Wednesday, October 08, 2008

Message to National: Stop the spending [updated]

The Hive has a bunch of excellent questions that have just the one obvious answer:

Here we are in the midst of the greatest shock to the global financial system since the 1930s and where is the government response???
Everywhere around the world governments are in crisis mode trying to do something about restoring confidence but all we have here is a government talking about the money being spent, something they seem pleased about because it makes it difficult for the opposition to campaign on the positive agenda of providing support to the productive sector.
We welcome National's announcements today on the tax front, but hope they move more onto the front foot during the election campaign about the need to refocus activity away from boosting government to boosting more productive activity. Don't worry about Michael Cullen. He has no credibility left. He has just been forced to admit that he has squandered nine years of good growth.
What have we got to show for it? One of the lowest productivity growth rates in the OECD and continuing slippage in the per capita wealth ladder.
Why is National not hammering home this message, and why are they not slamming the current crowd over the waste that has occurred under their management?

Why is National not hammering home this message? For the simple reason that their message to date is essentially no different to the other team's. This afternoon is their opportunity to change that.

Let's be clear, if by "government response" is meant bailouts, deficits and spending on "public works" -- the "depression fighting" nostrums tried and failed in the past -- then I definitely mean none of the above.

But National's tax-cut announcement today, so strongly signalled long before the arse fell out of the world's banking system, leaves them in a bind. The Dominion's Tracy Watkins understates the problem:

After a day of carnage on world money markets and grim Treasury predictions of rising government debt and ballooning deficits, National has taken a knife to its tax-cut package - but leader John Key said the pledge to deliver about $50 a week to workers on the average wage remained on track.

Let's get some perspective: the tax-cut announcement comes not just after "a day of carnage," but (as the Hive says) in the face of the greatest shock to the global financial system since the 1930s, with more, much more, to come. It's not just "rising government debt and ballooning deficits," it's collapsing economies and expectations we're staring into an economic void. In the US in the 1930s the sort of carnage we're seeing now led to a whole decade of carnage. That's the enormity of the problem that any tax-cut package needs to address, because whatever problems with government spending were presaged in the 'PREFU' figures, they're dwarfed by the scale of the economic collapse now racing around the world's markets.

And just by the way, if anyone thinks that in a time of such uncertainty that economists can predict government receipts for the next ten years then I have a bridge I can sell them. There's no way to predict ten years ahead as the PREFU has tried to do -- and especially not now with all the changes afoot in the world's economy. This is the sort of crystal-ball gazing that makes economists look about as reliable as TV psychics. Hell, the PREFU figures were prepared just five weeks ago, and with the world collapsing around us they were already out of date on the very day they were released.

Not the least of the many uncertainties is how governments will respond to the ongoing crises, and the effect that will have on the chaos.

Which is the real interest at the heart of this afternoon's announcement, isn't it: Not so much in the size of the tax cuts, but whether Key and English have realised the enormity of the international problem, and whether they're adept enough to address it. (And when you see the words "adept" and "Bill English" used in close proximity, you realise the nub of the problem.)

English said on Monday immediately after the books were opened that the tax cuts would still go ahead as planned. Key said yesterday they would still go ahead, and would be slightly altered. And he said they'd be tax cuts without borrowing,

That doesn't give cause for encouragement. First of all, we're all of us aware the economic outlook has more than slightly altered. If the plans haven't more than slightly altered, that's a worry. And second, we already know Key is spinning when he says he's not borrowing for tax cuts.

A responsible political party doesn't spin. They don't need to.

A responsible political party would know that a cut in taxes should be accompanied by a corresponding cut in government spending.

They would know that when the economy tanks, then government receipts go down -- so even more cuts need to be made.

They would know that if they cut taxes without borrowing to fund either tax cuts or infrastructure, they bid valuable resources and capital away from the people who do grow the economy, leaving them in the hands of the unproductive government sector.

(They would know too that to the extent they don't cut government spending at all, they divert valuable resources and capital into the unproductive government sector, and away from the people who do grow the economy.)

And they would know too that they need to resist the siren calls of those who claim deficit spending is desirable in a depression because it provides the "purchasing power" to "stimulate" the economy. They know that the US government under both Hoover and Rooosevelt ran enormous, eye-watering deficits right throughout the thirties and early forties, with the only effect being to delay the recovery for that long (the deficit went from 20% of US GDP then to 40%, then finally, desperately, to 128% of GDP! It was "bold" interventions like this that prolonged the Depression, turning it into the only market correction that is associated with an entire decade. (The Depression actually lasted 16 years, all of which featured high-powered deficit spending.))

What anyone with a brain does know is that things are going to be bad, and that when things are bad government receipts will drop -- there's just no way round that. So what's crucial this afternoon is to see whether National knows this, whether it has planned for this, and whether therefore its tax-cut plans include plans to cut spending to match those cuts in receipts.

It's not like Mother Hubbard's cupboard is bare. It's not. It's just dripping with fat, fat rich with pork -- much of it very easily excised. It's just laden down with sacred cows that need killing. You could start with these boondoggles and just work on down:

  • Cindy Kiro's Office for the Children's Commissioner (he hasn't stopped the killing, has he)
  • Peter Dunne's Families Commission (ditto)
  • Paula Rebstock's Commerce Commission (AKA Communist Commission)
  • David Lange's Ministry for Women's Affairs
  • Jim Anderton's Ministry of Economic Development (the economy would develop quite nicely without Jim, thank you)
  • The Ministry of Pacific Island Affairs
  • The Ministry for Maori Affairs (let all 'their people' organise their own damn affairs)
  • The Race Relations Conciliator (have you noticed him successfully conciliating any races? No, me either)
  • The Ministry of Youth Development (let hoodie-wearers buy their own spray cans)
  • Alcohol Advisory Council of New Zealand
  • Asia New Zealand Foundation
  • Electricity Commission (nice work, guys, well done)
  • Energy Efficiency & Conservation Authority (ditto)
  • The National Advisory Council on the Employment of Women, part of Department of Labour (bet there's some unemployable women on this 'council,' right?)
  • The Department of Labour (let's see them work for their money)

As PJ O'Rourke points out, the first secret when you're trying to balance the budget and give tax cuts the size of Texas is to avoid looking for ridiculous examples of government waste. Nope. What you have to do, particularly when things are as parlous as they are now, is to slash wholesale, cutting bone if necessary -- after all, this is only government bone, with most of it concentrated around government skulls.

There's no shortage of spending to cut.

There's no shortage of parasites to sack -- thirteen more hectares of the buggers since 1999!

There's at least $20 billion of fat to cut.

You can stop the wasteful spending on FailRail in its tracks -- stopping the expensive electrification, and the upgrades to Auckland's rail network from which few will ever benefit.

You can stop some of the more ethereal roading projects, like the Penlink highway in Whangaparoa, freeing up construction resources for more important private activity.

You could pull some or all of past and future election bribes -- interest-free student loans, Welfare for Working Families and the like.

You can realise there are 407 -- four hundred and goddamn seven! -- government departments, offices, organisations, councils, SOEs and quangos just waiting, nay demanding, to be chopped down to size, in which hundreds of thousands of people spend their days drawing down a tax-paid salary just to dream up new methods by which to get in our way. Given the parlous economic conditions, it would be foolish indeed not to liberate these guys and gals just to get them off our backs, not to mention to save us millions of dollars in tax.

You could do all or even some of that ... or you could make it obvious to everyone that you're not a responsible party, that you have no idea how to respond to the world's economic crisis, that you'd be no damn different to the current bunch of thieves except in the form your election bribes take.

In just a few hours time I guess we'll have our answer.

UPDATE 1: We had our answer: it was the latter. Liberty Scott summarises: The top tax rate inches down to 37% over 2 years, the bottom rate from 21% to.... 20%! The envy tax stays. The threshold for reaching the 33% rate moves up to NZ$50,000. And for low income earners, there's actually a small increase in tax.

Truly pathetic.

UPDATE 2: Pacific Empire updates the complete list of bureaucratic sacred cows that need to be slaughtered. See How Big is Our Government?

Labels: , , , ,

18 Comments:

Blogger Luke H said...

Thanks for this post, PC - it prompted me to take action and create a lengthy illustration of the size of Big Government.

10/08/2008 03:13:00 pm  
Blogger Owen McShane said...

You don't look for the ones to chop.
You start from a zero base - they are all chopped.
You look for the ones you really need to keep!
Aaron Wildavsky's studies on budgeting showed that it is virtually impossible to reduce department.
The only way to reduce it is to remove the whole department.

Maybe though we could keep the Department of Breast Awareness.

10/08/2008 03:51:00 pm  
Anonymous Falafulu Fisi said...

Luke, can you give me a good reason why insider trading is OK with the Libz that the Security Commission should be chopped?

10/08/2008 03:55:00 pm  
Blogger Luke H said...

Hi falafulu fisi,

In general, I suspect the function of the Security Commission could and should be carried out by the privately owned stock excahnges (eg NZX). Why should the public foot the bill for keeping track of these things?

There is an argument that insider trading is a great way of supplying information to the markets, but by your combative tone, I'm guessing you don't want to hear it.

10/08/2008 04:02:00 pm  
Anonymous Falafulu Fisi said...

Luke said...
Why should the public foot the bill for keeping track of these things?

I agree with that, but PC's view (assuming that's the Libz's view) is that there is nothing dodgy or fraudulent about insider trading. Perhaps PC can elaborate a bit more on insider trading here.

In this Rand related website, it says that insider trading is Ok. My view is that insider trading is fraud, which I thought the Libz are against.

10/08/2008 04:19:00 pm  
Blogger Ruth said...

Insider trading, and by definition fraudsters, is NEVER OK.

For markets to be truly 'free' they must be transparent, with all available information in the public arena.

So the current Libz agree with insider trading and morally dubious financial transactions - no surprises there. If you don't agree with a law, simply disregard it. You get around the NIOF and fraud principle that way.

Another reason why there will be a new libertarian-ish party come 2011.

So carry on about how insider trading is good - we love it and so will all NZers ;-)

10/08/2008 04:22:00 pm  
Blogger Elijah Lineberry said...

Falafulu ...where does PC say he would abolish the Securities Commission? (I cannot find it mentioned in his post)

But in any event the Securities Commission does not particularly need to exist; as Luke said, many of its functions are simply duplication as the NZX does a good job against insider trading and market oversight.

In terms of a prospectus for an investment, the Securities Act is fairly clear and there is no particular reason to register a prospectus with the Securities Commission..(has anyone heard of a prospectus not complying with the law?)

10/08/2008 04:41:00 pm  
Blogger Julian said...

Ruth,
If shareholders agree/decide that the management of their company (the insiders) can trade in the firm's shares with no restrictions, then what gives you, the government, or the Securities Commission the right to force the shareholders to change the way they run their company?
Julian

10/08/2008 05:00:00 pm  
Anonymous Falafulu Fisi said...

Elijah said...
I cannot find it mentioned in his post.

No, he didn't. My question was oriented to say, that insider trading is a fraud, whether the Security Commission exist or not. If the NZX is policing it and if the Security Commission is chopped, that wasn't the main point I was asking. I was commenting why the Libz has no problem with insider trading, considering that the Libz is against fraud. PC approves insider trading, ie, he has no problem with it (you might want to give him a quick phone call to confirm what I've just said here).

Disregard my comment related to the Security's Commission, if you think that NZX is strong enough to do the policing of insider trading.

I just think that these cases drag on for ages, whether NZX can stomach the huge cost to take action against those who engage in insider tradings.

What's your position Elijah? Insider Trading is fraud or not?

10/08/2008 05:26:00 pm  
Blogger Julian said...

Falafulu Fisi
Given your question to Elijah, I address my question to Ruth to you also.
Julian

10/08/2008 05:54:00 pm  
Anonymous LGM said...

FF

In essence Julian has already answered your question.

Should the shareholders of a company decide that the management and/or other employees be allowed unrestricted right to trade the company's stocks, then there is no problem. On the other hand should they decide that the management and/or other employees not be allowed to undertake such trading activities, there is also no problem. In both cases they would need to negotiate and implement appropriate employment contracts with all the appropriate clauses and conditions. If a manager or other employee breached an employment contract, then sanction could be taken.

Deciding whether insider trading be allowed or not is properly a decision for that particular company's shareholders.

Similarly whether management and/or other employees be allowed to supply vital information and/or confidential information (including financial information) to people outside the company and under what conditions, is a matter that is properly controlled by an employment contract. Indeed many employment contracts already stipulate when and what information is controlled or confidential etc. So, as previously, if a manager or other employee breached an employment contract, then sanction could be taken.

Deciding whether disclosure of certain information be allowed to people outside the company, and under what conditions this be so or not, is properly a decision for that particular company's shareholders.



LGM

10/08/2008 06:01:00 pm  
Blogger Ruth said...

Julian, I gave your question to my husband - who agreed with my comment - of course ;-)

He is VP of Citigroup, and has just spent 1 1/2 hours with Bollard talking about the reccession. He is also a memeber of the board of the banker's assoc.

"The problem is that you are not trading with yourselves. You are trading with other people who do not have the same information that you have. If you try and use your information to stiff the others then you have stolen from them.

It has nothing to do with the Securities Commission.

You either know that the shares are worth less than you are trying to sell them for or you do not. You assume that the shares are going down, or you are stupid. If you are buying from the other insiders then, best of luck."

Insider trading is fraud pure and simple.

It is not part of the Libertarian cannon as most people see it.

10/08/2008 07:01:00 pm  
Anonymous Julian said...

Ruth (and Ruth's husband)

Ruth’s husband responds:
"The problem is that you are not trading with yourselves. You are trading with other people who do not have the same information that you have. If you try and use your information to stiff the others then you have stolen from them.

"

and then Ruth said
"You either know that the shares are worth less than you are trying to sell them for or you do not. You assume that the shares are going down, or you are stupid. If you are buying from the other insiders then, best of luck."

Insider trading is fraud pure and simple. 
"

Julian replies:
There is no problem as you assert. You are trading with other people who are aware that insiders may be trading. They choose to transact or not. If no investors wish to transact under such contractual terms, then there will be no purchasers willing to purchase shares. It may therefore be in the best interests of the shareholders to adopt resolutions which restrict the trading of stock by management (insiders) but that is over to the company and shareholders. It is not the business of government, the Securities Commission or you.


Ruth:
It has nothing to do with the Securities Commission.



Julian responds:

See the Securities Commission website:

There are also laws against trading in shares by insiders, that is people who have information about a company that is not known to other shareholders. The Commission investigates suspected breaches of the law, and can take court action to seek civil penalties.

(See http://www.seccom.govt.nz/about/what-we-do.shtml#1)

In the US, the SEC takes a similar role.

Ruth says:
It is not part of the Libertarian cannon as most people see it.

Julian responds:
What I have outlined is how free men come to a set of arrangements to accept or prevent the trading of shares by insiders. It is up to them to decide how to respond, no-one else. The presence of insider trading between management (insiders) and shareholders when the contract (the Articles of Association/company constitution) prohibits it, would be a breach of contract and legal remedies would apply as per contract law.

By the way, highlighting your occupation (or your husband's) and who you (or they) have met recently does nothing to strengthen an argument.

Julian

10/08/2008 07:59:00 pm  
Blogger Ruth said...

This comment has been removed by the author.

10/08/2008 08:22:00 pm  
Blogger Ruth said...

This comment has been removed by a blog administrator.

10/08/2008 08:25:00 pm  
Blogger OECD rank 22 kiwi said...

I agree with PC that bludging for Families should be scrapped.

There is plenty of government waste to cut and what better place to start than bludging for families.

The more tax cuts the better.

10/09/2008 01:20:00 am  
Anonymous Anonymous said...

They should simply all go. immediately.

no notice, no warning, just shut the fuckers down, and ban their employees from any benefits (not that there will be any benefits) or every working for the government again, or from voting. ever.

and yeah PC, why not list the fucking biggies: Health, "Education", welfare. switch the lot off too

and cut any remaning "civil servants" (aka "civil bludgers") salaries by 50% except the police and the army

fuck em - they deserve nothing at al

10/17/2008 06:27:00 pm  
Anonymous Anonymous said...

n this Rand related website, it says that insider trading is Ok.

there is no such thing as insider trading. the concept of "insider trading" is a socialist lie that increases the power of the government.

Because, you see, even the fucking commies running the country don't believe in this kind of naive crap:

For markets to be truly 'free' they must be transparent, with all available information in the public arena.

that is impossible. there can never be equality of information or any other kind of equality. it is against the laws of physics for a start, and basic mathematics too.

the free market is about freedom. not equality. fuck off and vote labour if you want equality. think libs and vote act if you are a human being.

You either know that the shares are worth less than you are trying to sell them for or you do not

it's called the free market. get used to it.


Deciding whether insider trading be allowed or not is properly a decision for that particular company's shareholders.


nice in socialist-corporatist theory but completely antithetical to liberty. Why? because insider trading is a three-party transaction: the company, the insider, the outsider. The company's contract cannot bind the outsider. Sure you can bankrupt the insider, torture them, and have them shot under a true free market law, but you cannot go after the outsider (because the didn't sign the contract).

And chances are, killing the insider, confiscating their assets (and let's include their family too under a familial responsibility law) won't anywhere near recoup a serious "insider trading loss"

so either you have to be socialist, and have criminal sanctions and extended liabilities for this, for people who aren't covered by the company's contracts, or you choose freedom and don't have laws against liberty


By the way, highlighting your occupation (or your husband's) and who you (or they) have met recently does nothing to strengthen an argument.


wrong once again: actually it's precisely the point.

it's called freedom

10/17/2008 06:37:00 pm  

Post a Comment

Respond with a polite and intelligent comment. (Both will be applauded.)

Say what you mean, and mean what you say. (Do others the courtesy of being honest.)

Please put a name to your comments. (If you're prepared to give voice, then back it up with a name.)

And don't troll. Please. (Contemplate doing something more productive with your time, and ours.)

<< Home