Reaction to PMs Statement

February 10th, 2010 at 10:38 am by David Farrar

The EU had a reception at the Backbencher last night, so lots of MPs and journalists there to chat to.  The typical opening line from a National MP was “So about that B grade” while from Labour MPs it was “Unlike Annette we won’t use Farrar and respect in the same sentence unless there are some other words in between” :-)

Phil Goff was there also, so I said I looked forward to him quoting me more often in future :-). Actually had an interesting chat generally on economic stuff, such as land tax. If Labour are bold they could consider proposing a land tax (tied to income tax reductions) for 2011. That could attract some support from economic reformers.

General consensus I got from pundits there was that there was definitely some good stuff in the Government’s work plan – in fact more detailed plans that most Governments announce in the PMs statement.

But what may trip the Government up is they misplayed the expectations game. Building the statement up as the “most important” one ever was a mistake, as was talking about it being a “step change”. Again, there is some good stuff there that certainly will help lift economic growth. But will the announcements alone close the gap with Australia? Of course not. But the rhetoric leading up to it, got expectations artificially high.

With the benefit of hindsight, it would have been better to have positioned the statement as a typical PMs statement – a general overview of the Government’s achievements and workplan, and then surprise the media and opposition when it turns out to have close to 30 specific initiatives in it.

As I said yesterday, I welcome the focus on growing the economic cake, not just how to split it up, and look forward to more details in the budget.

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45 Responses to “Reaction to PMs Statement”

  1. MikeNZ (3,233 comments) says:

    The problem of course is turning the supertanker of the NZ sense of entitlement and need to hold the hand out for govt dosh instead of making use of the opportunities for growth there are towards reward is a good thing as is independence from the state as is healthy profit and innovation.

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  2. Jeremy Baker (1 comment) says:

    A push for tertiary education to be better focused on the needs of industry was excellent. We definitely need to improve the value we get from tertiary education spending, which is over $4 billion dollars from taxpayers, and a further $1.3 billion from students and industry.

    A major issue with “drop out rates” is people who enroll in programmes that turn out not to be what they wanted, but because so many of of our programmes are “proprietary”, then much of what they have learnt isn’t transferable. This is a particularly serious problem at the sub-degree level, where we have many thousands of certificates and diplomas developed by many different providers – all of which are government funded.

    The current system is a curious muddle of “student choice” and “centralised control” – and neither works very well at the sub-degree level. Certainly its very difficult for industry to have any real say in what is funded by government.

    If people are interested in knowing more about where the $4+ billion gets spent, and what we might do to better align this with what industry really needs, you may find this report interesting:
    http://www.itf.org.nz/user/file/628/Matching%20Supply%20and%20Demand%20July%202009.pdf

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  3. PaulL (5,449 comments) says:

    My view – less than I hoped for, way more than I thought we’d get. It is a discernable shift from the policies of the past 10 years, and that is something we haven’t had before. I’d like to see way more, but if he had pushed way further then I’d expect everyone in the media to be demonising him. Which results in getting voted out. I reckon he’s tiptoeing the right line.

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  4. Oscars Grouchy Mum (77 comments) says:

    Could Bernard Hickey please get a grip. If I recall correctly, 18 months or so ago he was predicting house prices were going to drop by 30%. It turns out that this was his wishful thinking rather than a prediction.

    Stop spitting the dummy when John Key doesn’t bow to your “superior” knowledge, ya plonker.

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  5. Zapper (1,048 comments) says:

    Something tells me this will get a decent run in the mainstream media…

    http://www.stuff.co.nz/dominion-post/politics/3311651/National-won-t-raise-GST-Key-in-2008

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  6. Ruth (164 comments) says:

    Agree Grouchy Mum – all Hickey is known for is doom ridden apocalyptic predictions – none of which have materialized in any significant way. In fact his hilariously wrong predictions must have cost some folk a lot of money.

    Long may he continue with his quest to bring us a narrow slanted sliver of perspective on every complex issue, it gives us something to laugh at.

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  7. Phil (126 comments) says:

    Actually had an interesting chat [with Phil Goff] generally…

    If anyone ever wondered what the difference was between Kiwiblog and, say, TheStandard… this sums it up nicely.

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  8. Say Goodbye to Hollywood (461 comments) says:

    Is Bernard Hickey looking my like David Brent with every passing day :-?

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  9. Say Goodbye to Hollywood (461 comments) says:

    Is Bernard Hickey looking more like David Brent with every passing day :-?

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  10. voice of reason (490 comments) says:

    “…. I welcome the focus on growing the economic cake, not just how to split it up…”

    You mean policy like restoring the R&D tax credit.

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  11. Say Goodbye to Hollywood (461 comments) says:

    Don’t you hate it when you realise a mistake, try to correct it but cock it up even further…bah!

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  12. Dobbie (33 comments) says:

    DPF – Totally agree with your comments about expectation management. Personally I like it when Government is incrementalist because I don’t believe the Public Service has the nous to manage sweeping change or ‘bold new directions’ successfully. So, I believe incrementalism is most likely to be successful provided it’s heading in a clear direction. And the Government is signalling a clear direction I think. I particularly like that they’ve chosen some key industries to focus on, although I would’ve liked to see Clean Tech in the mix. Bit worried about the environment getting left behind though. Particularly in view of Kate Wilkinson’s review of DOC’s advocacy role. In a democracy I like to see the environment having a voice in the debate and think that the ‘robustness’ of the system was evidenced in the MacKenzie Basin call-ins. Fed Farmers got the pip about it and so did the developers but at least the public got to have their say and the developers didn’t just get an automatic win at the expense of the environment and the livelihoods of pastoral farmers. DOC’s one of the few organisations with the ability to state the environment’s case and I’ve got no problem with that as a taxpayer because I think it provides balance.

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  13. kyotolaw (48 comments) says:

    Bernard Hickey has accurately identified a lot of structural problems with NZ.

    Houses are too expensive vs. incomes in NZ
    The government is borrowing money to fund entitlements (WFF, interest-free student loans, universal superannuation).
    The 40+ generation are the beneficiaries of the current situation at the future expense of the younger generation.

    His failing is expecting everything to magically right itself (property prices) and the government to actually do something about the problems the country faces.

    Don’t shoot the messenger! Sometimes the emperor does have no clothes…

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  14. berend (1,690 comments) says:

    So people, what did we get then? Please explain. You might get a tax decrease but you wouldn’t be better off because you would have to pay more GST. It’s REVENUE NEUTRAL, get that?

    And we transfer more money to the bludgers as they have to be compensated, so it’s an increase in welfare.

    Of course you national party hacks are upset that the leader is an empty suit, but the nation got nothing yesterday. The government is just as bloated as ever, and with the INCREASE in welfare it actually means we are paying MORE to the government and our take home pay decreases. That’s the fact.

    Now your turn to explain to me how I’m wrong.

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  15. lastmanstanding (1,310 comments) says:

    the Nats have missed a golden opportunity As I have said before 2009 was the same as 1985 in policial terms. For those too young or dont remember 1985 was a watershed year when a government made radical changes and most of the citizens went with them.

    the Nats could have done the same in 2009. After 9 years of the other lot they would have accepted big changes sold as the 1985 ones were by Lange and Chairman of the Board with the 3 wise men Prebble Douglas and Caygill.

    Remember those who doubt not one of their reforms were substantially changed by successive governments.

    The key ( excuse the pun) was for the Nats to both start to and signal a programme of expenditure cuts in non productive areas.

    Good grief They are plenty they could have started with Wholesale waste in doing nothing departments.

    Coupled with that what they have proposed to do but again signalling a programme out 5 years to get state spending down to 30% of GDP with taxes aligned to 25% MAX.

    Their problem is they have blown the chance to do anything meaningful and are simply tinkering around the edges.

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  16. Jack5 (5,283 comments) says:

    Landlords win!

    This business story in the NZ Herald, shows Key is acting in their interest. National’s promise of structural economic reform was a very small flash in the pan of a replica-only musket.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10625225

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  17. Oscars Grouchy Mum (77 comments) says:

    “Houses are too expensive vs. incomes in NZ
    The government is borrowing money to fund entitlements (WFF, interest-free student loans, universal superannuation).”

    So the answer to the questions is:
    a) Use taxation to drop house prices
    b) Improve peoples income and saving habits by letting them keep more of what they earn and make their own choices as to what to do with it.

    Bernard rails as if a) is the only answer. It is not.

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  18. Pat (76 comments) says:

    Bernard “Chicken Little” Hickey’s failing is his lack of political nous. Not everything can be done at once. For example, you can’t wipe away WFF overnight and not expect that it will create massive upheaval.

    I was at a pre-election business function where Key was asked whether he would scrap WFF. He said if he did that then he would drive hundreds of families into poverty, and he “won’t do it”.

    Instead he has plainly signalled that the top income tables of WFF are going to get a trim, in return for lower tax rates. Incremental change. Political nous.

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  19. malcolm (1,952 comments) says:

    you can’t wipe away WFF overnight

    Why not? It was introduced overnight, so it can go overnight. How come we can have tax increases and more government spending overnight, but not tax cuts or spending reductions?

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  20. Pete George (23,832 comments) says:

    # berend

    It’s REVENUE NEUTRAL, get that?

    And we transfer more money to the bludgers as they have to be compensated, so it’s an increase in welfare.

    Now your turn to explain to me how I’m wrong.

    If “bludgers” pay more GST and get the equivalent back as an “increase in welfare” then it’s REVENUE NEUTRAL, get that?

    As Pat says, like it or not (not) WFF has to be phased out, too many instant problems for too many people if it was just cut.

    Malcom, it’s easy to adjust to a sudden increase in budget. It’s a lot harder for many people currently spending all their income to adjust to a sudden decrease. Many will have finance, especially mortgage commitments based on their income.

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  21. malcolm (1,952 comments) says:

    NZ does not have the luxury of time for incremental changes. The rest of the world is sailing away, and it’s taking our most productive citizens and our future with it.

    After two terms there will be enough idiots in NZ prepared to give Labour another go, irrespective of what National does. Eventually the electorate wants a change – your friends dwindle and your enemies accumulate. National need to act decisively so that some of the benefits are apparent by end of the second term.

    They won’t get a third term by not scaring the horses. And there are plenty of horse which need scaring in NZ.

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  22. Hagues (703 comments) says:

    Well we’ve got 3 months to the budget, enough time for Bill to hand over the portfilio to the great Sir Roger, he will come up with something a lot better than tinkering with tax rates and more welfare. Golden opportunity wasted.

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  23. Pat (76 comments) says:

    Good one malcolm – take the scythe approach to welfare and watch Labour hold the treasury benches for the next decade.

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  24. malcolm (1,952 comments) says:

    Pete, scrap Welfare For Families simultaneous with reducing personal tax rates. NZ is on the wrong path and it will take a bit of pain to get on the right one. We are not idiots. We can accept this.

    National need to be bold now. They’re unlikely to become more bold as time goes on. They will become less so. Particularly as we approach the end of their second terms and particularly if they have nothing to show NZers in terms in increased prosperity.

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  25. chrisw76 (86 comments) says:

    I don’t know why everyone rabbits on about how good the R&D Tax Credit is. I am presently in charge of submitting the return for our company and trying to work through the maze is very frustrating.

    Essentially it is primarily aimed at corporates with very structured approaches to R&D as opposed to small to medium sized businesses that work through things in a much more organic fashion. For starters, every single project must have a ‘research aim’ and strictly speaking can’t be process improvement or new product development. Our technical team simply doesn’t work this way. While we have projects, there is considerable cross-over with improving manufacturing processes and problem solving. Sometimes this is research, sometimes not. Everything will have to be justified in the paperwork and somehow split into discrete projects. Basically a total PITA and the amount we can claim will be totally dependent on the arbitrary decision of IRD.

    I am beginning to suspect that even though we arguably spent a low six figure sized sum what we consider to be R&D in FY09, it will cost us more in accountants fees to make a claim than we will likely get.

    Unless they can radically simplify the R&D tax credit and make it more appropriate to NZ businesses, I wouldn’t be keen to see it return. Unless we do just want a subsidy for $100m+ companies to business here.

    Cheers, Chris W.

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  26. malcolm (1,952 comments) says:

    Good one malcolm – take the scythe approach to welfare and watch Labour hold the treasury benches for the next decade.

    History doesn’t fit with that idea. A government which is seen to be doing the right thing with be given a second change. Labour in 87. Thatcher in 83. Anyway, WFF isn’t necessary welfare. It’s people paying tax to have their money inefficiently recycled to them. With all the unintended consequences (thinking their own money is a generous gift from govt, high effective marginal tax rates, etc).

    WFF was introduced in lieu of tax cuts because Cullen couldn’t countenance them, and it could be scraped in favour of tax cuts. If we had a bold government.

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  27. KevinH (1,257 comments) says:

    John Key didn’t mention the carbon tax in his speech which is unfortunate considering it’s introduction occurs in June. The carbon tax will of course come on top of the 2.5% rise in gst. The carbon tax will increase the cost of fuel by as much as 10 cents a litre, and increase electricity charges by up to 20%. These increases will impact on all and will create difficulties for the low to medium income groups.

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  28. kowtow (8,945 comments) says:

    EU reception,I presume European Union…..how many EU states do not have Capital Gains Tax on a second home? I’ll bet that’s none, so why don’t we?

    Hickey and expensive houses and baby boomers…….impose a CGT,mightn’t stop housing cycles but it’ll earn the govt some money and may lessen the impact of boom/bust cycles in the property market.

    Hickey again….who’s paying for the pri,sec and ter education sectors,baby boomers and borrowing.

    Borrowing….if you have to borrow to pay for your life style it means you’re living beyond your means .Essentially the whole western world has got used to a standard of living that we can’t actually afford. Something has to give somewhere, it’s unsustainable ,but no ones got the balls to say so.We pretend we’ll grow our way out of the problem. That’s impossible.We need growth but we also need cuts.

    NZ does need to dig,mine drill and export…look at Goff’s response and the fricken environmentalists! Hopeless.

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  29. Viking2 (11,683 comments) says:

    All very good and not upsetting too many but., and there’s always a but, no mention of attacking the rort of trusts who purpose has been changed from sheltering assets to sheltering income. A shift in process that has allowed the wealthy to avoid taxation and to qualify for WFF.
    Make trust taxation higher than company or individual and see the rabbits run. Key has rattled on about property tax losses but they are miniscule in comparison with tax lost through the use of trusts to shelter income.
    Change that and we can have no rise in GST and 20% tax.

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  30. stephen (3,981 comments) says:

    Something tells me this will get a decent run in the mainstream media…

    http://www.stuff.co.nz/dominion-post/politics/3311651/National-won-t-raise-GST-Key-in-2008

    Zapper, looks like a good one for Labour there!

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  31. peteremcc (316 comments) says:

    Yeah, I’m leaning more with Bernard here.

    We’ve had 9 years of Labour where we’ve slipped behind.

    The hope was that National would get 9 years to actually fix things, before Labour got back in.

    Now, other than minor tinkering, it looks more like we’re going to get 27 years of Labour policies, regardless of who’s implementing them.

    Might as well get out now, rather than wait another 18 years hoping for some significant reform.

    I’d hoped that by the time I finish Uni next year, National might have had long enough to make it worthwhile staying – it doesn’t look like that will be the case now.

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  32. berend (1,690 comments) says:

    As Pat says, like it or not (not) WFF has to be phased out, too many instant problems for too many people if it was just cut.

    But we’re going to give even more welfare!

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  33. KiwiGreg (3,278 comments) says:

    “Key has rattled on about property tax losses but they are miniscule in comparison with tax lost through the use of trusts to shelter income.”

    Evidence? Only non-employees can use trusts to shelter income.

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  34. Pat (76 comments) says:

    “But we’re going to give even more welfare!”

    It’s called a spoonful of sugar.

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  35. Michael (913 comments) says:

    I got annoyed at the commentator on One News who blithely said benefits need to rise 2.5% to compensate for GST rises. GST isn’t applicable to the biggest portion of expenditure for low income people – rent. It’s also not charged on mortgages/bank fees etc. and a few other items. So the actual increase to cover expenses should be about 1.5%, not 2.5%.

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  36. jackp (668 comments) says:

    I think you should see the Dominion Post today about how John Key promised not to raise GST in 2008. There is a video on You Tube. His aregument is he is not going to raise taxes but to decrease them to increase production in New Zealand. Now in 2010, he raised ACC, created a worthless ETS tax which will have no effect on the environment but will make the cost of living go up for everyone and put more money in the government’s pocket, has increased government spending by 3 billion since Helen Clark has been voted out of office and now the GST. He is also increasing beneficiaries pay. If his alleged 4 billion tax cut does happen in October, we are still worse off than when Key started.

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  37. malcolm (1,952 comments) says:

    I got annoyed at the commentator on One News who blithely said benefits need to rise 2.5% to compensate for GST rises.

    Not to mention the fact that a 2.5% increase in GST means that your costs rise by 2.22% (1- 115/112.5). Only a complete numpty would say 2.5%.

    Most journalists have poor math and number skills. So they make poor qualitative judgements.

    For laughs I just read Ian Wishart’s ‘Eve’s Bite’ and there’s a real howler in there. He adds up all the casualties from wars and genocides in the 20th century and then tell us that this equates to 82,000 killed each and every day for 100 years (the correct answer with his numbers is 8,200 per day). You can tell it’s not a simple typo because he then compares that number to something else he doesn’t like (I can’t remember what exactly – probably the number of children eaten each day by homosexuals).

    Poor Ian has such a poor grasp of history and quantities that he can’t recognise that 82,000 is more than the worst day of one of the bloodiest battles in history (The Somme). Or that if 82,000 were killed each day for 100 years, then there probably wouldn’t be many people left alive to read his hilarious book.

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  38. jackp (668 comments) says:

    At Gettysburg during the American Civil War, it was 52000 in three days. That’s the population of Napier… wiped out in three days.

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  39. malcolm (1,952 comments) says:

    That’s another good example Jackp. But three days? Slackers.

    Actually I was unfair to single out Ian Wishart and journalists. Lots of people are semi-illiterate when it comes to quantities, common sense etc. If I had a dollar for each time I’ve heard or read that wind turbines don’t produce enough energy to repay the energy cost of making them, well I’d have like…. umm.. a trillion dollars.

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  40. jackp (668 comments) says:

    Yes, but if they had George W Bush as president and Cheney as vice president, those gatling guns would have been mass produced by Haliburton and possibly would have tripled the deaths.

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  41. Shane Pleasance (8 comments) says:

    John Key’s REAL Tax Speech

    “New Zealand, we are in crisis. As a nation we are rumbling down the path of economic doom. We are spending and planning to spend so much of your money on sustaining our 2nd world status that to do nothing would be immoral.

    A land of such potential.
    Forget Australia – we could be the Switzerland of the Pacific.

    New Zealand, further to our election promises, today I am lowering your tax rates dramatically, and comprehensively.

    How do we do this?

    We are cutting huge swathes into the lumbering unproductive behemoth that are New Zealand state services.
    We are offering you the option of deciding which state services you wish to pay for – and – receive. Subsequently, they will right-size, offering real competition and choice.

    We believe you are best placed to make decisions on how to spend your money.

    After all – it is your money.”

    John Key
    http://www.inpho.co.nz

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  42. Luc Hansen (4,573 comments) says:

    Now Contact Energy has announced a 5% price rise. Factoring in the mooted 20% increase in GST, the calculation goes like this:

    Assume an original billing (including 12.5% GST) of $100.00.

    100x 1.05=105.

    105x 102.22=107.31.

    7.31×100/100=7.31% increase to the consumer.

    This is how inflation expectations are stoked.

    So you can bet your bottom dollar interest rates will need to rise more than they would have without the increase in GST because price rises are magnified not only by the increase in GST but by the opportunity presented by rounding (you can bet again that the rounding will always be UP).

    Although the RB is permitted to ignore one-off influences on the headline inflation rate, in reality it acts to keep inflation expectations dampened, as it must.

    Gee, thanks John. Play it again, mate. 17.5% in your second life term?

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  43. MikeNZ (3,233 comments) says:

    The government is borrowing money to fund entitlements (WFF, interest-free student loans, universal superannuation).

    Since when is paying into a super all your life become an entitlement?

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  44. Manolo (14,176 comments) says:

    Key is a complete and utter disappointment, a dismal failure as Prime Minister.
    I doubt this vapid PM will ever have the courage to make the hard decisions, to deliver what he promised during the campaign.

    With neo-socialist politicians like him in power, New Zealand is on its way to its economic demise.

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