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