Scoop Election 08: edited by Gordon Campbell

On John Key’s agenda for the nation

February 10th, 2010

Compensate is such a slippery word. If you set out to make the elite squad in team A immensely better off with money taken from Teams B and C, and you also say those two bottom teams will (somehow) be left no worse off – is that really a compensation? Haven’t you just widened the existing gap between Team A and everyone else – and here and overseas isn’t a big income inequality gap a recipe for poor economic performance, bad health outcomes and increased criminal activity in society? Hell, even Peter Dunne is sceptical that the government can ‘compensate’ the vulnerable for the hike in GST to 15%, without fostering exactly the sort of cumbersome and costly bureaucratic delivery mechanisms that this government claims to abhor.

There was more to it yesterday than tax though. There seemed to be three main components to John Key’s speech : (a) tax cuts largely paid for by a hike in GST (b) mining in national parks and on conservation land, while building more roads. (c) giving firms easier access to the r&d from Crown Research Institutes, so that business can continue to get the taxpayer to pick up the tab for the research that keeps them competitive. After all, corporate welfare is always such a blessed thing – its only social welfare that corrodes enterprise and ambition.

Tax cuts

Initially, the Key speech was striking for the several roads NOT taken as much as for the road finally chosen. What is the opportunity cost, I wonder, of convening a tax working group (TWG) of experts and then – only weeks afterwards – junking almost all of its main findings ? That’s what John Key did yesterday. Goodbye land tax, and goodbye also to any prospect of a comprehensive capital gains tax. Once again, a New Zealand government has proven itself too politically timid to tackle the most economically damaging and unfair distortion within our tax system. Wage and salary earners pay tax – those who live off capital gains do not. So it has been, and so it shall continue.

Goodbye as well to the third best option – The Risk Free Return Method of taxation that Geoff Nightingale of the TWG described to Scoop in December as being a ‘rifle shot’ targeted at property speculation, and a step that would have removed the ability for loss-making rental property investments to be written off against income. Clearly, National Party MPs have too many friends in the rental property sector for that to be tolerated. At most, we are going to see changes to the depreciation rules. Which are overdue, but it is the least that can be done, by a government that promised us boldness.

Why then, did Key bother with the TWG window dressing, if the result was this pre-determined ? Asking for expert advice on how to fix the anomalies and injustice in the tax system – and then dumping the advice before the ink was dry on it – makes no sense. If this is the kind of efficiency John Key has got in mind for the rest of the economy, then we’re really and truly doomed.

Again, look at those roads not taken. Is there anything remaining on this agenda – beyond the failed snake oil of tax cuts – that is likely to lift this country’s economic performance ? No. Anything that is likely to create jobs for young people, one in five of whom are currently unemployed? No. The lack of vision should have been obvious when Phil O’Reilly of the NZ Business Council came on RNZ on the morning of the Key speech to claim that lowering taxes would enable firms to invest, do more research, generate wealth etc. such that the tax cuts ‘would almost pay for themselves.’

This is the voodoo economics of the Reaganite 1980s. an approach disproven time and again since. Essentially, the Budget package on May 20 looks likely to transfer wealth from the poor and middle income earners, into boosting consumption by those on high incomes. The brutality of the proicess is reflected in the skewed nature of the rewards – for those on top incomes, whereby the tax cuts alone will deliver more than the annual median income in New Zealand. As Labour leader Phil Goff has pointed out, a drop in top personal tax rates to 30 cents – which is Key’s started goal of tax reform – would deliver high income earners hundreds of dollars extra per week, and give Paul Reynolds at Telecom an extra $2,600 per week. However, those on the average wage of $48,600 stand to gain only about 35 cents from the process, and even those on $70,000 would receive only $12..69 – which would be cancelled out by the rise in GST. How can this shonky money-go-round possibly serve as an engine for economic growth and provide an incentive for people to work even harder, longer and smarter than they are already?

What we have been told by both by Finance Minister Bill English and by Key – is that these things need to be seen in balance, and social welfare payments will be increased etc. As already mentioned though, even Peter Dunne is sceptical ( if one raises GST to 15%) that there is an economically efficient method of compensating poor and middle income earners. The cleanest and most bang-for-the-buck method of doing so would be the one that has been advocated by the Greens and the Maori Party for years – namely, to exempt a band of initial earnings from tax altogether for those on the bottom rung of the income ladder.

Still, as Buddle Findlay tax partner Neil Russ has told NZPA, the basic equations for tax cuts do tally, if GST is hiked to 15% and the depreciation rules on property speculation are changed. Increasing GST would he says, generate an extra $2 billion, and another $1.6 billion from changing the depreciation rules. On the other side of the ledger :

Russ said it would cost about $1.6 billion to align the top personal, trust and company rates at 30 percent.

It had been estimated by the Tax Working Group that it would cost around $600 million to increase benefits, superannuation and Working for Families payments to compensate for the lift in GST.

So yes, it can be done. The question is – will New Zealand be a more productive economy, and a better society to live in, after income inequality has been increased in this fashion ? Forty years ago, George Jackson expressed what this process looks like, viewed from the bottom :

To them that have, shall more be given. To them that have not, even the little that they have, will be taken away. I don’t like this life. All my life, I have been basely used, abused and repressed – as if it was the natural order of things.

Mining

Of all the myriad commentaries that have poured forth over the past 24 hours on the Key package, an essential one to read is Russel Norman’s Address in Reply speech

Mainly because it ranges across the wider, and equally lamentable features of the government’s agenda – including the proposals to mine national parks and to build more roads above and beyond the programme previously announced by Michael Cullen.

Later this month, we will get more details on just which parts of the conservation estate the government proposes to lay open to foreign mining companies. For now though, a truly pathetic aspect of the Key speech was his assurance that any such mines would have to meet ‘best environmental standards.’ Well, to paraphrase Gertrude Stein ( who once famously wrote that ‘ a rose is a rose is a rose’) a mine is a mine is a mine. Put one in a national park and you destroy it forever, best environmental standards not-withstanding.

If there is a vision to this aspect of the government’s agenda it is not one born in the 21st century. More mines on conservation land and more roads everywhere else is a vision that belongs to the grand old 19th century tradition of Rip, Shit and Bust, where natural resources are infinite and developers are the agents of progress. Oh, and as conscience money for violating our national heritage, those mining companies will have to pay a pittance into a Conservation Fund. Thanks, guys. Flowers around a slag pit? Always a good look.

As Norman concluded about the Key package as a whole : “There is no vision for a smart economy that looks after the prosperity of people and the natural environment. There is only a corporate statement of intent.” Even on such limited terms, an economic policy that is being driven almost entirely by tax cuts will do little to shore up this country’s competitive position, and the income inequality that will result is simply not socially sustainable. Surely, the government’s smarter friends in business can see that – and even as they pocket their tax cuts, they must be feeling worried about the future.

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    1. 14 Responses to “On John Key’s agenda for the nation”

    2. By Rimu on Feb 10, 2010 | Reply

      Great article Gordon, sums it up well!

    3. By Cullen's Sidekick on Feb 10, 2010 | Reply

      Good on you Gordon! Why didn’t you jump up and down when the rich pricks paid the envy tax of 39% for nine long years? Key has indicated across the board tax cuts, not just for rich pricks. Social justice, my foot. The time has come to shake up the system.

    4. By richarquis on Feb 10, 2010 | Reply

      CS – Did you even read the article? OK, let’s take it in good faith that all pay sectors do indeed receive their cut. That’s not the issue in question. The issue is the ridiculously skewed proportions. It’s a simple point. An already top-heavy economy is just going to become even more-so. And National and their party faithful will coo and cluck at the nice smiling man as he balances the upside down pyramid on his fingers, forgetting that when it falls, it’s going to crush an awful lot. Gordon was right, this is just following in the footsteps of a dead model whose long term consequences are all too plain, and are largely responsible in causing the current economic crisis. However National have never been long term thinkers, and I don’t hold much faith that any of their supporters are either.

    5. By millsy on Feb 10, 2010 | Reply

      “Why didn’t you jump up and down when the rich pricks paid the envy tax of 39% for nine long years?”

      That envy tax was so old people wouldnt have to eat dog food, and so our hospitals would stay open. Remember, National closed heaps of hospitals before 1999, depriving people of health services that they needed more than the rich needed their tax cuts.

    6. By Wayne McIndoe on Feb 10, 2010 | Reply

      Gordon i think you have hit the nail on the head, wage and salary earners will still bear the brunt of the tax system – hopefully the electorate will wake up and realise that. – the more things change ; the more they stay the same.

    7. By JOHN on Feb 10, 2010 | Reply

      Our society is becoming ever more skewed between poorer and richer. It’s a scandal that struggling beneficiaries with children receive nothing from the working for families package, but property investors reap huge capital gains and pay no tax on them. America began this system of rewarding the rich for being rich and talking of the trickle down effect; but it was a trick and now America is an economic has been where the rich have never had it so good and for the rest life is harder and harder.Millions are on food stamps and unemployed. Manufacturing is done in China and the Finance sector is controlling the White House.Privatization of wealth into the hands of the rich through tax cuts has bankrupted the State of California which has no surplus money with which to act like a Government! John Key worked for Merrill Lynch and to my mind is tainted by the Wall Street’s irresponsible money for nothing failures: making money through financial sleight of hand rather than producing something.Reagan the Bushes and Clinton all gave more to the rich and targeted worker unemployed compensation. all I can say is are we going to collapse eventually the same way helplessly in a divided society, an impotent government,except rewarding the rich,poor struggling workers but with a very rich elite who won’t recognise that tax is a contribution to the wellbeing of all in society meaning we all move forward together,rather than large sections being left to wallow in disadvantage.America is a very unhappy country with 2.8 million incarcerated. It has been proved that social inequality increases all the negative blowbacks of crime,poor health, alienation, resentment and social hostility. We are building more prisons,any connection? We’re doing 3 strikes as in California that can’t even afford to keep its National Parks open and has sacked large numbers of teachers it can’t pay yet Americans are ministered to by Oprah Winfrey who’s a billionaire, will she contribute some of her wealth to help Americans on foodstamps and those dieing who can’t afford and operation because private insurance has rejected them? Mr Key is a Corporate man and the US Government is controlled by Corporations not the people. Do we really want a Corporate Government here? His whole demeanour is suited,inscrutable and ever smiling he is the showy front representing a small sector of New Zealand Society.

    8. By Bronson on Feb 10, 2010 | Reply

      “John Key & the National Party – looking after their rich mates since… always.”

      Gordon – your commentary on this issue tells us what most people already know. National are a bunch of self serving, two faced nation wreckers. Example – the canning of apprenticeships years ago and of course what happened, a severe shortage of tradesmen / women. I wasn’t brought up with ‘poli-tricks’ being discussed at home but when your life ends up being a struggle you look at the people in power and the policies they espouse and then – usually – implement. This is generally done without a thought to the real cost and the serious long term implications to those whom will be affected most by the ‘Plonkers’ in the Beehive.
      Excuse my blathering on, but when the findings and recommendations of groups such as the TWG are filed over the left shoulder by the supposed people we should put our countrys’ faith in are ignored, then what? I failed my degree in rocket surgery but even I would admit – they’re the experts! Shouldn’t they be listened to and what valid points they put forward be at least discussed and God forbid – even be put to the nation in a referendum?!
      Thank you again and God defend New Zealand, because the bloody government won’t.

    9. By Beverly Wee on Feb 10, 2010 | Reply

      Key agenda

      Selling your doodle on Fairfax/trademe site in a PR charity stunt is not a good solution for your poll dropping down on you like a 2 dollar whore.

      @Bronson 10 million dollar referendums are not a national solution .

    10. By Tigger on Feb 11, 2010 | Reply

      “Flowers around a slag pit? Always a good look.”

      Great line Gordon, this pretty much sums up how this government tackles everything – unleash a monster but make sure it’s wearing a pretty hat.

    11. By richgraham on Feb 12, 2010 | Reply

      Some hysterical stuff there Gordon. Your comments about the proposal to allow some mining in parts of the ‘conservation estate’ are not fair. The government has not proposed ‘mining in national parks’, national parks are only a part of the conservation estate as you presumably know. It was the previous government who loaded more land into the conservation estate, some of which I’ve inspected and found to be only gorse and broom. But your comments on the destructive effect of mining are ludicrous “Put one in a national park and you destroy it forever…” – you devalue your arguments with such stuff. Go and look at some 19th century mining areas on the West Coast (swallowed up since by nature)and then revisit you “destroy it forever” sentiment. The NZ Labour party was founded in mining on the West Coast, go and look at Blackball and ask yourself if the landscape was “destroyed forever” – of course it wasn’t. Then look at the gold ring on your finger and ask where it came from – a mine perhaps ?

    12. By BDB inc on Feb 12, 2010 | Reply

      @richgraham
      What is hysterical is that you ignore all facts.
      Facts that could potentially damage the proposed private profiting from mining [which is mostly set to go to foriegn corporations].
      Asbestos was widely used in the 19th century- move on.
      Facts are mining causes environmental issues including acid mine drainage and large scale modifications to landscapes.

      “The Tui mine is considered to be one of the top toxic waste sites in New Zealand. The government has allocated almost $10 million for cleaning up the site. Old mine workings have caused subsidence, cracking and collapse on properties in Waihi.
      The Stockton Mine, on the West Coast is responsible for acid mine drainage in adjoining waterways, poses a threat to some native species and mountaintop removal mining has happened on the site in recent years.”
      Ignorance is not an excuse.

    13. By Colin on Feb 16, 2010 | Reply

      Just say mining was opened up – those great profits are still sailing over my head, so why would I support something for the benefit of a bunch of major shareholders living in some gated community? That is if they even live in New Zealand.

    14. By BDB inc on Feb 16, 2010 | Reply

      The referandum
      Just like the schmacking referendum, this unwanted “MMP lobbyist referendum[S] “ serves to waste citizen’s time and money .

      Questions 1 or Question 2 Part A will ask something like;
      ‘Should the current MMP voting system be retained?’
      The many options are;
      1. I vote to retain the MMP voting system.
      2. I vote to change to another voting system.
      [More Options ]
      *Part B: REGARDLESS of how you voted in Part A[ Question one}, even if you don’t want to change the voting process, part B [which is technically a different question ] undermines the first question and tricks you into choosing TWO answers even when you don’t want to {and are not aware you are] .
      1. I would choose the First Past the Post system.
      2. I would choose the Preferential Voting system
      3. I would choose the Single Transferable Vote system
      4. I would choose the Supplementary member system.

      I WOULD CHOOSE NOT TO FUND THIS BS.

    15. By Citizen Kane on Feb 16, 2010 | Reply

      $10 million dollars.
      IF after swallowing the $10 million dollars voters do opt for change (though everyone sane seems more concerned with the bad policy pushing), another binding referendum will be held at the 2014 election?

      What a ” she loves me, she loves me not” feigned concern over ‘keeping election promises’.
      Only Simon Power’s rips off all the petals then calls ” you’re are going to have the 1st past the post you plebby little swamp dwellers! ”
      “Independence!, snort,we can’t have citizens input, snort that would be a democracy, snort” .
      I imagine he snorts.

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