Most important budget since 1984

May 20th, 2009 at 8:22 am by David Farrar

The Herald reports:

Next week’s is one of the most important in over a quarter of a century, says Secretary .

Mr Whitehead, who has been directly or indirectly associated with Budgets stretching back to the last years of the Muldoon Administration, said next Thursday’s was the most critical since Labour’s Budget to confront the economic and currency crisis in 1984.

Now Whitehead is no ideological Rogernome. In fact Whitehead is a former Deputy Director of the Labour Research Unit (when Muldoon was PM), so I think the left should listen to him when he stresses how important the budget is.

During a round of meetings with business groups, banks and media in Auckland yesterday, Mr Whitehead emphasised the importance of the Budget’s role in retaining the country’s credit rating to keep Government and business borrowing costs down.

The Standard & Poor’s rating agency already has New Zealand on a negative outlook and has said the Budget will be critical in re-rating the country.

It is worth remembering how precarious our position is. Not only will a credit downgrade cost the Government $600 million a year, it will increase credit costs to every business.

And everytime you see Labour complaining that National is saving money through a more efficient public service, remember that without these savings the Government would be facing a permament structural deficit of $10 billion a year.

Have you heard a single proposal from Labour (or the Greens) on how to cut (annual) expenditure to stop the descent into permament deficit and debt?

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50 Responses to “Most important budget since 1984”

  1. siobhan (278 comments) says:

    “Have you heard a single proposal from Labour (or the Greens) on how to cut (annual) expenditure to stop the descent into permament deficit and debt?”

    No – and the simple reason is that they understand their constituents. Unfortunately the vast majority of people that support labour neither understand or care about the importance of our credit rating. The vast majority of people that support the greens have a completely different set of values that drive their decisions, therefore credit ratings will not factor as highly in their thinking either.

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  2. expat (4,048 comments) says:

    Red & Green = Purple. Purple bruised fiscal pockets for the generations of tomorrow because the selfish bludging Purples want something for nothing.

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  3. jackp (668 comments) says:

    I just finished the book Out of the Red by Richard Prebble who was in the center of it all then in ’84. Everyone should read it because it gives some very good insight how the government was running then, which almost went into bankruptcy when Muldoon was in charge. Helen Clark always bashed Muldoon in her argruments but she did the same. It still irritates me she left the country when her bad RESULTS are showing up daily. Richard Prebble gives a good argument against soe’s and the benefit of the flat tax which was almost going to be law but personalities got in the way. Good book.

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  4. getstaffed (9,189 comments) says:

    siobhan nails it rather succinctly. The anesthetic effect of socialism has far too many NZers in a myopic daze. The left pray on this to the determent of the future that all NZers should be working towards.

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  5. bharmer (686 comments) says:

    Do I hear a proposal to the effect that the undeserving poor should be excluded from the electoral process because they are too stupid or uninformed to vote correctly?

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  6. expat (4,048 comments) says:

    no bharmer, your proposal?

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  7. bchapman (649 comments) says:

    Please expand on your argument as to why government debt is so crucial, as I am not an economist. I can see its nice that the government runs a surplus but I don’t see that as being as important as private consumption and productivity. Surely the thing that dictates our GDP and living standard is what we produce and how we produce it. The major problem I see is the fact that we are borrowing privately from O/S to maintain property values. Reducing the deficit should be simple, reducing spending and/or taxes in a way that helps promote the productivity of our businesses.

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  8. clintheine (1,563 comments) says:

    Ah where did you hear that bharmer?

    The Greens and Labour believe that in order to win the hearts and minds of voters it must be done using voters own money or large state increases in spending and taxes. This won’t change, and the Greens solution is to spend more but on things that even Labour won’t touch. Well until the Labour left kick out Goff and then it’s open season on how much of our money Labour will spend to scam their way in.

    More cuts in the public sector is good news for us all, since when did Government create wealth?

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  9. bharmer (686 comments) says:

    Certainly not my proposal expat, but it seems the logical conclusion of Siobhan’s sweeping generalisation earlier:

    “Unfortunately the vast majority of people that support labour neither understand or care about the importance of our credit rating. The vast majority of people that support the greens have a completely different set of values that drive their decisions, therefore credit ratings will not factor as highly in their thinking either.”

    There is a regrettable tendency on both sides of the political divide to assume that everyone who holds an opposing view does so out of malice or stupidity.

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  10. getstaffed (9,189 comments) says:

    bharmer – what percentage of Green/Labour supporters would consider international credit ratings as a key factor in the context of economic decision making? 80%? 50%? 5%? <1%? if you picked 80% then your assertion that siobhan made a sweeping generalisation may have merit. Otherwise she’s spot on.

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  11. Jack5 (4,595 comments) says:

    Yahoo! at least for when spring comes.

    http://www.telegraph.co.uk/news/worldnews/australiaandthepacific/australia/5349964/Surfing-on-a-sick-day-is-fine-Australian-court-rules.html

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  12. siobhan (278 comments) says:

    “There is a regrettable tendency on both sides of the political divide to assume that everyone who holds an opposing view does so out of malice or stupidity.”

    I don’t believe that I was saying anyone was stupid in this comment. All I am saying is that both Labour and the Greens understand their constituents.

    We all understand that our inherent support of a party revolves around ideology. The ideology of Labour and greens is more concerned with wealth redistribution. When selling this to their constituents, National credit ratings are not high on the agenda. I would have thought this is a fair observation rather than a critisism. Good on them for understanding where their votes come from.

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  13. side show bob (3,660 comments) says:

    Yeah, good one bharmer, for years the left have been like turkeys voting for an early Christmas, they are about to get their wish. The left are in total denial and live in some alternate reality where loving sugar daddy’s hand out fists full of dollars to the stupid classes. These stupid classes nearly brought down this country as the left ruling elite played them like fiddles. Using them and the democratic process to force the country down the path of total socialism, given another term in office the bastards would have got away with it.

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  14. Brian Smaller (3,999 comments) says:

    bharmer – I think your idea has merit. Restrict the franchise to those who materially contribute. If you get more from the state than is taken from you, you don’t get a vote.

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  15. bharmer (686 comments) says:

    getstaffed (3271) Vote: 0 0 Says:
    May 20th, 2009 at 9:25 am
    “bharmer – what percentage of Green/Labour supporters would consider international credit ratings as a key factor in the context of economic decision making? 80%? 50%? 5%? <1%? if you picked 80% then your assertion that siobhan made a sweeping generalisation may have merit. Otherwise she’s spot on.”

    I would love to see the test applied to all voters. I seriously doubt whether the average ACT or National voter understands it either. They are just Joe and Jane Public, voting in the direction of their perceived self interest.

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  16. siobhan (278 comments) says:

    So are you saying that ACT and National voters are not allowed to vote in the direction of self interest, but Labour and green voters are?

    Seeing as you like to read more into statements than is actually there.

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  17. bharmer (686 comments) says:

    SSB almost proves my point by referring to “stupid classes”. Now how do we get rid of that ridiculous one person, one vote idea?

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  18. bharmer (686 comments) says:

    siobhan (176) Vote: 0 0 Says:
    May 20th, 2009 at 9:56 am
    “So are you saying that ACT and National voters are not allowed to vote in the direction of self interest, but Labour and green voters are?”

    Absolutely not. I was observing how alike they all are.

    “Seeing as you like to read more into statements than is actually there.”
    There should be a mirror above the wash basin. Go have a look.

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  19. siobhan (278 comments) says:

    I don’t have a problem looking in the mirror. I was making a point that it is easy to read too much into statements.

    Obviously when one is a little more zealous – it becomes even easier.

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  20. dimmocrazy (286 comments) says:

    DPF: “And everytime you see Labour complaining that National is saving money through a more efficient public service, remember that without these savings the Government would be facing a permament structural deficit of $10 billion a year.

    Have you heard a single proposal from Labour (or the Greens) on how to cut (annual) expenditure to stop the descent into permament deficit and debt?”

    Hate to rain on your parade David, but I haven’t seen that much from the Nats either, particularly very little in showing how they are actually saving up to 10 billion a year through a ‘more efficient public service’. Form what I observe it’s all pretty much the same with a slight twist here and there, no substantial changes that would really make that level of impact.

    Looks like the current Nats have pretty strong statist tendencies. I for one am looking forward to see whether the budget is going to really show how all the hype is going to be substantiated.

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  21. tvb (4,210 comments) says:

    The only proposal we have heard from Labour is to put up taxes. Nothing about expenditure cuts indeed there has been resistance. It is interesting with the change in Government, Departments are now looking hard at getting value for money for taxpayers. Not once under Labour. They are a good times party when there is plenty of money floating around.

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  22. nandor tanczos (77 comments) says:

    Actually I think that the Greens do promote a number of ideas that are aimed at (among other things) reducing public spending. Some examples:

    criminal justice policy ideas to reduce the number of people in prison, by focusing on things that actually reduce offending, such as early intervention, habilitation centres, restorative justice (where agreed by victims and offenders) and restitution to victims rather than building more prisons which are known to be ineffective at reducing offending.

    policies that see less police and court resources wasted on prosecuting people for consensual activities between adults, such as using marijuana. I think we worked out that will save about $120million, not to mention other demonstrated public benefits.

    focus on preventative health measures that reduce costs in the sickness industry eg better home insulation, promoting healthy eating in schools, promoting more walking and cycling and other anti obesity measures etc

    Slashing budgets in one thing. What would be better in the long run IMHO is policies that invest in spending that reduces overall cost

    [DPF: Almost all policies are claimed to have a long term public good. But none of them will be affordable if we have a $10b a year structural deficit. justice and health policies take 25 years to find out if they work or not. The only specific idea is to decriminalise cannabis, which I agree with, but what else?

    One has to have a balanced budget over the medium term. It is not credible to only call for spending increases when we no longer have surpluses.]

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  23. big bruv (13,318 comments) says:

    nandor

    “policies that see less police and court resources wasted on prosecuting people for consensual activities between adults, such as using marijuana. I think we worked out that will save about $120million, not to mention other demonstrated public benefits.”

    And who is going to pay for the huge increase in rehabilitation courses when these new junkies want to clean up?

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  24. nandor tanczos (77 comments) says:

    BB – I think you’ll find that international evidence demonstrates conclusively that decriminalisation of marijuana does not lead to an increase in its use, but does lead to a decrease in social and economic costs. This holds across S Australia and ACT, the ten states in the USA that decriminalised in the 70′s, Holland etc

    The select committee report into the legal status of cannabis is a very good primer on these issues, if you wish to inform yourself as to some facts. Of course, like most people, you may wish to ignore the evidence in favour of internally generated support for whatever position you hold.

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  25. Grizz (244 comments) says:

    Big bruv, I just want to put it out there, but legalised alcohol costs the government and ACC a fortune. If you think of all the injuries, accidents, assaults and crimes that occur under the influence of alcohol, the cost of use of this drug to New Zealand is astronomical. I have not even got onto the costs of rehabilitation, lost productivity, and family breakdown. I strongly disagree with the Greens on many fronts but Cannabis has a far less cost to our society than what alcohol does. If we cannot prohibit alcohol, then we need to seriously limit its availability.

    I could live in a world where cannabis was legalised. It would need to be sold by licensed retailers, have taxes applied, information at the point of sale of its harms and be restricted to under 18s. There would also need to be a ban on its consumption in public places. In view of this, these regulations would not eliminate cannabis related court proceedings entirely, but it and rehab costs should be covered for by its tax.

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  26. si_rangi (60 comments) says:

    Of course credit rating agencies have covered themselves in glory of late, I personally don’t know why we bother

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  27. RightNow (6,676 comments) says:

    Yep, a tax on marijuana would make a lot of sense. I doubt there would be a significant increase in the number of users, I believe those that want to smoke it do so anyway, regardless of the law.
    Incidentally I also support huge huge tax increases on alcohol. I’m fond of a few drinks but I think our culture of excessive drinking is outrageous and the easiest way to stop 14 year olds getting boozed on alcopops is to double the price. Not to be discriminating against 14 year old binge dirnkers though, this should be across all acohols. Basically just double the price. Alcohol is a luxury, not a necessity. Although I can imagine the long time beneficiaries complaining to WINZ staff that they need an emergency benefit to buy a slab :)

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  28. RightNow (6,676 comments) says:

    Actually just doubling the price wouldn’t make that much sense. It would be per volume of alcohol. Say there is 160ml of alcohol in 1 dozen beer (333ml x 12 x 4%) then we might say the tax rate is $50 per litre of alcohol, therefore the tax on that dozen is $8 ($50 x 0.16). On a bottle of wine it might be $4.13 (0.75l x 11% a/v x $50). On a 4 pack of 333ml RTD’s at 8% it would be $5.33 and so forth. That way a great bottle of wine wouldn’t be unjustly penalised in comparison to the cheap plonks.

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  29. sonic (2,818 comments) says:

    It seems David and his chums are keen to try an narrow the economics debate down to one issue, our sacred credit rating.

    No matter that jobs are being lost at an increasing rate, no matter that every other economy in the world are running far larger deficits in an attempt to stimulate their economies. The only thing that matters is how many A grades we get from the markets (the quality of whose judgement is rather open to question in the light of recent events)

    Why?

    Never let a good crisis go to waste eh lads, now you get to do all those cuts and asset sales you promised to your big business supporters and you have the recession to thank!

    [DPF: What asset sales are those? You really do like inventing things. No wonder the Govt is so popular - people keep attacking it for things it has not done]

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  30. burt (7,835 comments) says:

    Winston sonic

    I’m struggling to understand how you have been so against tax cuts for years because we couldn’t afford them when we had massive surpluses (excluding the special friends and secret donors to NZ1 who got a tax cut in 2006) yet now you are calling for govt to borrow more and spend more while we have massive deficits?

    Are you barking mad or just an antagonistic partisan hack ?

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  31. sonic (2,818 comments) says:

    burt, is there any chance you guys could talk about the present and the mess your government is making of the economy?

    Time to take some responsibility Natoional what is the plan to beat the recession, massive cuts in public spending to keep Standard & Poor’s happy while thousands lose their jobs and homes?

    You really think that will fly?

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  32. burt (7,835 comments) says:

    Winston Sonic

    I think National have another 17 odd years to blame Labour before they need to consider any accountability for their own actions. The failed policies of the past and all that.

    Now, you didn’t answer my question but that is normal for you so I’ll ask a more simple question.

    Why do you have such different expectations of accountability from National compared to what you have for Labour?

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  33. Scott (1,710 comments) says:

    Great — let’s decriminalise marijuana. No way will more people use it, if it is legal, freely available, sold in dairies and coffee shops. Excellent — we have a P epidemic, but people are suggesting legalising more drugs?

    I think the Liberal will never learn. Every liberalisation, whether it be gambling, pornography, alcohol, prostitution etc has led to massive social harm. The person labelled the wowzer has always proved to be right.

    But hey — that’s what we need, more stoned teenagers and adults. Good one guys.

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  34. sonic (2,818 comments) says:

    burt, you can spend the next 17 years talking about the past if you want, I think you may find though that most people are interested in what the current government’s policies are to deal with this crisis.

    Can you help us out with that?

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  35. burt (7,835 comments) says:

    Scott

    Take your pick, stoned teenagers and adults with opportunity for drug profits to be put into education and health awareness programes or stoned teenagers and adults with drug profits being taken by gangs and education and health awareness funded by tax payers?

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  36. burt (7,835 comments) says:

    Winston Sonic

    So you are saying that Labour are responsible for the domestic recession that has been occurring since before the global economic cricis or was that National’s fault from the 90′s ?

    If we can clear up your position on that then I’ll be happy to get to the current day accountability etc.

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  37. sonic (2,818 comments) says:

    Anyone out there want to talk about the current crisis, burt clearly has no idea what the government should do, anyone else care to make a suggestion?

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  38. LC (162 comments) says:

    Any whispers on what the budget may have in it?

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  39. Berliner (16 comments) says:

    WELL MR FARRAR!

    WORLD FIRST: Whaleoil Wrong, Admits it
    In a world first, I can reveal that I made a mistake in a blog post. Over the weekend, I criticised Fran O’Sullivan for suggesting that Police Minister Judith Collins could launch an inquiry into the dodgy business of Howard Broad’s politically corrupt handling of the “investigation” into the theft of Don Brash’s emails and subsequent cover up.
    In fact, Fran was right and I was wrong.
    According to the Cabinet Manual and the Department of Internal Affairs’ very useful document ” Setting Up and Running Commissions of Inquiry”, any Minister, including the Police Minister, can set up a Commission of Inquiry. Commissions of Inquiry can inquire into any matter of major public importance or concern to the government of the day. Any Minister may propose an inquiry, but must consult the Prime Minister and the Attorney-General first, prior to submitting the proposal to Cabinet. Before giving its approval, Cabinet should seek advice form the relevant Minister’s office, the relevant department, DPMC and the Crown Law Office.
    So Judith Collins can act. And she should. She has previously said she is worried about the public perception our police bosses are politically corrupt. If she doesn’t act, it looks like the new government is hiding something.
    PS. Over at Kiwiblog, Farrar made the same mistake. Will he admit he was wrong, and join WOBH’s call for an inquiry?

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  40. paradigm (507 comments) says:

    Sonic says:
    “No matter that jobs are being lost at an increasing rate,”

    Unemployment is increasing, but the rate at which unemployment is increasing is actually relatively stable:
    0.3% jul-oct 08, 0.4% oct-jan 09, 0.3% jan-apr 09
    So sonic either doesn’t know what rate means (quite likely) or he is trying to oversell the problem (also likely).

    Sonic says:
    “no matter that every other economy in the world are running far larger deficits in an attempt to stimulate their economies.”

    Much like a crack addict who has gone to a loan shark to pay for their habbit, in the end those countries will wake up shivering just in time to hear a couple of heavy built guys knocking at the door to collect on the debt.

    Sonic says:
    “The only thing that matters is how many A grades we get from the markets (the quality of whose judgement is rather open to question in the light of recent events)”

    The quality of their judgement is irrelevant, it is the judgement its self that matters given that they control the interest rate NZ will be charged: the higher the interest rate, the less stimulus we can afford. The country’s credit rating also affects your bank’s lending rate sonic (AAA vs AA+ is reportedly the reason Austrailia has lower bank lending rates than us), so do you want to increase the burden on (already debt-ridden) families? Because one would imagine increasing their loan repayment costs is going to knock the wind out of a stimulus package.

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  41. sonic (2,818 comments) says:

    So what comes first paradigm, that credit rating or people’s jobs and homes?

    “he is trying to oversell the problem (also likely).”

    I’m reminded of Harry S Trueman, “It’s a recession when your neighbor loses his job; it’s a depression when you lose your own”

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  42. paradigm (507 comments) says:

    “So what comes first paradigm, that credit rating or people’s jobs and homes?”
    Sonic, since you don’t read too well I’ll make this simple: lower credit rating=loss of jobs and homes.

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  43. burt (7,835 comments) says:

    paradigm

    So that would be the 1990 National govt’s fault then?

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  44. OldNews (40 comments) says:

    Is it true that you’ve been banned from the lock-up this year?

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  45. sonic (2,818 comments) says:

    “lower credit rating=loss of jobs and homes”

    So we have to make sure we do nothing to help people keep said jobs and homes as this may lead to our credit rating being downgraded leading to them losing the jobs and homes twice over!

    Economics not your strong point eh paradigm?

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  46. Ratbiter (1,265 comments) says:

    Scott –

    (1) do your research, you will find Marijuana and P users exhibit totally different behavioural habits while under the influence.

    (2) If God had meant for man to fly, He would have given him wings. Remember that?

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  47. paradigm (507 comments) says:

    sonic:
    In answer to your first statement, yes. Forecasts for the proposed level of debt under national suggest there will be an increase in unemployment in the medium to long term resulting from the debt burden. If you put on even more debt as you and the rest of labour suggest, you are going to see more lasting unemployment while the debt is worked off, especially if the credit rating goes down and the debt becomes more difficult to work off.

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  48. sonic (2,818 comments) says:

    So the unemployed of today have to be sacrificed for the “greater good” paradigm, I think we may have heard this sorry story before

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  49. paradigm (507 comments) says:

    “I think we may have heard this sorry story before”

    Yes, it usually follows on from a left wing politician overspending for short term gain.

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  50. Scott (1,710 comments) says:

    Burt — not fond of either alternative. But making marijuana legal sends a message that it is okay. I just don’t think we need more stoned teenagers in New Zealand.

    Rat biter — when you reply try and make sense. We are both busy people and I for one don’t have the time to try to decipher cryptic remarks about God and wings. The only point I did understand was “do your research, you will find Marijuana and P users exhibit totally different behavioural habits while under the influence.”

    That may be — but once again more stoned teenagers, with poor mental health caused by marijuana use, inability to concentrate, lacking goals or drive — I can’t see the sense in it at all.

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