Kiwiblog

In no particular order.

The Herald Editorial compares the parties:

There has been a striking contrast in the response of the two main parties to the disturbing news that after 14 years of budget surpluses the Treasury now calculates the public accounts are set for a decade of deficits. …

Finance Minister Michael Cullen merely congratulated himself again on having saved previous surpluses for a “rainy day” and looked forward to the problems it would cause for National’s intended tax cuts.

There was evidently nothing he thought necessary to change, either in his own programme of reluctant tax cuts that started this month or in the Government’s spending programmes that might have seemed affordable in better times. If Labour’s “rainy day” could last 10 years, as the Treasury forecasts, Dr Cullen and his colleagues seemed strangely relaxed about it.

In other words Labour has no plan at all.

The fiscal crisis is indeed the first real test of the mettle of leader John Key and his team and it is rare that voters get such a measure before an election.

National could have taken the easy option of confirming its previously indicated tax cuts, offering no specific savings in public expenditure and pretending that tax cuts would actually cure the deficit in quick time. Conservative parties are prone to that belief.

Instead, National has faced the need to balance its tax cuts with specified savings, notably the removal of business tax breaks on research and development and employer contributions to KiwiSaver. The wisdom of reducing the incentives to save is questionable but the courage is not.

And National is willing to take the hard decisions, and not pretend that the decade of deficits is acceptable.

Paula Oliver in NZ Herald:

National has risked alienating people who have embraced KiwiSaver, as the party goes into the election with a tax-cut package that would leave more money in the pockets of most earners – but takes away two business tax breaks to pay for it.

Mary Holm says the changes improve KiwiSaver:

The National Party’s proposed changes to KiwiSaver would considerably reduce two of the biggest gripes about the scheme – that some people can’t afford it and that it ties up savings. …

The contributions of anyone earning less than $52,150 would be tripled by employer and government input. And that means three times bigger retirement savings. …

The reduction of the minimum employee contribution from 4 per cent to 2 per cent of pay means it would be easier to afford KiwiSaver, especially after taking tax cuts into account.

John Armstrong says it is a bit of a fizzer:

The door banged shut in Labour’s face following Monday’s mind-numbingly pessimistic economic forecasts. Labour can thank National’s underwhelming tax package for reopening it at least slightly.

Colin Espiner reports on a snap poll:

A snap poll for The Press yesterday showed National may have pitched the package about right.

The poll of 212 people by Futurescape Global found 43% felt the tax cuts matched their expectations, with 34% feeling it fell short. A slim majority of those polled felt the country could afford National’s package, but people were split over whether they were confident in National’s ability to manage the economic crisis, while 55% said the tax package had not altered their vote. The poll has a margin of error of 6.7%.

Brian Fallow sees a shortage of growth:

National claims its tax package will stimulate the economy in the short term and improve incentives and drive growth in the longer term.

The first claim is plausible, the second not so much.

Reducing the top tax rate faster will be better for growth long term, but quite simply the money was no longer there.

James Weir in the Dom Post surveys business opinion:

Business New Zealand also disagreed “pretty seriously” with the decision to drop R&D tax credits but said the planned tax cuts and target to cut personal tax rates to 33 per cent over time rated a “seven out of 10″ score overall.

The Press editorial is positive:

Even if tax cuts were not on the agenda, there is a case to argue that the levels set for KiwiSaver were too ambitious from the start. As it stands, some young people entering the scheme and earning the average wage throughout their working lives could end up earning more in retirement, when their National Super entitlements were added to their KiwiSaver earnings, than they did in their lifetime.

Yep, and that is daft. The 4%/4% KiwiSaver forced people on the average wage to save too much, taking money they need during their working life.

Clark has said this election will be one of trust. If this is so, then the question for voters will be who do you trust in the turbulent world we now face? With these tax cuts, and with some detail of its longer-term economic plans, National has placed its cards on the table. It has produced figures to show that its plans are fiscally responsible. Voters must decide whether Key and his colleagues can be trusted to deliver on them, or whether Labour can be trusted to manage difficult times as well as good ones.

Will Labour produce a plan? Or is Labour saying it will run a decade of deficits and not make any changes to tax rates or spending?

Tracy Watkins blogs:

A year ago, Key might have risked over promising and under delivering on those amounts.

But that was a vastly different world..

The failure to deliver more may peel off some soft support among those who were leaning toward National but, because of Working for Families, will not be a whole lot better off.

But the rest will probably agree with Key that it’s a package that’s right for the times.

So is it enough? You’d have to say yes.

And finally NZPA reports that least surprising news of all – that unions and political rivals don’t like it. Some get their facts wrong:

United Future leader Peter Dunne, who is minister of revenue, said it was complicated and would be difficult to administer.

“Superannuitants and low income earners are the big losers,” he said.

Bzzt. Wrong. By 2011 superannuitant couples will get $15 a fortnight more.

Tags: Brian Fallow, Colin Espiner, James Weir, John Armstrong, KiwiSaver, Mary Holm, National, NZ Herald, Paula Oliver, tax cuts, The Press, Tracy Watkins

The gallery seem united in their view that Helen Clark will suspend or stand down Winston Peters today. She would be silly not to. In fact the SFO investigation has been fortunate timing for her – it lessened some of the focus on her personal lnowledge of the Owen Glenn donation.

Paula Oliver in the Herald says:

The Serious Fraud Office probe into New Zealand First’s finances announced late yesterday makes Winston Peters’ suspension as a minister unavoidable.

Claire Trevett reports that most of the party leaders are calling for Peters to be stood down.

John Armstrong writes:

Facing mounting pressure to deal with Peters to stop his multiplying crises tainting Labour by association, Helen Clark now has the perfect excuse to stand him down from his ministerial portfolios without his having any valid reason to complain.

Tracy Watkins in the Dom Post:

Phone calls between the Clark and Peters camps late yesterday ahead of a meeting today point to mounting pressure on Miss Clark to stand her foreign affairs minister down.

NZ First insiders insisted yesterday there was no prospect of him standing aside voluntarily.

Colin Espiner in the Press:

His position appears virtually untenable after the SFO yesterday started an investigation into claims that donations allegedly solicited by Peters from Sir Robert Jones and Vela family interests did not reach New Zealand First.

I expect it will be announced before midday.

Tags: Claire Trevett, Colin Espiner, Helen Clark, John Armstrong, Paula Oliver, Tracy Watkins, Winston First

The NZ Herald has features on John Key and Helen Clark, as they are out on the campaign trail. First Armstrong following Key:

Some people just shake Key’s hand as he passes and express the hope that he wins and walk off. Votes in the bank. Those that do stop and chat almost on cue talk about it being”time for a change”. They don’t explain why.

This prevailing sentiment for “change” is extremely difficult for Labour to combat as it is based on feelings rather than cold hard logic.

A faltering economy will reinforce that sentiment. But National must be increasingly in two minds about the political advantages of a sharp downturn. One shopper sums things up. “I don’t envy you if you win,” he tells Key, as the entourage heads off to Napier’s seafront for his “ladies’ lunch”.

Indeed, National Governments always seem to come into office when the economy is heading downhill. Happened in 1975 and 1990. Key, if Prime Minister, will have a formidable challenge to grow the economy, slow the exodus, lift wages, cut taxes and maybe hardest of all actually implement a workable Emissions Trading Scheme.

The 29-year-old has voted Labour all her life, but she is not happy with the ruling party’s current direction. With four children and a husband who works full-time, she struggles to understand why Michael Cullen has not already cut taxes.

The irony is that the fiscal situation was far more conducive to cutting taxes from 2004 to 2007 than it is now. I doubt there is one other Finance Minister in the OECD who would not have cut taxes when there was a surplus of over $5,000 per household.

Meanwhile Paula Oliver is out with Helen Clark:

Clark handles the questions with a multi-pronged response. It is a style that isn’t reserved just for these students, but one she is using on her travels all around the country.

First she shows some empathy by acknowledging that the prices of some staple foods have risen faster than inflation, and petrol has zoomed up even more rapidly. “The family notices it in the car, and feeding teenagers who are always in the fridge,” she says with a wry grin to the students.

Then she breaks into what sounds like an Economics 101 lesson as she tries to project an image of someone who understands what is happening and is capable of leading the country through tighter times.

“The key thing for us is running the economy carefully,” Clark says, explaining that inflation remains a risk and the Government would prefer to see it slip back within the Reserve Bank’s target band of 1-3 per cent.

Then she reminds the students that Labour has only just days before done something to help with one aspect of the financial pinch – it delayed the introduction of transport into the climate change emissions trading scheme and thereby put off a further hike in petrol prices.

“We decided because people are already using less (petrol) as prices are high we shouldn’t push it up further,” Clark says.

Even though Clark is now 17% behind Key as Preferred PM, it is a useful reminder that she is a good campaigner, and while the fight may have gone out with some of her colleagues, it has not with her.

Tags: Helen Clark, John Armstrong, John Key, Paula Oliver

Paula Oliver writes on the big backdown:

The Government looks like it is retreating on its big climate change push as quickly as it advanced the surprise concept of a ‘carbon neutral’ New Zealand.

Prime Minister Helen Clark’s announcement of a two-year delay to transport’s inclusion in the flagship emissions trading scheme yesterday can only be seen as backpedalling.

And with the regional petrol tax delay, they are in full retreat.

It is only 18 months since the Prime Minister first voiced the aspirational target of taking the country to carbon neutrality. A lot has changed since, with food and oil prices surging as high mortgage rates also begin to bite on household budgets.

It is no longer as easy to convince people of the worthiness of paying more now for everyday goods in order to prevent global warming.

It has always been about a trade-off, and the Government has tried to con people that one can go carbon neutral and not have it greatly affect businesses and consumers. I actually accept that one has to bear some costs to reduce carbon emissions, but we should be honest about the fact there will be costs.

Paula looks at the three planks to the Government’s plans:

1. The biofuels push is languishing in a select committee as the global debate about the merit of some of the fuels rages.
2. The regional fuel tax – to be used to fund the ‘sustainable’ electrification of Auckland’s rail system – is being toned down so the country’s largest city isn’t slapped with another 5c a litre on the price of its petrol.
3. And now the first part of the biggest of all the climate change policies – the emissions trading system – is also being slowed down so that drivers don’t feel more pain at the petrol pumps.

This is not a small backdown in one area. Their entire programme of environment sustainability is on the retreat.

Tags: Climate Change, Paula Oliver

The Government’s Emissions Trading Scheme may be heading the same way as their Biofuels legislation – with growing realisation the cures may be much worse than the disease.

Colin Espiner blogged yesterday that “climate change policies no longer sustainable”. This may be the first instance of a press gallery journalist saying that, and this week could be seen in future as the tipping point. Quoting Espiner:

A year sure is a long time in politics. Remember “sustainability”? Remember how New Zealand was going to become the world’s first “carbon neutral” country? Remember electric cars, 90% renewable energy, bold plans to slash vehicle emissions by 40%?

The United Nations sure does. It’s awarded Prime Minister Helen Clark a gong for her commitment to fighting climate change, despite the fact that not a single of these pledges has yet been formally implemented, let alone had any effect. Our carbon emissions went up last year, not down. They’ll probably be up again this year.

And yet funnily enough you don’t hear much from the Government these days about sustainability. The plan to allow councils to whack an extra 15c on to every litre of petrol is on the back-burner. The idea to force petrol companies to blend their gas with a minimum 5% biofuel suddenly doesn’t seem like such a good idea when respectable environmental lobby groups are warning that most of the world’s biofuel production is unsustainable, is being achieved by felling rainforest, and has led to a huge increase in world food prices.

Add to this that the scheme at the heart of the Government’s ambitious plans to tackle climate change, the Emissions Trading Scheme (ETS), is under heavy fire, and not just from the usual suspects. A bevy of reports from respected consultancies and research firms like the Cawthron Institute, the Institute of Economic Research, and Infometrics say the ETS will cost the country a fortune, will only result in a marginal reduction in greenhouse gas emissions, and could have severe unintended environmental side-effects.

Coming up with solutions which are good for the Environment and do not hurt consumers and businesses greatly is not easy. This is why soundbites such as “carbon neutrality” are so irresponsible. It’s also one reasons why I support roll out of fibre to the home – it is one of the few policies which should be both good for the economy and good for the environment.

Paula Oliver in the Herald reports the Government is now considering delays, as sticking extra costs on petrol at a time when prices are already record high will probably just be seen as revenue collecting. The beneficial effects of encouraging more fuel efficient vehicles and more public transport use are already happening at $1.85 a litre I suspect and a few cents more may have little effect except to piss people off.

Timing is everything sometimes!

Tags: biofuels, carbon emissions trading, Climate Change, Colin Espiner, ETS, Paula Oliver

Some astute analysis by Paula Oliver in the Herald:

Dr Cullen is arguing his tax cuts will meet four carefully worded tests he has thrown into the media – they won’t require borrowing, they won’t exacerbate inflationary pressures, they won’t lead to greater inequality and they won’t require cuts to public services.

But the fact is that when taxes are cut by any amount, however big or small, that amount automatically becomes money that could have been used for something else.

I am bemused as Dr Cullen tries to almost con the country that he has invented a special sort of tax cut which is magically immune from affecting borrowing, inflation or spending priorities.

Paula Oliver correctly notes it is all about priorities and opportunity cost.

Now I am a supporter of a balanced approach to spending and tax. As the economy grows, and the tax take grows, I advocate you put some of it into extra spending and some of it into tax relief. Labour for eight years has been almost 100% into extra spending and 0% into reducing personal tax. ACT seem to be currently advocating 0% into extra spending and 100% into reducing tax. I’ve left the savings side of things out of it for now for simplicity sake – just focusing on spending and tax relief shows the contrast.
Now getting back to Paula’s article, both Labour’s and National’s tax cuts will not require borrowing, in that NZ has a surplus which is more than large enough to cover a reduction in tax. But if one had no tax cuts at all, then the surplus would be larger and debt would fall.  So Dr Cullen trying to pretend his tax cuts are somehow immune from being part of a trade off is silly.

Now again I support a balanced approach. When debt was like it was in 1990, the priority was getting it down. Hell we were near bankrupt and facing massive deficits. But debt today is incredibly low, and almost non existent in terms of net debt. So as long as the structural operating surplus (OBEGAL) remains positive (I personally advocate a 1% of GDP surplus, after provision for Super Fund contribution), it doesn’t matter if gross debt flucutates up and down a bit over the years to reflect capital investment etc.

Tags: Michael Cullen, Paula Oliver, surplus, tax cuts