Key and English on GST

February 11th, 2010 at 12:16 pm by David Farrar

John Armstrong writes:

No politician enjoys confessing to having broken a promise – especially one made during an election campaign when credibility is very much the issue.

The Prime Minister has now shown himself not to be exempt from that rule of thumb.

Having flagged a hike in in the Government’s economic statement on Tuesday, was yesterday hammered by Labour for having categorically ruled out such a move in the lead-up to the last election.

“National is not going to raise GST. National wants to cut taxes – not raise taxes,” he told an impromptu press conference in the 2008 campaign, the video of which is receiving heavy play on the internet.

Key could not have been clearer. But his response yesterday was to argue he had been talking at the time in the context of fiscal forecasts which showed the country’s accounts sinking into deficit for the next decade. What he had been saying, he insisted, was National would not raise GST as a means of reducing the Budget deficit.

Key should be asking himself why he bothered to mount this defence. No sooner had he done so than Labour dug up quotes from Finance Minister seemingly similarly ruling out increasing GST after receiving Treasury advice shortly after the election to do so and then clearly reiterating that position in a speech two months later.

Given Key and English were almost certainly genuine in their holding that view at the time, it would surely have been more advisable for the Prime Minister to have been straight up and down yesterday and instead argued along the lines of “that was then and this is now”.

Rather than getting a ribbing from Phil Goff in Parliament, Key could have turned defence into attack, arguing that raising GST was now necessary to remedy what English describes as New Zealand’s “lopsided” economy – one suffering from too much consumption by debt-ridden households at the expense of much-needed savings and investment.

The question is whether Labour’s highlighting of this broken promise really matters all that much. It is not in the same league as cutting national superannuation or selling state assets after promising not to do so. At stake, however, is the Prime Minister’s credibility.

Key’s trust rating is extremely high, judging from polls scoring such attributes. Tax hikes are never popular, however. Key has to overcome public suspicion that any rise in GST will leave people worse off.

I understand a 2.5% rise in GST will probably lead to a one off inflation increase of 2.0%. In recent years our inflation rate has been around 3%, so I’m not sure how much people will notice.

I think they key will be the details in the May budget, as to the “compensation” through tax cuts, benefit adjustments and WFF support.

The label of a “broken promise” may be the bigger issue, even though there is a defence around the context of the statement.  There is probably a lesson there about being careful with pre-election statements – it is tempting to rule things out, but often wiser to be more subtle and say things like “That is not in our tax policy” rather than “We will not do that”.

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45 Responses to “Key and English on GST”

  1. nickb (3,629 comments) says:

    Whaleoil thinkgs this has been canned.

    http://whaleoil.gotcha.co.nz/2010/02/11/f-f-s/

    [DPF: With all respect, I think he is 100% wrong]

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  2. Pongo (356 comments) says:

    In the context of the most vicous and nasty election campaign he could hardly say nothing is off the table. I do think they need to spell out what numbers they are looking at because it is a hell of a void for Labour to fill with their horror stories which will be duly trotted out by the MSM as gospel.

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  3. GJ (329 comments) says:

    Raising GST is not a good move. It is extremely hard on poorer families and only fuels the black market. Put caps on Government spending and then announce a reduction of expenditure for them each year.
    As long as Governments have no accountability for what they spend we are all in trouble! Work out what the Government is responsible for and then give them a percentage of GDP to run themselves.
    Bring in a flat tax that would encourage those that want to get ahead to get on with the job and we would all be better off!

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  4. big bruv (12,327 comments) says:

    “The label of a “broken promise” may be the bigger issue”

    And so it fucking well should be, of course this is not the first promise Neville Key has broken, remember the line about “ongoing tax cuts” and the bastards faux concern for middle NZ.

    I hope this brings Key way back in the polls, it is all very well have a nice guy who smiles a lot as our PM but we need somebody with balls doing the job.

    Middle NZ is the group who have been fucked over for the last ten years and they are the ones who keep being overlooked.

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  5. MikeNZ (3,234 comments) says:

    Not to mention the $70-200K middle/educated/professional taxpayers BB

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  6. Lipo (226 comments) says:

    Can someone please explain why the need to raise GST?
    The Government has reiterated that this move will be fiscally neutral.

    If fiscally neutral – then why bother

    If people are to consume less and save more – the government tax take will reduce and hence will raise personal taxes to compensate.

    If people still consume to the same level as today – government tax take will increase. Will there be a drop in personal tax rates to compensate?

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  7. burt (7,085 comments) says:

    Key should take a leaf from the previous dear leaders book. The 1999 pledge card had possibly every pledge broken before the 2002 election yet the billious Clark claimed she had kept her promises when campaigning in 2002 then again in 2005.

    Clark showed us – if you can’t afford to get caught breaking a promise then add telling lies to your sins and tell everyone to move on. If that fails – retrospectively validate.

    Seriously though, Labour are now arguing for all the changes they said we dind’t need when they were the govt – we (NZ) needs to break this two horse popularity race we call govt – it is serving the major parties – not the voters.

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  8. malcolm (2,000 comments) says:

    Well said, BB. And everyone knows that once GST gets to 15% it will never go back down. John Keyless needs to look at the other side of the ledger, show some fortitude and cut spending. That is the only sustainable way to give NZ the tax cuts which are needed to help the economy. The man is being a political coward and NZ doesn’t have time to waste with self-serving cowards who just want to be popular.

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  9. burt (7,085 comments) says:

    Lipo

    Simplistically it is about where tax is collected. Currently labour (work effort – not the self serving above the law political party who look after themselves above all else) and investment are the main proxies for tax. IE: The things we want people to do are being taxed which creates a disincentive to do them.

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  10. Lipo (226 comments) says:

    Burt – I understand the incentives but John Key has said this will be fiscally neutral. If you make incentives for people to change, and they then make a change, then it will not be fiscally neutral.

    I would like to know what will happen when this change happens. My pick is the government of the day will pocket any increase in revenue and not reduce taxes to compensate.

    Hence I oppose the increase in GST even though it may have positive outcomes

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  11. malcolm (2,000 comments) says:

    Nickb, that is an interesting titbit from Whaleoil.

    Lets hope John Keyless has been shocked by the criticism and concludes that proper bold action is the only option. Any fool can increase GST to balance the books.

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  12. burt (7,085 comments) says:

    Lipo

    Fiscally neutral overall – not for individuals. EG: A person earning $20,000 in salary while tucking $400,000/year away in a trust who owns a $2m holiday home might get a shock at needing to pay more tax than a minimum wage worker for the first time in years. Additionally a person earning $80,000 with 6 kids might not be called “rich” for tax but “poor” when benefits are being handed out. All things Labour suddently agree with having defended status quo for 9 years – happy days.

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  13. burt (7,085 comments) says:

    Increase GST and give us a $10k-$15k tax free thrshold to balance it. How had can it be John Key ?

    Oh, and get rid of WFF completely – it is just churn.

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  14. nickb (3,629 comments) says:

    I was of the impression National was meant to have a strong commitment to smaller government.

    However increasing GST while reducing other taxes hardly counts as sustained tax relief in the broader sense. Groceries etc are expensive enough as it is.
    However I am a student who is not a student bludger, beneficiary, or WFF recipient, so will have to grin and bear this one. Good job JK.

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  15. Lipo (226 comments) says:

    Burt – Fiscally neutral overall – not for individuals

    Thanks

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  16. toad (3,654 comments) says:

    Key may have some claim to ruling out a GST increase only in the context of a question about the deficit before the election, but English unequivocally ruled out a GST increase in a speech, made as Minister of Finance, following the election..

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  17. burt (7,085 comments) says:

    nickb

    Opposition always has a committment to popular things. This is why the two horse popularity race works so well for itself. Voter memory is too short to remember that the opposition when last in govt defended the same things they now want changed. We are the stupid ones – just one election where the major parties got no votes and the ‘Bill & Ben’ party scooped the prize is all it would take to change the deadlock that works for self serving muppets.

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  18. burt (7,085 comments) says:

    toad

    That was before Labour escaped being charged under the Fiscal Responsibility Act because they are Labour and cannot be held accountable for breaking the law.

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  19. Bevan (3,965 comments) says:

    Key and English have missed the easiest deflection on the Broken promise attach by Labour…

    “Well, before the election we were operating under the impression that the Labour government wasn’t hiding billions of dollars in liabilities”

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  20. LeftRightOut (622 comments) says:

    He just needs to use the John Howard clause – “There are core promises and non-core promises; this was a non-core promise.”

    Tui Billboard coming up.

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  21. nickb (3,629 comments) says:

    “Opposition always has a committment to popular things. This is why the two horse popularity race works so well for itself. Voter memory is too short to remember that the opposition when last in govt defended the same things they now want changed. We are the stupid ones – just one election where the major parties got no votes and the ‘Bill & Ben’ party scooped the prize is all it would take to change the deadlock that works for self serving muppets.”

    Know what you mean burt.
    It just seems that the populace has tired of Labour, so they vote in National to do things mainly the same, but a bit of tinkering and some fresh faces. National may halt the growth of government, or slow it, but then Labour will be reelected and the cycle will start over… income tax will be raised again on the ‘rich pricks’ while GST stays at 15%

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  22. malcolm (2,000 comments) says:

    There are core promises and non-core promises; this was a non-core promise.

    “There are known knowns, known unknowns and unknown unknowns. It was unknown whether I had the balls or vision to actually do what was required to realise our prosperity rhetoric. Now it is known that I do not. Hence the bullshit about not increasing GST. Now, lets talk about the Rugby World Cup and Letterman. Man that was fun.”

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  23. excusesofpuppets (133 comments) says:

    Very good point DPF. I think we are quick to jump onto this as an election promise. There is little that can be done about it, kind of wish that GST didn’t exist – but has become a necessary evil.

    I would be interested to have read your response, however, if this was Labour increasing the GST rate by 2.5% and not National.

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  24. LeftRightOut (622 comments) says:

    excusesofpuppets, it would have been “The Sky is falling, the sky is falling” followed by “We’ll all be ro’oned”.

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  25. Johnboy (13,342 comments) says:

    Of course if it had been Labour increasing GST they would also have increased the top tax rate so those rich pricks on $60,000+ could pay more and give Auntie more scope to buy votes.

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  26. CharlieBrown (785 comments) says:

    Anyone recall good old Helen categorically ruling out banning of smacking of children… Labour is like the pot calling the kettle black… both are liers and hypocrites… the greens are probably the only honest politicians… to bad their views are retarded.

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  27. Pete George (21,799 comments) says:

    Is everything said by a politician an eternal promise? If not politician could ever do anything different to what they had once said our government would be in a straightjacket. This is pathetic. Can’t the media look into what is best to do now rather than try and help Labour score petty points?

    I made the mistake of watching a bit of the TV3 6 o’clock show last night, they made big issues out of bugger all in the first three or four items, that turned me off so I turned off them. Garner said that all Key should have done is answer this issue differently – then TV would have patted him on the back and left him alone? Yeah, right,

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  28. Manolo (12,617 comments) says:

    The deadly duo of Key and English wouldn’t let the opportunity pass without inflicting more taxes on the average New Zealander.

    It has been done before with ACC, it’s about to be done with the ETS, so it is no different with a 15% GST. Easy money for the government coffers at the expense of the average worker.

    Liars is what these National Party “leaders” are. Plain liars.

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  29. Captain Crab (351 comments) says:

    “When the facts change, I change my mind. What do you do sir?”
    John Maynard Keynes

    National got fitted by Cullens scorched earth budget so this is hardly a surprise. At least Key is pragmatic and not stuck in a rut of clinging to fanciful ideology like some of the extreme left and right wing nutters.

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  30. malcolm (2,000 comments) says:

    Except the facts don’t dictate that GST must increase. This is a choice. And there are alternatives – reducing govt spending, for starters.

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  31. kaya (1,360 comments) says:

    DPF – “often wiser to be more subtle and say things like “That is not in our tax policy” rather than “We will not do that”.”
    So that’s the problem!! You aren’t obfuscating enough JK, you need to lie and spin like Labour did!! That’ll get you far!!

    Seriously, Key hasn’t done the one thing that needs to be done, take the machete to the public service. Reduce the bureaucracy and not only will costs come down but productivity and efficiency will go up. The shiny arsed pen pushers need to go, they are the anchor holding everything else down.

    Marvelous system we have. Take tax of actual workers, administer for a few months keeping thousands of wasters occupied pretending to do something useful, then redistribute at a rate of 10c out for every dollar in. Outstanding.

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  32. sonic (2,818 comments) says:

    “often wiser to be more subtle and say things like “That is not in our tax policy” rather than “We will not do that”.”

    In other words, lie.

    One term, how very sad.

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  33. Hurf Durf (2,860 comments) says:

    You’d know about that, wouldn’t you, chronic?

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  34. Inky_the_Red (718 comments) says:

    As an aside I am a little confused by the tax changes. The claim of Key was this is fiscally neutral?

    There is an estimate that increases in GST and taxes on property will be $3-$4 billion. The additional tax collected from these changes will be used to cut taxes to companies and to households (which we call X) and to compensate those (on benefits and National Super) for the increased rate of GST (which I call Y).

    Does that not mean the government will be collecting more total taxes?

    Or have I missed something, like taxes only count as bad if rich people pay them.

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  35. Nigel Kearney (747 comments) says:

    This latest broken promise is in addition to Key promising tax cuts and then cancelling them. And National hasn’t suddenly discovered new facts that make increasing taxes a much better idea that it was before – that claim is just completely bogus.

    But it’s not the broken promises that worry me because it’s been obvious for a long time that Key is ‘flexible’ about such things. He has difficulty ever saying anything that people might not like and it’s nearly impossible to be honest under those circumstances. The problem is that both the promises he breaks and the bad promises he insists on keeping are all in the direction of making government bigger.

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  36. CharlieBrown (785 comments) says:

    Isn’t it really really really concerning that out of all the promises Key and English made, the only one they are 100% prepared to keep to is that they won’t cut government spending, instead they are prepared to increase some taxes… and they have the gall to say they believe in lowering taxes. What lieing bastards.

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  37. jackp (668 comments) says:

    Raising beneficiary pay along with the GST isn’t going to sit well with the voters. I am self employed but my wife’s pay hadn’t changed in 5 years. Don’t think she is going to vote for Key this time.Infact her pay will go down with the increase of everything due to the GST and this ETS bill and ACC. On the news tonight, the UN is looking at scrapping the IPCC because they are even admitting the data had been fudged. No word on Key about that. Infact, the news never even interviewed him or Nick Smith. Does Key really believe trading carbon on the stock exchange is going to happen?

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  38. jackp (668 comments) says:

    Also, if Key broke his promise on tax cuts and not raising GST, he can break his promise about reducing the amount of public servants.

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  39. burt (7,085 comments) says:

    We need to remind Key that the country voted for a change and they were not only talking about the gender of the PM.

    We still have WFF, we are still taxed from the first dollar we earn, we are still calling people rich for tax purposes while calling them poor for welfare purposes and whoopeee we might rearrange the deck chairs by increasing benefits and increasing GST.

    National are lining themselves up to deliver a budget that would make Cullen proud.

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  40. aardvark (417 comments) says:

    Once again, those who listened to government and Bollard are being shafted.

    What do I mean?

    Well we were told “Kiwis should save more!”

    So, if you’ve been a good little Kiwi and followed that advice, you’re about to be kicked in the groin by a hike in GST.

    That’s right, when GST is hiked, the buying power (therefore the value) of your savings will be slashed.

    The nest-egg that might have been the equivalent of two brand new cars will no longer buy you two brand new cars — or a hip operation or whatever — because all those things will have gone up by almost 2.5% while your carefully ferreted away savings are worth exactly the same as they were before.

    So come on government(s). Get your bloody act together.

    Don’t penalise those who do as you tell them while effectively rewarding those who have already spent all they earned on consumer products that will actually gain in value on the day GST is hiked.

    We are led by a collection of dim-bulbs. Some red, some blue, some green, some brown — but all exceedingly dim!

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  41. drinks-after-worker (59 comments) says:

    Where’s the mandate to raise GST, Farrar?

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  42. GJM (53 comments) says:

    So, GST will go up, income tax will come down (Ha!),
    Are they going to inflation index the income tax brackets so fiscal drag doesn’t put the tax right up wher eit was in a few years? Didn’t think so. Add on the extra $2k I am going to be paying for increased ACC tax, ETS, the increased costs from teh government owned power companies, and now GST, it works out to a 7.5% tax increase since election day.
    Shafted by National and Labour – Again. Ozzie is looking better every day – shame family ties keep me here.

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  43. burt (7,085 comments) says:

    DPF

    The statements that increases in GST, changes in tax rates and adjustments in benefits and minimum earnings allowances will make the change neutral for low income earners is just not getting through. Neutral is not good enough, that’s why nobody wants to hear it. The people who have been feeding on the state want more when things are rearranged not the same. National have got a chance to make some bold and sensible decisions here but I fear they will just tinker with Labour’s lovely progressive system that plucks the goose with the minimum amount of hissing.

    Hey don’t forget, this tax system Labour are now saying should be made fairer is a less gouging version of the one they said was just right for 9 years. The bloody muppet Goff saying $70K was too low for a top tax rate was gold – and bugger me his supporters cheered him for it! Reef fish!

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  44. cha (3,529 comments) says:

    Anyone recall good old Helen categorically ruling out banning of smacking of children…

    http://www.voteno.org.nz/quotes.htm

    Clark: “… they don’t want to see, ah, you know, stressed and harassed parents, ah, you know, called in by the police because they, they smacked a child, so I think there’s a debate to go on…”Interviewer: “…right … so, you don’t want to see smacking banned…”Clark: “Absolutely not! I think you’re trying to defy human nature.”
    – Helen Clark, Radio Rhema, Election Campaign 2005 (audio)

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  45. Lutzie (63 comments) says:

    I’m politically neutral, so all this wittering about Labour making political capital and the reasons why it’s OK to lie on the campaign trail is totally off the point.

    New Zealanders should be able to trust that politicians of all stripes stand by their word.
    And pollies must not underestimate the damage to their reputations each time they break a categorical promise.

    It’s a bit like a Toyota recall.

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