Trevett previews budget
May 21st, 2008 at 8:37 am by David FarrarClaire Trevett previews the budget issues:
Yet far from being the party’s salvation, this Budget – with expectations riding almost impossibly high – could well be Dr Cullen’s Waterloo. Dr Cullen has drunk from the cup of parsimony far too many times and Victoria University lecturer Jon Johansson said it had led to “an intractable negative perception” of him.
A political science lecturer, Mr Johansson doesn’t think it will matter which figure Dr Cullen pulls out of his hat tomorrow. “When you talk to people about Cullen there is real intensity and negativity. I think he is Labour’s biggest liability.”
I think this is right. In some ways it is unfair as Cullen is an incredibly competent Minister, he has generally resisted doing anything really harmful (like tinkering with the Reserve Bank Act, GST, Fiscal Responsibility Act), has presided over or benefited from eight years of strong economic growth and introduced some policies which will be long lasting – the Cullen Fund and KiwiSaver.
But his intransigence on personal tax rates has negated all that to a large segment of the public. If he had moved earlier on tax, then he might retire with bipartisan appreciation as having been one of NZ’s best Finance Ministers.
However you can’t run absolutely enormous surpluses year after year and refuse to lower tax rates, especially as inflation and bracket creep push people into paying more tax every year. Even worse you can’t announce tax cuts and then cancel them – even if they were small insignificant ones.
The problem for Dr Cullen now is that tomorrow’s tax cuts look insincere and grudging. I doubt a single person in NZ really thinks Dr Cullen wants to cut taxes as opposed to being forced to cut taxes.
Dr Claire Robinson, a political marketing specialist at Massey University, said Labour did not deliver what voters wanted in Budget ’07, and many had gone to National.
“There’s not much Labour can do in this Budget to lift itself from the doldrums. It will take a miracle to shift those voters back to Labour, and Michael Cullen doesn’t believe it is his role to deliver miracles.”
While Dr Cullen has been downplaying the size of his proposed three-year programme, National this week has been bandying about figures of $50 a week in a bid to ramp up the pressure on Cullen.
Mr Johansson and Dr Robinson said the public will be deaf to anything Labour has to offer or to arguments that National would be fiscally irresponsible to offer more.
I am confident National’s tax cuts will not be at all fiscally irresponsible. Bill English will not be delivering deficits in Government.
The bigger challenge for National will be the impact on inflation. However this can be over-stated, and one way to deal with this is to have a smaller reduction every year than one big reduction in one year. Also many people do understand that higher interest rates are temporary, while a reduction in tax is permament.C
Related posts:
- Bernard Hickey on the desperate and dangerous budget
- How to recover?
- At long last!
- Dom Post on Budget
May 21st, 2008 at 8:52 am
have you seen the huge poll boost labour in Australia got after the billions in tax cuts….
WEll you havent seen it because there wasnt any boost !!!
Isnt Johansson a national party figure, it would be good to point these things out
[DPF: Johansson is not a Nat. In fact I complained on this blog last election that he was constantly bagging Don Brash and praising Helen Clark.
Secondly it is almost impossible for Labour not to get a bounce from the budget – there is no way the gap can get any higher.
And in Australia I think Rudd will be pleased by the polls showing Labor 14% ahead and Rudd in Preferred PM over 50% ahead.
Vote:May 21st, 2008 at 8:55 am
Tax cuts are not permanent as they can just be reversed by an incoming socialist government.
Governments who want to leave their mark rather than just hold office instead should look for policies which are very hard to reverse, but achieve change in the desired direction. A good example is Working for Families – cancel that and you’ll have a riot on your hands. You can’t take a lot away from people without a huge political cost. To use a blunt instrument of general tax cuts to compensate the relatively narrow beneficiary base of WfF would require huge tax cuts.
On the right, possibly the best ‘lock in’ policy around is education vouchers. If they ran for 6 to 9 years then there would be such a significant constituency for them that they couldn’t easily be unwound. There would be new schools etc, so cutting them would mean large social upheaval, eg the same high political price as unwinding Working for Families.
The Bolger years were really wasted years for the right. What did they lock in? What will John Key lock in? I can’t see anything even vaguely exciting from him. A tax cut. So what?
Vote:May 21st, 2008 at 9:03 am
Ghostwhowanks, it is obvious that anybody who does not blow smoke up Helen Clarks arse must be John Keys lacky.
Could you be any more obtuse?
Vote:May 21st, 2008 at 9:09 am
Ghost – Jon Johansson is definitely a Labour supporter. His comments on his weekly radio interview (Newstalk ZB, saturday mornings) and most media comments would indicate this.
Vote:May 21st, 2008 at 9:15 am
Hasn’t John advised Simon Power in the past?
Vote:May 21st, 2008 at 9:17 am
Working for families is an assault on single people pretty much.
Vote:May 21st, 2008 at 9:18 am
I think your comments are spot on DPF.
The issue I personally have is not tax cuts per se but after 9 years of bracket creep, the average tax rate has increased. Simply increasing the marginal tax rates in line with inflation could have easily addressed this. Based on the figures that have been kicked around, the increase over the past 9 years has been around 25% ie in real terms, the top bracket would need to increase 25% to keep relativity.
Labour has been smart about taking from the rich-er pricks are reinvesting in vote winning areas eg interest free student loans, WFF. The reluctance of Cullen to factor in increases for bracket creep doesn’t match up with his preparedness to spend on ideological projects eg trains.
Simply addressing the issues around bracket creep would leave considerable potential for changes (I refuse to call these cuts).
Vote:May 21st, 2008 at 9:24 am
infused, isn’t that a bit strong? I mean, one could say that any targeted taxation strategy creates winners and losers. That’s life. Not everything balances up so that we’re all treated identically.
Vote:May 21st, 2008 at 9:24 am
DPF: The bigger challenge for National will be the impact on inflation.
True, but remember they have committed to not growing the public service initially. Not the way that Labour has rampantly grown government spending. And to the lefties – not growing is not equal to cutting. The service levels will remain as they are now. But with a reduction in the growth of government spending they might be able to balance things out nicely.
Plus, we won’t see irresponsible spending like Cullen has engaged in. Government spending is just as inflationary, if not more so, than normal spending.
Vote:May 21st, 2008 at 9:28 am
That is true getstaffed. But how can two parents that are earning more than a single person get it and the single person cannot? It’s basically rewarding people for having kids. IMO I think that’s a bad thing. At least tax cuts are a benefit to all.
Vote:May 21st, 2008 at 9:33 am
Finance Minister stands up and sez:
OK, guys. This year you’re going to get a pretty decent tax cut. I’d like to continue to give these every year, but it’s up to you guys. Please don’t blow all the bigger pay packet on crap. If you’re going to spend, spend wisely and get good value. Use it to pay off debt, increase your productivity. Better yet, stick it in the bank and put something aside for a rainy day. If you guys do that, I can almost guarantee you a similar sized tax cut next year.
Well, that’s what the Ozzies have done anyway.
Vote:May 21st, 2008 at 10:24 am
Tax cuts are permanent because I dare any socialist party to propose increasing income taxes. A National Government should make it its goal to substanually reduce income taxation and eventually eliminate it for the vast majority of tax payers say up to $100,000 tax free. That is not an unrealistic goal. Then I dare a Labour Party to start promising to levy it. Whatever the political success of the Labour Party it has not managed to get over 40% of the vote and that will not be enough to form a Government anytime soon in the future.
Vote:May 21st, 2008 at 10:51 am
If tax cuts are permanent then how come we have had such massive increases in tax over the last decade, including an increase in the top rate and bracket creep?
Vote:May 21st, 2008 at 11:45 am
Johansson is not a Nat. In fact I complained on this blog last election that he was constantly bagging Don Brash and praising Helen Clark
Johansson was very critical of Brash (I think history has vindicated him there, the man would have been a disaster for our country) but I don’t think he is very fond of Clark. Its my understanding that he has been advising Key ever since he became National leader and possibly even beforehand. There’s no doubt he enthusiastically supports National this time around.
Vote:May 21st, 2008 at 12:10 pm
Well he was full of praise for Clark last time. If he is not so now, that is interesting.
Vote:May 21st, 2008 at 4:44 pm
Danyl wrote:
Just like he was a disaster when he ran the reserve bank. Hmm… nope.
Just like he was a disaster when he helped to design our GST system. Hmmm… nope.
Just as well it’s your opinion Danyl because it’s pretty unfounded.
DPF wrote:
He’s been Finance minister during the best economic conditions since WWII & we’ve moved down the OECD. So perhaps being a touch generous.
Vote:May 22nd, 2008 at 1:41 am
I’d have to agree with NX.
The current administration won’t be remembered kindly. It has been 9 years of wasted opportunities. The simple fact is that New Zealand is poorer now in comparison to other OECD countries than we were in 1999. Brash’s narrow defeat in 2005 meant three more year of decline for New Zealand. It may have been easy for New Zealand to walk down the hill of prosperity but it takes a great deal of effort to turn around and walk back up it. What’s more is that after applying all that effort you will only find yourself where you were originally in 2005 or 1999.
That is the true cost of the Clark administration. It will be a cost that will be paid by all New Zealanders who choose to reside within the country. The truth is that cost will not be met. New Zealand will never lift itself into the top half of the OECD for income per capita. New Zealand has no future.
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