Very disappointing – no tax cuts

April 3rd, 2014 at 4:00 pm by David Farrar

The Herald reports:

The May Budget will have no plans for , Prime Minister John Key confirmed yesterday, and he sought to dampen expectations that there would be anything significant in the future.

I’m very disappointed that there will be no tax cuts. Hard working New Zealanders deserve a boost to their after tax income.

In no way do I expect tax cuts for the 2014/15 year as the surplus is so small. But I was hoping that the Government would signal tax cuts in the future years.

When the Government’s accounts move into surplus, Governments have basically three things they can do with the surplus.

  • Increase spending
  • Reduce tax levels
  • Pay off debt

I believe a good Government does all three. If for example your projected surplus is $4 billion you might increase spending by $1 billion, reduce taxes by $1 billion and retain a surplus of $2 billion to pay off debt.

We’ve yet to see the size of any future projected surpluses, but if they are projected to be greater than say $2 to $3 billion (which allows contributions to resume into the NZ Super Fund) then tax cuts are affordable and desirable. And I want to see National commit to them.

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53 Responses to “Very disappointing – no tax cuts”

  1. lolitasbrother (749 comments) says:

    I am quite concerned about our National debt.

    http://www.nationaldebtclocks.org/debtclock/newzealand

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  2. b1gdaddynz (279 comments) says:

    But then Labour will attack them for just looking after the “rich pricks” you know everyone earning more than minimum wage or on a benefit.

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  3. b1gdaddynz (279 comments) says:

    @lotitasbrother yeah I would rather they worked on reducing that then tax cuts mind you at least we are not as bad as the US! http://www.nationaldebtclocks.org/debtclock/unitedstates 103.38% of GDP

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  4. mikenmild (11,742 comments) says:

    Given the growth in national debt in recent years, I think the priority should be paying down that more rapidly.

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  5. berend (1,716 comments) says:

    DPF: I’m very disappointed that there will be no tax cuts.

    A reminder: we have not had a tax cut in 6 years. The last tax change was revenue neutral (income tax down, gst up).

    So I’m not surprised. No tax decrease. Debt up. What a legacy.

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  6. tvb (4,512 comments) says:

    Tax cuts also spike the guns of the Labour Party who would rather spend the money. But we are getting back some modest cuts through the winding back of the ACC surcharge on income tax which is not a trivial sum. The Labour Party would prefer to make the scheme even more generous to the malingerers.

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  7. MT_Tinman (3,257 comments) says:

    Not offering relief in the form of tax cuts is taxpayer bashing, pure and simple! :-)

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  8. lolitasbrother (749 comments) says:

    I am voting National for sure, but again about money look at this :
    Its a graph of Government overseas debt
    In a few short years [ NZ Nat Government ] we have raised our public debt from 20 billion to 50 billion.
    Tumeke

    http://en.wikipedia.org/wiki/File:NZ_Govt_debt_1990-2011.svg I used t

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  9. mikenmild (11,742 comments) says:

    Not a graph DPF would highlight here.

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  10. m@tt (631 comments) says:

    This government have reduced their income from assets while also incurring massive levels of debt.
    I don’t think there will be real tax cuts for anyone for a very very long time David.

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  11. srylands (414 comments) says:

    https://www.labour.org.nz/media/labour-fact-check-keys-twists-and-turns-speech

    “David Parker – Labour fact check: Key’s twists and turns in speech”

    “Every year Labour posted large surpluses and paid down debt. National has yet to do this once, after more than five years in office.”

    Words. Fail. Me.

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  12. RRM (10,020 comments) says:

    It’s going to take a fair few $2 billion surplusses to make a dent in that $77 billion govt debt… :neutral:

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  13. Fox (206 comments) says:

    Leaving a large surplus for a future Labour/Greens government to immediately squander is an extremely bad idea.

    I’m reminded of the situation in Australia, where after more than a decade of knuckling down and extreme fiscal prudence the Howard government managed to create reliable surpluses in excess of $15 billion.

    Things were in-fact going so well that people thought they could afford themselves the luxury of voting in Labor, who unbelievably and astonishingly managed to convert those surpluses into an annual deficit of $35 billion, within the space of a mere 6 years!
    And this during the largest mining boom this planet has ever seen!!

    It is much easier for fiscally reckless left-wing governments to stealthily throw away large surpluses, than it is for them to reverse tax cuts which have been funded by surpluses.
    Because when they move to increase taxes, they have to make the case for it to the voting public first, who then at least have the option of holding them accountable for it.

    For this reason it really should be clear to National what they should do.

    Tax cuts are essentially a way in which to ‘lock in’ fiscal prudence and to at least hamper wasteful and excessive government spending, if not to stop it completely.

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  14. Cunningham (846 comments) says:

    By saying this, Labour have nothing to attack them on. Not saying I agree but if it helps to keep those wankers out of government, then I would personally rather see debt paid down faster and not get a tax cut.

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  15. berend (1,716 comments) says:

    srylands: Words. Fail. Me.

    But he makes very good points.

    David Parker: National has increased debt by $60 billion in office, the worst of any in government (in nominal terms) and the worst since Muldoon as a percentage of GDP.

    True.

    Key: In the last five years of Labour, government spending in total went up 50 per cent.

    David Parker: In the last five years of Labour we introduced Working for Families, interest free Student loans and Kiwi Saver – all paid for out of growth. None of which National has repealed .

    True again.

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  16. big bruv (14,156 comments) says:

    That is not the only thing that is disappointing with this Labour lite government. Over at Lindsay Mitchells place she has once again produced an outstanding post showing that despite this Labour lite government talking tough over feckless beneficiaries they have done nothing about reducing long term bludging.

    http://lindsaymitchell.blogspot.co.nz/

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  17. rg (214 comments) says:

    Why would you be disappointed David?

    National, Labour , they are both the same, just one is not as bad as the other. They love spending our money.If you want the taxpayer to get a little back then you will have to vote ACT. Far better for indivifduals to do the new spending than the govt.
    Can’t see why you keep supporting National?

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  18. ShawnLH (5,754 comments) says:

    Lindsay Mitchell for PM!

    Seriously though, she is very good.

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  19. dime (10,109 comments) says:

    the country is too left wing for tax cuts.

    my guess – after the election is won they will start.

    otherwise the media will scream “tax cuts for the rich” for months and it will be enough to drop national and give labour a sniff.

    the media either want a tight race or labour to bomb worse than ever. anything in between is exciting enough for the creators of news.. who are meant to be the reporters of news but ah well

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  20. Tautaioleua (318 comments) says:

    Tax cuts don’t work on the highest income earners because they’re unlikely to spend more because of it – thus stimulating the economy. They would only work on middle-class earners where the extra saving is more likely to be spent on regular expenses.

    Economics 101.

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  21. Fentex (1,038 comments) says:

    In no way do I expect tax cuts for the 2014/15 year as the surplus is so small. But I was hoping that the Government would signal tax cuts in the future years.

    We’re going to have to retire a good chunk of our debt first.

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  22. alwyn (438 comments) says:

    b1gdaddynz said at 4.10pm

    “But then Labour will attack them for just looking after the “rich pricks” you know everyone earning more than minimum wage or on a benefit.”

    No, like St Paul they have had a revelation. In their world, with the revered Cunliffe as leader, they have changed their view of what is a rich prick. After all, they can’t put themselves in that category can they?

    Did you not hear Cunliffe describe a $2.5 million house as just being a “do-up” dump? Did you not hear him say that his family, with a probable income in the $700,000/year or so bracket describe himself as only being in the “middle bracket”.
    If Labour get into power I am sure that all income tax on people with an income of leas than half a million will be abolished.

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  23. chris (647 comments) says:

    At the very least they should introduce a (fairly generous) tax free income threshold. That would help everyone. And cut the crap out of spending.

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  24. duggledog (1,589 comments) says:

    OK someone help me out here.

    How much are we actually taxed?

    I know what the thresholds are, but if we imagine someone earns 100k – how much more of their money is taken by the government on top of that?

    I’m talking GST of 15% of everything we buy; petrol excise, booze excise, registrations for cars, local government rates on property, tax on savings, ACC payments, driver licences, passports – shit it must all add up.

    Does that person on 100k hand over 30k by compulsion? 40k? 50k?

    Anybody got a ballpark? (Luckily I earn more than 100k. My Mrs brings in quite a bit too)

    Chris – re your tax threshold – I refer you to the Conservative Party’s policy of first 25k tax free. Craig really needs to campaign in South Auckland & Porirua!

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  25. chris (647 comments) says:

    On 100K, I would guess at least 50K, assuming you spend all of it in NZ (or save some of it to be spent in NZ later). You have to take into account PAYE, ACC, GST, petrol taxes, Rates and any other levies we pay.

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  26. CharlieBrown (1,027 comments) says:

    What do you expect… John Key is a socialist, its been very apparent for many years now, I can’t believe you havn’t picked up on that dpf.

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  27. hemihua (31 comments) says:

    David Parker: In the last five years of Labour we introduced Working for Families, interest free Student loans and Kiwi Saver – all paid for out of growth. None of which National has repealed .

    And there is the problem – it wasn’t real growth. It was driven by credit. Of course, rather than give the surplus back, or save it to smooth out economic cycles, they blew it on middle class welfare and train sets (although i’ll give them credit for the NZ super fund).

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  28. duggledog (1,589 comments) says:

    Thanks Chris. I thought so!

    Berend, what do you reckon about this: I don’t necessarily agree that the tax cuts coupled with the increase in GST were neutral. I am a thrifty bastard and I don’t spend money I don’t have to. Grow a lot of my own beef, chicken, veg, fruit, firewood, you name it. I do most of my own work round the place myself too from minor building projects to glazing windows my kids have broken (arrgh) to basic car maintenance. I wouldn’t go as far as Don Brash & his socks but I prefer to spend my cash on things I really want and can afford like boats, overseas holidays etc. My dad always used to say you should buy luxuries with cash that is surplus, and I’ve never has reason to doubt that logic.

    It never ceases to amaze me how much money people will spend, even when they are mortgaged up to the hilt. It’s not compulsory to spend like a Labour Government. You won’t die without all the Sky channels, the latest iPhone and a $4.00 coffee every morning!

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  29. JeffW (327 comments) says:

    Govt already wastes plenty of money, ridiculous to think they should spend more. Cut the fat!

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  30. berend (1,716 comments) says:

    duggledog: Berend, what do you reckon about this:

    Although it may have worked for you, the package was designed to be tax neutral. If you paid less tax, others will have paid more.

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  31. OECD rank 22 kiwi (2,753 comments) says:

    A pay rise and a tax cut is just a plane ride away.

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  32. chris (647 comments) says:

    @duggledog

    I am a thrifty bastard and I don’t spend money I don’t have to.

    Even if you are thrify, you will eventually spend any money you have saved. This will then be subject to GST, unless some future government removes it or reduces it. I think pigs will fly before that happens though ;)

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  33. Viking2 (11,568 comments) says:

    Interesting day. Many posters starting to say what I have pointed out countless times. This govt. has not made any progress at all but taken us backward. Usually all I get for pointing this out is thumbs down.

    English is a spendthrift and between them they manage to fudge the numbers till they apparently look good. They do not.
    So no real budget cuts, no stopping of wasteful spending like saving whales at the Hague and so on. Meanness towards beneficiaries who are the result of the system rather than changing the causes.

    Choosing winners by sector rather than making the same opportunities available to everyone.
    Deciding what a persons labour is worth without any recourse to the skills nor the labour market.

    Bailing out a city that failed to understand its geology and plan for earth events. Using taxpayers money to bail out a failed insurance company and finance companies, bailing out householders and building owners and their banks and insurance companies when they all failed to properly estimate and insure their risks.

    Doing stuff that private companies should be doing like using taxpayers money to lay cable.

    Failing to sell unproductive assets cause it might frighten the horses.

    Building houses that people should build for themselves.

    Hopeless, just bloody hopeless.

    Bloody busy bodies with no restraint upon their efforts to control people.

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  34. tedbear (152 comments) says:

    ” Hard working New Zealanders deserve a boost to their after tax income.”

    Really DPF?
    Do you actually re-read what you type before pressing Enter?
    You make many spelling and prose errors so I suspect you seldom give anything the once over, but that’s not the reason for this subject comment.

    Hard workers with families don’t deserve yet another tax break as already they pay feck all income tax what with WFF.
    Business NZers also pay feck all income tax what with all their tax fiddles and deductions.
    People on Super like me, having worked fecking hard for 40 years or more get no tax breaks, spend most of their income on basic living costs, plus their savings get hammered by more tax.

    So my advise to you DPF, is to have at least a wee think before pressing Enter.

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  35. seanmaitland (501 comments) says:

    @bellend: “Although it may have worked for you, the package was designed to be tax neutral. If you paid less tax, others will have paid more.”

    Thats rubbish – the income tax changes were all cuts. No-one ended up paying more income tax. And the 2.2% increase in prices once the GST rate went up to 15% was not going to make a certain group of people pay more than they would’ve got in tax cuts either. The only way someone would’ve been hammered by the GST rise would be if they were spending thousands of dollars a week on goods and services.

    Simple maths bro. You should try it sometime.

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  36. SPC (5,775 comments) says:

    Four things actually, another is to make provision.

    The low EQC level (yes the premium could go up), the cost of subsidising the earthquake proofing of buildings, and of course there is the Cullen Fund provision for future government recourse when super pay out costs escalate.

    English has signalled that debt repayment and Cullen-English Fund inputs are the two priorities – before spending or tax cuts.

    It is unwise to stimulate an economy with tax cuts as growth kicks in – that just results in rising interest rates.

    Stick to the play book, it is at least prudent.

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  37. SPC (5,775 comments) says:

    seanmaitland, you may have forgotten the tax changes to rental property that resulted in a reduced depreciation claim – this group provided some of the revenue for the wider package.

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  38. SPC (5,775 comments) says:

    berend, the package was designed to be tax neutral over time, but was not initially.

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  39. Alan (1,087 comments) says:

    “Hard workers with families don’t deserve yet another tax break as already they pay feck all income tax what with WFF.”

    Utter bullshit, I’ve got kids, get not a cent on WFF and paid north of $80k just in income tax last year, god knows what i paid when I add up all the other taxes

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  40. chrisw76 (85 comments) says:

    @Alan – congrats on paying north of $80k in income tax. According to the IRD’s calculator you must have a gross income in excess of $270k to be paying that. Bit surprised you’d be keen for a bit of welfare though…

    Put me in the camp that prioritises debt reduction at least equal to the debt increase from 2008-2014 prior to any tax cuts.

    Cheers, Chris W.

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  41. tedbear (152 comments) says:

    Well done Alan.
    You made the choice to have kids and therefore to pay for their upbringing from your income.
    Paying $80k odd in taxes puts you in the pretty well off band so I’m surprised by your attitude to my first comment.
    Do you really expect any sympathy that you get nothing from WFF?

    When I was raising a family, WFF hadn’t been invented. Sure there was a very modest Family Benefit but I never based my budget including it and I was on a very basic salary as an apprentice.

    I will admit my post could have said, “”Some hard workers with families……”

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  42. tedbear (152 comments) says:

    It’s no good, I can’t sleep.
    That poor Alan trying to live on a mere $200k net.
    Kids to bring up oh dear me and all those other taxes that no one else has to pay.
    C’mon kiwibloggers, pass the hat around for poor Alan.

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  43. Jafa (38 comments) says:

    Dont forget that once inflation gets going the effects of Helens best friend, fiscal drag, will kick in. I think most of us will find we have had a tax increase over the last 6 years, so it is not tax neutral as some are claiming. Another wee point is that net after tax income is the main driver of savings. Savings equals investment. Investment equals productivity. Without productivity we don’t get new jobs and wage rises happening. Any tax on savings, directly or indirectly, is a tax on productivity and economic growth. Taxes on the so called wealthy might make the population feel good, but they are not seeing that investing is mostly done with after tax income and by folks who have a time frame greater than the next election. Even property investors loans come from the savings of someone else so no free lunch there either folks. My business generates investment income which is then taxed. The amount of income I can generate is directly related to the amount of capital I have. Any tax, like income tax, that decreases my ability to save will score an own goal for NZ cos when my income goes down so does the tax I pay that is used for all the freebies the hard working folk of NZ have voted themselves over the years. Many of the ‘older’ folk who are on the super have not paid nearly enough tax compared to what their generation is going to suck out of the system. No fecking way! At some point JK needs to acknowledge those that have supported him the last 6 years and at least put the tax brackets up.

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  44. seanmaitland (501 comments) says:

    @tedbear, no I’ll pass a hat around for your poor intelligence instead – maybe a new brain. Alan didn’t say he wants help from the government, he was pointing out that there are families out there that don’t get WFF, and pay lots of tax. In fact 50% of families don’t get WFF.

    Try paying attention.

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  45. Tom Jackson (2,553 comments) says:

    What do you expect… John Key is a socialist.

    Then everyone is apart from a few nutters. Big government and the welfare state are not going away any time soon. It has little to do with voters and more to do with the fact that a modern economy cannot work without big government and the welfare state.

    If you want these to go away, you have basically declared war on modernity.

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  46. Tom Jackson (2,553 comments) says:

    Did you not hear Cunliffe describe a $2.5 million house as just being a “do-up” dump?

    He lives in Auckland, so he’s probably telling the truth.

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  47. ShawnLH (5,754 comments) says:

    “the fact that a modern economy cannot work without big government and the welfare state.”

    Nonsense.

    “If you want these to go away, you have basically declared war on modernity.”

    Fantastic. Can we get that war under way now please?

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  48. tedbear (152 comments) says:

    Well Seanmaitland, this is where our equal brains see things differently.
    My whole post was aimed at DPFs very broad statement that only hard workers deserve a boost.

    My brain interpreted Alan’s statement that he ought to have an income boost because he paid a hefty amount of income tax.
    Only a complete nutter would read into that that he ought to be getting WFF relief.

    Then of course I later amended my first post that took Alan’s situation out of the equation.
    But you missed that because you weren’t paying attention.

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  49. Psycho Milt (2,419 comments) says:

    If for example your projected surplus is $4 billion you might increase spending by $1 billion, reduce taxes by $1 billion and retain a surplus of $2 billion to pay off debt.

    And if, for example, your debt was up towards $60 billion and rising, you might want to take paying it off a bit more seriously than that.

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  50. Yoza (1,908 comments) says:

    seanmaitland (394 comments) says:
    April 3rd, 2014 at 8:48 pm

    The only way someone would’ve been hammered by the GST rise would be if they were spending thousands of dollars a week on goods and services

    So, basically everyone who ends up with next to nothing left after paying for rent, food, power/gas, phone, clothing etc, has had a tax rise under the Key regime – that’s a lot of people and the only reason Key could afford to slash taxes for his rich mates. The wealthy few got their massive tax breaks by forcing those at the bottom to pay more.

    Simple maths bro.

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  51. Alan (1,087 comments) says:

    Of course I don’t want WFF, I just took exception to Tedbears post castigating people with families as bludgers, telling me I paid feck all in income tax. I reacted to him telling us how awful things are for the old when in truth the old have never had it so good due to their huge voting numbers and the lollys the state delivers to them, like SuperGold Cards.

    The productive middle classes with kids are carrying the real heavy load.

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  52. tedbear (152 comments) says:

    Oh dearie me Alan.

    Why oh why do people like you take things out of context?

    This blog entry from DPF is entitled “Very disappointing – no tax cuts”

    I commented, with amendments, that imho, why should just some hard working New Zealanders deserve a boost to their after tax income and not other citizens.

    Any sensible paying attention reader would understand that my reference to WFF only related to those hard working NZers with families who actually get it.
    Nowhere did I say or infer some hard working New Zealanders are bludgers.

    I fail to see how being one of a ‘huge voting numbers group’ makes life easier for me.

    Please Alan, tell me about all the lovely State lollies I’m entitled to with my SuperGold Card.

    As I’m a thrifty kiwi, I’ve managed to invest some loot from my working days so I’m not entitled to subsidised health care.
    Yes there a free flu jab, but um what else is there?

    The only perks I’ve managed to score are those provided by private businesses.

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  53. deadrightkev (526 comments) says:

    National is a socialist party pretending to be centre right so it is not surprising that they are not signalling tax cuts.

    It will take Act or the Conservatives to drag National kicking and screaming into the real world of huge opportunity for growth that exists out there. Lets hope its 2014.

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