Zealand’s debt does not get too big.