'Meaningful school choice would elicit shrieks of anger from upper middle-class homeowners. Too bad.'

"There are ... unwise government interventions that I would wish to eliminate, but that I would also not willingly push a button to eliminate immediately.... I’m ... sufficiently influenced by the works of Adam Smith, Edmund Burke, Lord Acton, and F.A. Hayek to understand that large, sudden changes to an economy or society can be dangerously disruptive, even when such changes involve reversing policies that should never have existed in the first place....
    "But there are buttons I would push. [One] button that I would push is one that would greatly enhance school choice. Starting with the 2023-2024 school year, I would, if I could, use a combination of tax credits and vouchers, paid for out of current government-school revenues, to end everywhere ... the monopoly grip that ... government schools and teachers’ unions have on low- and moderate-income families. This move would, in my ideal world, be a first step toward a complete separation of school and state. The squeals of the unionised teachers would be loud, as would the wailing of government-school administrators. But the pain suffered by these long-time coddled interest groups would be far surpassed by the immediately heightened incentives to improve their teaching and to tamp down their efforts at indoctrination.
    "Perhaps this sudden move toward meaningful school choice would elicit a few shrieks of anger also from upper middle-class homeowners, whose suburban property values currently reflect the superiority of the government schools in their neighbourhoods relative to the abysmally poor schools in other neighborhoods. Too bad. These property-value premia are no more just than they would be if they were instead caused by upscale areas having, say, better government-run supermarkets compared to the government-run stores in poorer neighbourhoods. If the fall in middle- and upper-income people’s property values caused by improving poor people’s access to food would be no reason to keep poor people stuck with incompetent supermarkets, the fall in middle- and upper-income people’s property values caused by improving poor people’s access to education is no reason to keep poor people stuck with incompetent schools."

~ Don Boudreax, from his post 'Some Buttons That I’d Not Push, and Some That I Would Push'

Bill vs Oz vs reality

Imperator Fish has a fair point about Billy Bob’s complacency about Australia’s just-announced tax cuts:

    “Bill English told Radio NZ he's not worried about the plan by the Australian Government to reduce company tax to 28%.
    “Remember when he was the Opposition finance spokesman? Last decade the Australian Government dropped taxes a number of times (usually during election time), and each time there were howls of outrage from the Opposition benches when New Zealand did not follow suit.
    “So why isn't Bill worried now?”

Why isn’t he worried now?  Simple. He’s now in power—and it’s still eighteen months until the next election. 

When you’re in opposition you can make as many promises as you like about tax cuts.  But when you’re in power—with an opposition as weak as this one, and with coalition partners eagerly voting for your spend-up—you can tell voters to go to hell. Like this one has been.

But there’s yet more grounds for NZers to worry.

Now more than ever, the NZ economy is being kept up by the Australian economy—and in these difficult times the Australian economy is having its head kept above water largely by its mining industry.

So Australia’s mining industry is the life-preserver to which both our economies are presently clinging.

So what do you think will happen to all of us when Kevin Rudd imposes his $3 billion "Resource Super Profits" tax grab on mining companies to fund his company tax cut (and to make up the shortfall they’d planned on extracting with their now-abandoned ETS)?  Two-thirds of Australian mining budgets are already being spent offshore—what proportion do you think that will be by 2014, when the Krudd Government is hoping to extract around $9 billion from miners?

The Australian government.  Just another government trying to evade doing what needs to be done, and killing their golden goose to do it.

Read My Lips: National will not raise GST! [update 5]

18 Days before the election, in 2008: “National’s not going to be raising GST.”

Yesterday, 2:20pm: “The Government is … carefully considering a modest increase in the rate of GST.”

Yesterday, 5:20pm [audio]: Confirms on Larry Williams' Newstalk ZB show that (in the words of Fran O’Sullivan “the Government indeed plans to raise GST.” 

Here, then, is the horse’s mouth [hat tip Julian D.]. And it’s not a gift horse, it’s a lying one:

And no fear saying he didn’t know about the economic crisis when he said it either.

UPDATE 1: Oh, and asked in December ‘08 about raising GST or introducing of a capital gains tax, Bill English responded, “We won't be doing that... It is not our policy.” [Hat tip Gobsmacked]

UPDATE 2: For youngsters reading this wondering about the phrase “Read my lips,” it refers to one of history’s top ten most unfortunate political one-liners—the one that lost George Bush Sr. his second presidential election, i.e., “Read my lips: No new taxes”:

    “That pledge was the centerpiece of Bush's acceptance address, written by speechwriter Peggy Noonan, for his party's nomination at the 1988 Republican National Convention. It was a strong, decisive, bold statement, and you don't need a history degree to see where this is going. . . Bush raised taxes. His words were used against him by then-Arkansas Governor Bill Clinton in a devastating attack ad during the 1992 presidential campaign.”

Speaking of which:

I wouldn’t be surprised if, before the day is out, something similar (but with John Key instead of the hapless Bush I) will be winging its way virally round the web.

UPDATE 3: Key answers in Parliament.  Apparently it depends on the meaning of the word “not.”  Well, almost.

UPDATE 4:  Our Blunt cartoonist discovers an empty suit sitting dead centre on the fence . . .



UPDATE 5:  Since John Boy claims you need to know the context in which his original statement was made, here’s the original article in which he was quoted:

    “National leader John Key said told a press conference this morning that if National is elected and does a ‘half decent job’ at growing the economy, then increasing GST and the top tax rate will not be necessary.”

It just gets worse, doesn’t it.

UPDATE 6:  Liberty Scott reckons the ACT Party has any remaining principles then it now has to front up.  So would ACT bring down the government?

    “With the Nats now backing away from previous statements that a rise in GST is "not on the agenda" and is "not our policy", it appears the two parties the Nats need to govern need to make clear what their policies are. . .
    “Being seen to support an increase in the price of everything to offset tax cuts that may be seen to be for those on higher incomes could cost the Maori Party dearly.
    “However what about ACT? . . .
    “The test is simple - is ACT a party that people voted for so that government could cut one tax but increase another?

Will they pass?

“. . . a fairer tax system”? [update]

BILL ENGLISH HAS BEGUN his working year by talking up his plans for something he calls "a fairer tax system.”  If that bromide is to mean anything at all, then there is only one possible means by which Bill English could deliver such a thing: By not spending so goddamn much.

That, however, is not on the agenda.

Pity, because there’s plenty of easily quashed boondoggles that any responsible Finance Minister would be eyeing up with a sharpened axe:

• Cindy Kiro's Office for the Children's Commissioner
• Peter Dunne's Families Commission
• Paula Rebstock's Commerce Commission
• David Lange's Ministry for Women's Affairs
• Jim Anderton's Ministry of Economic Development
• The Ministry of Youth Development
• Asia New Zealand Foundation
• The Ministry of Pacific Island Affairs
• The Ministry for Maori Affairs
• The Race Relations Conciliator
• Alcohol Advisory Council of New Zealand
• Action on Smoking Hysteria
• Electricity Commission
• Energy Efficiency & Conservation Authority
• The National Advisory Council on the Employment of Women
• The Department of Labour
• Welfare for Working Families

That's just a few of the bureaucratic sacred cows that any responsible government should have in their sights when they’re talking about “fairer” taxes. If Bill really did want to relieve the burden of big government from New Zealand taxpayers, then those troughs for time-servers should all be wearing a target.

BUT CUTTING SPENDING IS not on the agenda of Sir Double Dipton.  Shuffling around the means by which he fleeces us is.

As Billy Bob and his boys have already signalled, what they mean by the bromide of “a fairer tax system” is simply a slight fall in income tax and a huge hike in GST and Land Tax—a  cynical piece of sleight of hand that will allow them to sock all New Zealanders while pretending they’ve belatedly kept their election promise to deliver income tax cuts.

There’s no possible way there’s anything “fair” about whacking up the price of land, or the price of everything everywhere.  There’s nothing responsible about making everything more expensive just to pay for this over-spending government, no matter how many worthies say otherwise.

MOST OF THE WORTHIES who talk about such things have been banging excitedly on for months about the prospect of a Land Tax—as if we don’t already have such a thing, and as if it would somehow have stopped the housing bubble from inflating.

It can only be abject ignorance that would allow any commentator to make either argument. 

No Land Tax or Capital Gains Tax anywhere in the world stopped any housing bubble anywhere—it can only be blind faith that keeps anyone insisting it will.

And New Zealand land is already subject to iniquitous financial impositions.  I look for example at a cost estimate prepared for a recent subdivision proposal in Auckland’s eastern suburbs, for which the grey ones will be putting their hands into someone’s pocket to the tune of around $40,000 per site, payable in advance.  That’s a $40,000 dead weight on which a developer will be paying interest, and a new-home buyer will have to make up.  That’s $40,000, plus GST!

No wonder the supply of new homes is already so restricted.  No wonder, with such a restricted supply, house-price inflation is taking off again (something that was easy enough to forecast some months ago). 

Now if that’s not a Land Tax that every new-home buyer is already paying, then I’m a banana.  And if there’s anything fair about whacking on higher taxes to New Zealanders who are already struggling, and consuming their savings as they do, then I’m a whole effing fruit salad.

UPDATE:  From Liberty Scott:

    “According to the NZ Herald, the Prime Minister said, ‘The Government would like to lower personal taxes.’
    “Great stuff.
    “The solution involves two words.
    “CUT SPENDING.
    “Don't increase GST …
    “Don't create new taxes …
    “Think about this John.
    “If income and company tax were reduced to a simple 20% with the first $10k tax free (hardly radical and not Libertarianz  policy), then how much MORE would that encourage a shift of investment from land to business?”

Capital gains theft

John Key rules out a Capital Gains Tax. Yesterday, Bill English ruled it in.  Key said back in September that Capital Gains Taxes were “inefficient” and “did not achieve the objective of stopping a housing boom . . . in the United States, Australia and the United Kingdom.” Carefully avoiding using the words “family home,” Billy Bob indicated yesterday however that Capital Gains Taxes on investment property – which means everything other than yours and Bill’s family homes, wherever they might be – are just the release of a taxation report away.

For a pair who supposedly know what they’re doing (yeah, right) these two can’t even get their stories straight . . .  and English just can’t avoid his eyes gleaming at the prospect of a new tax.

D’you remember which mainstream party it was who went into the election on a platform of tax cuts? Turns out they’d rather break their promises to you than consider cutting their own profligate spending.

And yes, there are still idiot economists around who will be applauding this – what Lenin used to call “useful idiots” – the sort who think the way to “fix” NZ’s economic woes is a whole raft of new taxes.  By their applause shall ye know them.

Fat fools call for new taxes on rent and mortgages [update 2]

Everyone’s got a favourite tax they want to slap on someone to stop the exchange rate exploding and the housing bubble happening again.

Brian Fallow is the latest alleged economist to weigh in with a new tax burden to fix things.”Time to add GST to rents and mortgages,”says the Fat Man.  No Brian, it’s time you and your tax-hungry buddies stuck your head down a toilet and pressed flush. 

It’s not an answer to say that this would be “revenue-neutral.”  What rot. What serious student of politics would seriously expect any commensurate drop in income and company taxes to match the new ones. And what serious economist would want the serious dislocations that would happen when a tax on rents and mortgages was slapped on – not to mention the serious injustice of raising taxes on one group, even if you did drop them elsewhere.

Apparently it’s too much like rocket science to figure out what’s really wrong and to fix it.  Better instead to flap about strangling the residents while their house is burning down. 

Because it’s not rocket science to fix things. Here you go, let’s fix them:

1. Fix the building regulations and the land controls that are still ramping up supply-side costs (even when demand has dropped), and
2. stop the Reserve Bank inflating the economy with counterfeit capital. 

Do those two things and the problem disappears – and you don’t need to hand Bill English all the arguments he needs to put his hand even further into everyone’s pocket. Look at those two points in turn:

•  The problem with building regulations and land controls is obvious.  All it takes to fix that is courage and clear-thinking. (Such a shame that both are in such short supply.) 
• The problem with the Reserve Bank is only slightly less obvious, but only because all the mainstream economists are still blinded by the failed macroeconomic ideas that caused the worldwide financial collapse.

You see, the Reserve Bankers and their shallow, fallow supporters still maintain that the Reserve bank’s primary job is to set interest rates, print money, and allow banks to issue credit. They think this is a good thing (and some of then even labour under the illusion that an economic dictator setting interest rates and printing money is somehow a free market!)

And they think that the Reserve Bank is fighting inflation, when if they weren’t so blinded it would be obvious the Reserve Bank is actually creating it.*

Essentially you see, what happens when the Reserve Bank sets interest rates is that banks issue enough debt to balance out the supply-and-demand at that interest rate level. And under our fractional-reserve banking system that debt is then monetised (what Charles Holt Carroll called the Organization of Debt into Currency).  Under this arrangement for easy credit expansion, NZ’s M2 money supply had been increasing at a year-on-year rate of around 20% at the height of the boom, and was still increasing at a year-on-year rate at May this year of 10.7%. 

This is literally new money, created out of thin air.  And guess what happens when more money is chasing the same number of goods? (That’s right Virginia, you get what the mainstreamers call inflation. And the poor fools think the Reserve Bank is fighting it!) 

And guess where the lion’s share of that all that new money goes?  That’s right again, – although the mainstreamers are too blinded by their theories to see it, (mostly because they’re still thinking in the Keynesian aggregates that conceal most of the real economic facts), the lion’s share of that new money goes to people who borrow it.

You know.  People like home-buyers. Remember them?  Folk who get first use that new money and, when things start taking off, want to use it quick as they can before prices do the same.

This is what feeds the bubble. As Thorstein Polleit points out,

It is an inflationary regime. The relentless rise in the money stock necessarily reduces the purchasing power of money to below the level that would prevail had the money supply not been increased. Early receivers of the new money benefit at the expense of those receiving it later.

And that’s why it’s so easy to stop another housing bubble being inflated.  if you seriously want to stop it, then just stop inflating the money supply. 

Stop diluting it with new paper. 

Stop printing more of it. 

Stop creating credit out of thin air, and stop it with the nonsensical idea that a new tax will solve the problems that government itself has created.

Just stop it with the Reserve Bank Act’s inflation-mongering altogether, and leave us taxpayers alone.

We’re already over-burdened.

* * * *

* Inflation is what mainstreamers call it when prices rises across the board, right? But what they don’t even realise is that it’s the Reserve Bank who promotes general price rises across the board.

Ironic, huh?

Price rises, say the blind fools, are caused by wage-push, or cost-push, or demand-pull or some other failed excuse for not looking at the whole picture.  Because if you do look at the whole picture you understand that the only way you can get price rises across the board is if the money supply increases.  If some costs go up and the money supply doesn’t, then there must be a corresponding drop in prices elsewhere. If some wages go up and the money supply doesn’t, then there must be a corresponding drop in prices elsewhere. If demand goes up in one area and the money supply doesn’t, then there must be a corresponding drop in prices elsewhere to match the price rises due to demand.

The only way you can get price rises across the board is if the money supply increases.  And look who’s in charge of that.

Ironically, to squelch the price inflation that they themselves set off, the Reserve Bank then tries to squelch it all. And to do that, they do everything necessary to ramp up the exchange rate. 

But this Scylla and Charybdis of high finance isn’t inevitable – that is, is is not inevitable unless you refuse to take off your mainstream blinders and see things as they really are.  And in this context, that’s to realise that inflation is not essentially a measure of rising prices but of the rising money supply that causes them.

UPDATE 1:  The Visible Hand confirms that it’s never seen a tax it doesn’t like.  “Excellent” it calls Fallow’s disgraceful call for the IRD to put their hand in renters’ pockets.

UPDATE 2:  Great comment on this by Mark Hubbard in the comments section at Rates Blog:

    Well, I’ve not read the article, don’t have time to do so [don’t worry, you’re missing nothing], but from this I would say it’s not going to affect domestic rental investment, because I would assume that type of investment will no longer be a GST exempt activity, thus, landlords will be able to claim the GST on the interest back, plus will add GST to existing rentals to be returned. No difference to them.
    So who loses?
    Tenants, because they will have a 12.5% rent rise.
    Every house owner, especially low income house holders who will incur dramatically higher interest rates via the GST component, which they won’t be able to claim back, some of whom will thus be forced into rented ghettos, paying rents they can’t afford for the same reason.
    Another brain dead idea by a NZ mainstream economist who only seems to find ’solutions’ that include increasing the cost of living for kiwis by the likes of this, or further taxes. Why not advocate reducing the size of the State so the people that would be so badly affected by this ludicrous proposal could be given tax cuts - that aren’t simply to compensate for higher taxation elsewhere - and get on with their lives with the least amount of government, and economist, interference.
    PS: Matt, do you see a government implementing any new tax, and then cutting another tax.
    It doesn’t happen.

Exactly right.

They lied to you

Never ones to miss an opportunity, when the Fieldays gods chose to place our stand directly opposite National’s – causing John Key to scuttle away yesterday morning when we politely asked “Where are the tax cuts you promised us, Mr Key” -- we grasped the opportunity with both hands and quickly produced two handouts to go with our site’s sign.  Here’s the text of the first, of which we’ve already given away a couple of thousand or so:

They lied to you!

Q: How can you tell when a politician is lying?
A: Their lips are moving.

THE LAST ELECTION CAMPAIGN was won by National on a programme of slashing tax cuts. And to be blunt, National’s politicians stood up on their hind legs and lied to you.

Key and English knew about the global crisis as they pledged tax cuts at last year’s election, yet they sailed blithely ahead making promises they never intended to deliver.

Responsible governments know that you can’t promise tax cuts without commensurate cuts in spending, yet they made their promises anyway. Responsible governments know that you can’t make the promises they did when the world’s economies were in the tank, yet they made their promises regardless. And now this government says they can’t deliver.

So how can you tell when a politician is lying about tax cuts? Answer: Their lips are moving.

BACK ON SEPTEMBER 30 LAST YEAR, Bill English mocked Michael Cullen for being over-cautious on delivering tax cuts. "Dr Cullen cannot be trusted to deliver on any future tax promises," said another Finance Minister who can’t now be trusted. He compared Cullen’s record with his own promise to deliver "an ongoing programme of personal tax cuts.”

English said he would treat Labour's tax cuts, which came into force the next day, "as the first tranche on our own tax-cut programme. That will be followed by another tranche of tax reductions on April 1, 2009 [which were fully wiped out by increases in ACC levies], and further tranches in 2010 and 2011". He declared: "National has structured its credible economic package to take account of the changing international climate. Our tax cut programme will not require any additional borrowing."

(To which we can only say “Yeah right. The only two words that can be trusted here are these two: “not” “credible.”)

And on an on, and after swallowing more dead rats than could fill a sinking ship, John Key said in October last year -- after “the books” had been opened and several more dead rats fell out -- that “the pledge to deliver about $50 a week to workers on the average wage remained on track.”

They continued the promises right through the campaign in November and into December, when English confirmed again in Parliament that "National will not be going back on any of those promises, as we fully costed and funded them.

Ladies and gentlemen, they lied to you – and you bought it.

THE NATIONAL/ACT GOVERNMENT IS NOW making out that some wayward economic thunderbolt has thrown their pre-election calculations asunder. It’s been said that if you are an economist and did not see this coming, you should seriously reconsider the value of your education and maybe do something with a tangible value to society, like picking vegetables.

But in October last year it didn’t take any sort of economic genius to predict the crash, because out in the real world the global collapse had already happened.  All you had to do was look in a newspaper – or the housing markets – or the empty offices of Lehman Brothers – or the bankrupt banks like Northern Rock.  The Dow Jones is enough to tell the story that’s now being fudged by National – that they were somehow blindsided by a crisis they didn’t see coming. As Tom Woods summarises it in his best-selling book Meltdown ,which records the course of the crash,

When the New York Stock Exchange closed on October 9, 2007, the Dow Jones Industrial Average was 14,164.53, the highest close ever. Thirteen months later, on November 20, 2008, it closed at 7,552.29, a drop of 46.7 percent.

Yet over all of those thirteen months and right through their election campaign National never missed a beat – and when caught between hammer and anvil, when deciding which election promise to break, this lot kept their promise to the moochers to keep and even increase their “entitlements” – a sick word to describe payments to bludgers – and broke their promise to the people who have to pay for it all.

Which means you and your grandchildren are forced now to swallow the biggest dead rat of all: a budget that reneged on tax cuts, and delivered huge spending and borrowing increases instead.

So how do you feel now?

The very election promise which offered a glimmer of hope to productive New Zealanders – the promise of tax cuts on which this lot were elected – has been shamefully broken with the excuse that “we never saw it coming.”

And frankly, there are only two ways to judge that sorry excuse. If they never noticed the world economic collapse, then they are incompetent. And since the slump had already begun when the promises of tax cuts were being delivered, then they are liars

So which is it?

“We didn’t see the economic collapse coming.” Yeah right.

Having learned where the Fieldays gods chose to place our stand, we quickly produced two handouts to go with our site’s sign.  The second one’s a timeline . . .  you think Bill and John might have noticed some of this, right?  You know, like John might have wondered about things when, like, his former employers went to the wall?

“Tax cuts!”...Yeah right. “We didn’t see it coming.”...Yeah right.

Here’s a brief timeline of the economic collapse that John Key and Bill English now say they never saw coming . . .

MAY 2007:	· Housing collapse begins to hit US economy.
OCTOBER 2007:	· Dow Jones tops out at 14,164, and begins a year-long long downward slide. · New Zealand economy enters recession around twelve months before the rest of the world.
FEBRUARY 2008	· UK bank Northern Rock collapses
MARCH 2008:	· Bear Sterns collapses.
APRIL 2008:	· US Treasury and – for the first time since the Great Depression – the US Federal Reserve both quietly begin directing US$800 billion in “bailout loans” to banks and finance companies. · US and NZ housing markets fall into a bottomless hole.
MAY 2008:	· On the back of six years of promoting tax cuts, John Key reaffirms after the delivery of Michael Cullen’s budget that “We believe in tax cuts. We believe in the power of tax cuts. And we will deliver them.”
SEPTEMBER 2008:	· As the US and local housing markets show no sign of recovery, Fannie Mae and Freddie Mac are completely nationalised, putting around 75% of the US mortage market into government hands. · Lehman Brothers collapses. · John Key’s former employer Merrill Lynch collapses. · US$85 billion bailout of AIG insurance (with another $40bn to follow in November). · Washington Mutual liquidated. · US$700 billion Toxic Assets Relief Program (TARP) promoted. · Will all this blood on the floor, on September 30 Bill English promises voters “a credible economic package to take account of the changing economic climate.” “Our tax cut programme will not require any additional borrowing,” he said, comparing Michael Cullen’s record with his own promise to deliver “an ongoing programme of personal tax cuts.”
OCTOBER 2008:	· On October 2nd, the US$700 billion TARP programme is passed into law in the US. · One week later, the Dow Jones plunges around ten percent to a new low below 9000. · Panicky governments announce a ban on short selling of stocks. · The FDIC announces it will raise its guarantee on banks. Kevin Rudd and Helen Clark announce their own bank guarantee programmes. · NZ’s Treasury Department releases its Pre-Election Economic Update predicting “a decade of deficits.” · The American Treasury bails out nine large US banks, including Citibank, Goldman Sachs and Bank of America. · Watching all this happen, John Key reconfirms to voters that “the pledge to deliver about $50 a week to workers on the average age remained on track.”
NOVEMBER 2008:	· The National Party wins the NZ elections on a platform of tax cuts and “dead rats.”
DECEMBER 16, 2008:	· Bill English stands up in Parliament and says, “National will not be going back on any of these promises, as we fully costed and funded them.”
MAY 2009:	· Bill English stands up in Parliament and reneges on their promised tax cut package (which in the first tranche in 2010 would have cost just $100 million dollars). · At the same time he announces up to a billion dollars of extra spending on preparations for an emissions trading scheme and subsidised home insulation (which was not even a National Party policy, but a Green Party policy); and nearly six billion dollars of extra spending on the health, education and welfare sectors.

§ National kept their promises to the moochers. § National kept a promise to the Green Party. § National broke their promises to you, and to every other every taxpayer in the country. Ever get the feeling you’ve been cheated?

A Labour government can make the hard decisions, so why the hell can’t the Tories?

Responsible adults know that you don’t promise what you can’t deliver, and you don’t spend what you haven't got.

This is not a government made up of responsible adults.

Responsible governments know that if you want to cut taxes, then you have to make spending cuts to match.  They know that in hard times, you have to make hard decisions.

This is not a government that likes making hard decisions.  They prefer to duck them.  They’ve just ducked this hard decision – they lack even the courage of their own election promises --  and now, as Bernard Hickey points out, It means the Government will borrow the equivalent of $13,225 for each New Zealander in the coming decade to pay for that lack of courage – at the same time as the income of each New Zealander is tipped to be around $10,500 a year lower unti 2011.

    That figure [$13,225 for each New Zealander in the coming decade to pay for that lack of courage] is the amount the Government is likely to borrow to fund its deficits for the next decade - $52.9 billion, according to Treasury's assumptions spreadsheet stuck inside its website.
    It means that every week the Treasury will go into the wholesale money markets and ask to borrow around $200 million. Every week the Government will borrow the equivalent of what it costs to build a hospital.
    Every working day it will borrow about $50 million. That's the equivalent of a big Lotto winner every hour. In the space of that 10 years the Government will borrow an amount so large that it will dwarf the amount saved by the New Zealand Superannuation Fund. It will be a massive lead weight dragging on the economy.
    To put it into context, this borrowing is worth more than half of the entire savings built up by New Zealanders in bank accounts and directly in the stock market over the past century of around $100 billion.
    It will push up interest rates. Key and English were worried about a credit rating downgrade because, they said, it would push up interest rates by 1.5 per cent in the coming years.
    They managed to stave off that downgrade, but they may not keep interest rates down. Long-term rates have already risen that much in the past three months.

And they’ll keep going right on up because every irresponsible government in the world is now competing for credit from the same credit markets, and what government can’t borrow then government will just print.  Anything to avoid making the hard decisions – no matter the bill that leaves for future generations.

But there are still some few governments in the world who are prepared to confront hard time with hard decisions.  Governments who understand that if you’re going to keep promises that matter, then sometimes you have to have the courage to do what’s right.

In fact, there’s a Labour Government just over the Tasman who’s making that kind of decision right now – a Queensland state government under Premier Anna Bligh who is responding to the economic crisis by selling off state assets and discontinuing an expensive fuel subsidy [hat tip Christopher Westley].

    Only two months after winning an early election on a platform of financial management, Ms Bligh yesterday confirmed five government-owned corporations would be sold over the next five years and the 8.35 per cent fuel subsidy abolished from July 1.
    Queensland Motorways Limited, the Port of Brisbane, Forest Plantations Queensland, and the Abbot Point Coal Terminal will be privatised, as will Queensland Rail's coal business and possibly even its freight arm and regional network.
    Ms Bligh - who had not canvassed such drastic measures during the campaign and briefed caucus and selected union leaders only on Monday night - said the Government expected to raise $15 billion from the sales and save $2.4billion over four years on the fuel subsidy. . .

That’s the sort of thing a responsible government does when it’s confronted by reality and it can’t pay its bills.  That’s what, repeat after me, a Labour government is doing.

But not New Zealand’s Tory government.  Not this National/ACT government. They’re boasting in the House as I write this that they’re boosting spending on this, and boosting spending on the other – talking about extra money wasted on welfare as if it were an “investment” – while the only decent promise they did make, the promise to deliver tax cuts,the only promise they made that will actually deliver real productivity growth – as John Whitehead at the Treasury affirmed just this morning -- that’s the very promise on which they welched so cynically.

It’s a broken promise we’re going to be paying for for years to come.

Look what Muriel found hidden in the Budget

Bill English’s first Budget wasn’t just a cynically delivered broken promise on tax cuts, a broken promise erroneously sold as “unavoidable” if the National/Act Government was to assuage the gnomes of the rating agencies, it also contained at least one cynically concealed spending increase – a spending increase that will do more to lower New Zealand’s productivity than anything since the war and which, taken together with all the other promised spending increases, fully wipes out the “revenue gains” to government from the broken promise.

As Muriel Newman points out,

The promised tax cuts – and remember that they were already pre-funded by the cutbacks to KiwiSaver and the dropping of the R&D tax credits – were not massive. Just $98 million was needed to fund the tax cuts next year, $494 million in 2011, and over $800 million thereafter.

Not massive, no, especially not when stacked up next to the billions of dollars of existing spending on so called “entitlements” to moochers, or the billions of dollars of extra spending promised on the various black holes of government mentioned in headlines this  week – but some recompense to long-suffering producers buckling under long years of high taxes, onerous government and (now) the effects of economic downturn.

The billions of dollars already going to moochers is bad enough, but what about all this extra spending?  The headline response by Billy Bob English to hard-pressed taxpayers who voted for tax cuts is curt: “Let them eat Batts.” That’s the three-hundred million dollars of extra spending on Batts to help buy Green support. But look beneath the headlines and there’s something even more odious: an appropriation of $550 million – more than half a billion dollars – set aside to to get National’s Emissions Trading Scam off the ground.

So Bill English isn’t able to keep his promise to tax payers, but he is able to do them over with the most irrational attack on producers since Karl Marx fist visited the British Museum Reading Room.  Says Muriel:

Keeping in mind that the “unaffordable” tax cuts would have cost $98 million next year, how do we feel about the appropriation of $550 million that has been set aside for climate change? Most of this has been ear-marked for buying carbon credits to give to businesses to get the emissions trading scheme off the ground. Those who believed that the Government was genuinely awaiting the outcome of an “independent” Select Committee review will be disappointed to see that the die is already cast. And consumers worried about the added cost of an emissions trading scheme will be especially concerned to find out that the half a billion dollar cost is only the beginning of what will be an enormously unproductive drain on our already fragile economy.

Of all the odious defences raised in support of Bill English’s disgraceful capitulation to the spending fairies this week, perhaps the most irrational is the claim that he needed to break his promise on tax cuts to assuage the gnomes of Moodies and Standard and Poors.

What he needed to do was to keep his promises to taxpayers – to the productive New Zealanders who bankroll every single dollar spent in this economy – and to knock on the head everything that does them over.

Sadly, he’s done the reverse, which shows you in the end who he sees as his real supporters.

The English Budget: "Ever get the feeling you've been cheated?" [update 3]

Disgraceful.

David Farrar calls it a "budget that almost writes itself." That's almost true once you factor in broken promises on tax cuts, the inability of politicians to stop spending what they haven't got and the underlying values of the National Party.

So let's see what the promises both kept and broken add up to both in dollars and in values betrayed. 

English promised over 5 billion dollars in extra spending over four years in areas -- health and education and feel-good crap -- where Labour's $20 billion spending binge had absolutely no net positive effect whatsoever. Which means they're keeping non-productive electoral bribes made for no other reason than headlines, and breaking their promises to productive New Zealanders who have to pay for this new blue binge.

He promised nearly one-third of a billion dollars to subsidise people who insulate their houses. Which means they're keeping their commitment to their post-election deal with the Greens, while breaking their clear election promise to the productive taxpayers who voted for National.

He promised to consume over 7.5 billion dollars over five years in Think Big infrastructure projects (for which the RMA is already being prepared) all of which will have to be paid for out of borrowing -- which means they’re keeping their promise to borrow money to bid up the prices of contractors and building materials at the very time these prices need to fall.

He admitted that the total spending bill adds up to $17 billion or red ink over the next two years -- $17 billion that will have to be borrowed -- $17 billion that could have been used by productive New Zealanders in bankrolling genuine productive spending.

So, if we remember John Key's commitment in the Wall Street Journal back in March, we might note he really is talking Adam Smith abroad while spending like John Maynard Keynes at home -- which means he must think either local commentators are stupid or Wall Street Journal readers don't do their homework.

And, of course he committed to maintaining "entitlements" -- what used to be called welfare payments -- meaning the likes of Welfare for Working Families, interest-free student loans, subsidised state-housing and the like which National (at one time) actually campaigned against. This means they're keeping their belated promises to the moochers, while breaking their firm commitment to the productive, i.e., the people paying for it all.

Asked by David Farrar "what their rationale was for deciding to break a tax cut promise rather than a spending promise such as interest-free student loans (especially as he originally opposed interest free student loans but always campaigned for tax cuts) English responded that people feel insecure in a recession, and they made a decision not to cut any current entitlements to help confidence and security."

My colleague Mr Darby warned this morning about the "fiscal child abuse" that has just been announced.

I characterised the Budget this morning as a Liars' Budget. And so it is. But it's very revealing to look at those to whom they're happy to lie, and and who they think it's important to keep "confident and secure." If you want to understand the values of today's National Party all you need to know is that they think it's important to keep their promises to moochers, but okay to lie to productive New Zealanders on whose shoulders the whole country actually rests.

If you're one of those heroes and you voted for these lying cheats, then you've been conned - as you have been if you voted ACT, whose MPs are lining up as we speak to vote this Budget in.

As Johnny Rotten once asked his audience, "Ever get the feeling you've been cheated?"

UPDATE 1: The very easily pleased Adolph from No Minister calls me "economically challenged and naive" for not standing up and applauding what Roger Douglas called a budget whose biggest deficit is one of courage and imagination -- a budget that could just as easily have been delivered by Michael Cullen.

Notes Lindsay Perigo, "Mr. Key taunted Labour Leader Phil Goff as 'Whack-it-on-the-bill Phil,' an advocate of 'Visanomics.' That's accurate enough. But in what respect does John Key claim to differ?" Care to tell us, National supporters?

UPDATE 2: I love Dave Gee's headline:

'Let Them Eat Pink Batts!'

Brilliant!

UPDATE 3: And from Whale Oil:

While we are talking about the Dipstick from Dipton have a look at how Hong Kong is "stimulating" the economy. They have raised their tax cut today from 1500 to 1900NZD a year for stimulus. Meanwhile Bill the Dork talks about maintaining "entitlements" for losers.

A genuinely productive Budget . . .

Unlike the National/Act Government, who are about to expensively break their election promises on tax cuts this afternoon, Libertarianz luminaries have backed up their pre-election plans for the economy – the Don’t-Spend-So-Goddamn-Much Plan and the Get-the-Hell-Out-of-the-Way Plan – with an honest, constructive Alternative Budget this morning that recognises that government spending is not investment, it’s consumption (and it’s not consumption that drives an economy, it’s production) and if there was ever a time to cut the moochers loose it is now:

Libertarianz Party Alternative Budget
     Libertarianz Finance spokesman Nik Haden today released the Libertarianz Party Alternative Budget for 2009.  “We are continuing to offer a substantial reduction in the tax burden, offset by a realignment of state priorities towards the proper role of the government.” said Mr Haden.
    “The economic recipe for financial success isn’t any different to before the financial crisis, so our essential message remains unchanged.  Just as individuals cannot for long continue to spend more than they earn, neither can governments.  A responsible approach to economic management is the best stimulus package as it gives people confidence that they won’t be saddled with debt in the future.”
    “The highlights of our budget are that the first $50,000 of everyone’s income would be tax-free and that GST would be abolished.  This would deliver a substantial boost to the economy by significantly increasing individuals’ spending power.  While there would be significant reductions in government spending, individuals will always know best how to spend their own money so such spending will necessarily be of higher value and more productive than when the government tries to do it for them.”
    “Unfortunately, I don’t have much confidence that Bill English will take up these ideas in his budget to be released later today.  However even if he isn’t prepared to make the significant tax and spending changes that are so urgently needed there is at least one thing he could quite reasonably commit to.  The current Treasury forecast for the year ended June 2009 shows a small net positive net Crown cash flow.  This shows that the Crown’s finances aren’t too bad, although recent economic events will push this balance negative in the short term.  What it does indicate though is that there is no need for the Crown to take New Zealand further into debt.  All that is required is that Bill English not let the government commit to any more expenditure.  If expenditure could be capped overall such that any increases were offset by decreases elsewhere, we won’t have to ask our kids to subsidise our current lifestyle.”
    “This outcome would fall a long way short of being ideal, but would be a good target for the Minister of Finance to aim for,” concluded Mr Haden.
    An executive summary of the Alternative Budget is available here.
    A video explaining the Libertarianz budget highlights from last year can be found at www.libz.tv

I recommend following some of those links to see just how easy it would be to cut this government down to size.

It’s a Liars’ Budget

In what has already been dubbed by commentators “the most important Budget of our generation,” Bill English and John Key have already signalled they aren’t up to the job.
In a time of near desperate straits, when every productive New Zealanders desperately need every dollar of working capital they can lay their hands on to keep themselves and their employees above water and to begin the recovery that is so desperately needed, this pair  of thieves are about to announce  that they’re unable to get their ship properly in order; that as a consequence their profligate borrowing will further weigh down productive NZers; and that the very election promise which offered a glimmer of hope – the promise of tax cuts on which they were elected – is now about to be shamefully broken with the excuse from this pair of weasels that “we never saw it coming.”
If they never saw the world economic collapse coming, they are incompetent.
And since the slump had already begun when the promises of tax cuts were made, and re-pledged, they are liars.  As Brian Rudman pointed out just yesterday, “Key and English knew about the global crisis as they pledged tax cuts at last year’s election,” and they sailed blithely ahead making promises they never intended to deliver.  In fact, given that New Zealand’s economy went into the slump before the world slump began, it’s even more imperative that the engine of NZ’s economy be given back the fuel it needs to kickstart a genuine recovery. 
Instead that engine is to be starved of fuel so this government can instead stoke the flames of “entitlement spending” and feel-good bullshit.  Not only are we not to get the tax cuts promised, there is even talk of new taxes on the horizon, including perhaps the Capital Gains Tax that even Michael Cullen resisted.
In the most important budget for a generation then, we are this afternoon to be delivered a Liars’ Budget by incompetent fools.  It is not even just tax-and-spend: it is borrow and tax and spend like all hell, in the mistaken belief that pouring taxpayers’ money down the black hole of government and the multi-billion-dollar mirage of “infrastructure” will somehow inspire a recovery somewhere down the drain – just like it’s never done anywhere ever before.
And my colleague, Libertarianz finance co-spokesman and Auckland economist Mr Darby warns that the billions of dollars of red ink, funded by borrowing, will have implications for the youngest in society: the children who will have to pay this government’s debt.

     "An unbalanced budget has to be funded, and if this is funded by additional borrowing, then future generations will bear the burden of paying off the debt. This is 'fiscal child abuse',” says Darby. “A responsible political party and government would, at the very least, balance the budget."
    However, in its first budget, the National/ACT government appears to be about to fund a series of deficits by borrowing, thereby mortgaging the lives of future generations. "While this demonstrates that they are irresponsible, what is outrageous is that they are about to renege on their promise of tax cuts, a promise which formed a central part of their election campaign,” noted Darby. “To blame the recession for breaking this promise is no excuse, for the effects of the recession were well known to everyone when this promise was made. They are either incompetent, or they wilfully lied in order to get onto the Treasury benches," continued Darby.
    The Libertarianz support tax reductions in all their forms. In fact, tax cuts are more important than ever so that money is returned to the productive members of society; for it is they who create wealth and jobs. It follows, therefore, that breaking the promise of tax cuts would hinder any recovery of New Zealand's economy.
    Darby pointed out, however, that tax cuts must be accompanied by equivalent reductions in government spending. "It is essential that government spending is slashed. “Line-by-line” spending reviews are nowhere near enough – many government departments and programmes can easily be eliminated saving significant sums of money and allowing the promised tax cuts to proceed. And yet," highlights Darby, "this government has shown no interest in effecting any meaningful cuts to spending. On the contrary, they are about to embark on a multi-billion dollar programme of spending on infrastructure and home insulation."
    Finally, Darby issued a warning. "This government is about to engage in fiscal child abuse by mortgaging the lives of future generations. They do this while breaking their central election promise of tax cuts and while creating significant spending programmes which will also hinder any economic recovery. Muldoon is alive and well in Wellington."

Frankly, I doubt even Muldoon was as cynical as this present pair of liars.

National’s tax-cut lie [update 2]

He rather lets the Nats off the hook at the end, but Brian Rudman’s piece in today’s Herald is worth reading just to be reminded what a cynically broken election promise looks like.

As Rudman says, “Key and English knew about the global crisis as they pledged tax cuts at last year’s election,” and now they’re about to renege on a promise they knew they could never deliver.  In short, they lied – and you bought it.  Rudman summarises:

    Earlier this month, Prime Minister John Key signalled to an audience of his friends at a Business New Zealand meeting the promised tax cuts would be delayed to some unspecified time in the future. He said New Zealand could not afford "a runaway balance sheet".
    Yet back on September 30 last year, Mr English was mocking then Finance Minister Michael Cullen for being over-cautious on the issue. He said: "Dr Cullen cannot be trusted to deliver on any future tax promises."
    He compared that with National which "will have an ongoing programme of personal tax cuts.”

Yeah right.

[English[ said he would treat Labour's tax cuts, which came into force the next day, "as the first tranche on our tax-cut programme. That will be followed by another tranche of tax reductions on April 1, 2009 [which were fully wiped out by increases in ACC levies], and further tranches in 2010 and 2011". He declared: "National has structured its credible economic package to take account of the changing international climate. Our tax cut programme will not require any additional borrowing."

. . . another lie, since even at the time a lot of sleight 0f hand and legerdemain was being used to shuffle the blame for the borrowing onto the need to fund their $7 billion infrastructure binge – rather than it simply being the case that the Nats lacked the balls to cut spending when most needed.  Too many dead spending rats had already been swallowed . . . yet even in October last year, after “the books” had been opened and several more dead rats fell out, Key and English both said “the pledge to deliver about $50 a week to workers on the average wage remained on track.”

Folks, they never meant a word of it. They lied to you – and the lying continued even after they’d won the election on the back of that very lie:

    On December 16, Mr English was up in the House confirming "National will not be going back on any of those promises, as we fully costed and funded them."
   [Yet] the Government is now making out some economic thunderbolt has suddenly hit New Zealand and thrown their pre-election calculations out the window.
    But even economic ignoramuses like myself knew a global crisis was nigh.

In fact, the global crisis wasn’t just nigh – the global collapse had already happened.  All you had to do was look in the newspapers – or the housing markets.  The Dow Jones average is enough to tell the story that’s now being fudged by National – that they were somehow blindsided by a crisis they didn’t see coming.  The f’ing collapse had already happened – as  Tom Woods summarises in his book Meltdown ,which records the course of the crash, “When the New York Stock Exchange closed on October 9, 2007, the Dow Jones Industrial Average was 14,164.53, the highest close ever. Thirteen months later, on November 20, 2008, it closed at 7,552.29, a drop of 46.7 percent.”

Yet over all of those thirteen months and right through their election campaign National never missed a beat – and no political journalist ever asked them to reconcile the irreconcilable.  Sure, bloggers did (well, two of them), and at least one political party, but the Nats just kept on regardless – they kept right on promising “significant personal tax cuts” of  “about $50 a week to workers on the average wage,” and just before Christmas were again confirming “National will not be going back on any of those promises, as we fully costed and funded them,” and they never meant a bloody word of it at any time.

They lied. You bought it.  And fair play to Brian Rudman for being one of the few to point that out, however softly.

Which just leaves one final question that the voters of Mt Albert might be in a position to ask:  “So where are our tax cuts now, you bastards?”

UPDATE 1: Even died-in-the-wool Nat Whale Oil agrees.  See:

    I find myself in agreement with [Rudman].
    I wonder why it is that it is deemed acceptable to renege on tax cut promises yet steadfastly adhere to the "no cutting of so-called entitlements" promises?
    Perhaps Bill English could explain to the ever patient taxpayer why they should not get a tax cut and they should continue to pay for Working for Families, or Universal Superannuation,  both totally daft ideas completely without logic or merit in these hard economic times.

Not to mention the utterly nonsensical promise to add even more spending: one-third of a billion dollars of taxpayers' money to insulate other people's houses.

UPDATE 2: Right on cue Paul Walker at Anti Dismal quotes a letter Don Boudreaux sent to the New York Times on the reasons for tax cuts:

    By far, the chief economic reason for cutting taxes is to increase the return to productive activity - to increase the return to investment, to risk-taking, to creativity, to work. The economic justification for lower taxes rests squarely on the understanding that cutting marginal tax rates makes profitable many productive efforts, including hiring more workers, that are unprofitable at higher tax rates.

And of course the chief moral reason is that it’s our frigging money they’re spending like water – at a time when we need our money most.

The biggest dead rat of all [updated]

The National Party spent all last election swallowing dead rats, to the loud applause of its staunchly Labour-Lite supporters who thought this tactic was sheer genius. 

Interest-free student loans to bribe university-age voters? Me too, said the geniuses in the National Party strategy machine. KiwiSaver? Me too, they said. Labour’s Emission’s Trading Scam – a deadweight tax directly on producers – me too!  Foreign policy? Me too. Welfare for Working families?  Me too. No privatisations?  Promising not to slashing bureaucrat numbers? Keeping the cap on GP's fees? No bulk funding for schools?  Income-related rents for state house tenants? No strike force for the Air Force? Keeping the Families Commission? Spending hundreds of millions on a motorway bribe to Peter Dunne-nothing? Me too, me too, me too was the refrain.  There was the faintest whiff of controversy?  Oh, go on then, me too.

National supporters swallowed all the dead rats and kept on coming back for more. They went along with it.  They talked up the “moderation” and they talked about tax cuts.  They kept talking about tax cuts.

But we now know that they lied.  There will be no tax cuts.

When it comes to choosing which promise to break, one of the very few promises National made last year that was worth a damn is the one they choose to break. Like a thin man after an all-you-can-eat competition, what was swallowed so eagerly under all the bright lights now has to be paid for.  By you.

But you asked for it.  You wanted Labour-Lite, and you’ve got it. But now you can remove the word “Lite,” and any claim that this lot are either honest or competent.

You might object that no one could know in the election campaign of October/November last year that things were about to collapse.  That Billy Bob and John Boy wouldn’t know how bad things were until Treasury’s frightening forecasts of December last  year. This is just bullshit on a stick.

First of all, anybody who could read a newspaper in October last year could see that the crash had already happened.  It wasn’t about to happen, it already  had (see the graph at right of the Dow Jones index from July 2008, and notice just when exactly it all fell off a cliff).  And despite the almost surreal election campaign, when “don’t mention the crash” seemed to be the refrain, anybody who could understand what they were reading back then would have realised right away the implications for the government’s budget and the spending promises being made.  If they didn’t know, they were incompetent.  If they did know, they were lying about all the promises.

Second, this was a party who – even in the face of the world economic collapse – were promising to borrow to fund tax cuts.  This is reprehensible enough in normal times.  In the face of the worst economic collapse since the onset of the Great Depression, it was either a promise that those who made it knew they could never deliver, or a promise they were too incompetent to know they could not deliver.  They either lied, or just didn’t care enough to tell the truth.

A responsible political party doesn’t promise what it can’t deliver.  It would know that it can’t promise tax cuts without corresponding cuts in government spending.  John Boy and Billy Bob thought they could fake it.  That they could borrow and spend and promise the earth – and somehow never be found out.

But this Thursday it’s crunch time.  Caught between the rock of an economic slump that had already happened when they started swallowing dead rats, and the hard place of credit-rating agencies about to mark down a government about to go heavily into debt, the Billy Bob and John Boy are about to kick in the teeth are those very people who’ve been over-taxed for the last umpty-tum years, while keeping the good times going for all the parasites they’ve been paying for.

And people wonder why we call them bastards.

UPDATE 1: Paul Walker points out National have now given us the National Infrastructure Advisory Board to go along with all the other dead rats on the sinking fiscal ship.  Aren’t we lucky.

UPDATE 2:  And just to show I’m an equal-opportunity despiser, its worth pointing out that the ACT Party will be voting to support the National Party’s broen promise on Thursday – voting for no tax cuts, no real spending cuts, and around a decade of solid deficit spending. 

Is that really what you’d describe as “the courage to do what’s right?”

Quote of the day: “If you are an economist and did not see this coming . . . “ [updated]

The Key Government has continued to signal that they are going to backtrack on the tax cuts that were at the centre of their platform in the recent election campaign – and the mainstream media has continued to ignore this broken promise. 

As I’ve said before, to say now that you didn’t know last October that the world’s economies were collapsing is a sign of either abject incompetence then or cynical dishonesty now.  Bluntly, Bill English is either a liar or a loser.

Sure, there were plenty of trained economists who didn’t know at the start of 2008 what was about to happen (though there was little enough excuse for that abject ignorance), but you’d think that by the 9th of October, when the Dow Jones had dropped by nearly half what it was the previous October, even a prospective Minister of Finance might have noticed something was up?

And what about all those “trained economists” who never saw the train wreck coming?  A commenter on a housing blog, Patrick.Net, wrote recently that economists did a worse job of forecasting the housing market than either his father, who has no formal education, or his mother, who got up to second grade. And his comment, which has now gone around the world, is my quote of the day:

"If you are an economist and did not see this coming, you should seriously reconsider the value of your education and maybe do something with a tangible value to society, like picking vegetables."

UPDATE: As always, Susan makes a comment worth repeating:

    Not going ahead with promised tax cuts signifies that the govt believes that *its* spending requirements are more important than those of taxpayers.
    Thus, I think it's right and proper to henceforth refer to John Key as John Keynes.

Tax cut election promise broken

Bill English is now all but conceding that National’s tax cuts, promised at the election only five months ago, will not be going ahead.  Let me repeat what I said a few weeks ago: to promise them then and pull them now is  either a sign of incompetence, or dishonesty.  There are no other alternatives.

Here’s what I said back on April 1, based on what anyone with a brain could see back in October when those promises were made:

    Significant tax cuts were a key election-winning promise for National, remember?
    And now they want to recant on that promise, just as I told you they would back in October. “Economic conditions” and a projected "decade of deficits” make it impossible, say Prime Minister John Key and his Finance Minister Bill English, to deliver the latter two of the three rounds of tax cuts they promised so loudly back in November.
    Excuse me boys, but isn’t it the case that these tax cuts, promised less than five months ago, were a key reason that the public gave you the jobs you have now? Shouldn’t you be doing now what’s necessary to do what you promised then?
    Isn’t it just a bit rich to say that “economic conditions” now make it impossible to deliver what you promised back before the election, because it was obvious back then to anyone with eyes to see that economic conditions were going to make it necessary to cut the government’s coat according to the cloth it could afford.
    To say that it wasn’t obvious to you back then is not an excuse not to deliver now, it’s a reason for your supporters to realise that you're either not competent enough to do your jobs -- since the whole world and his grandson could see back in October what was coming -- or else you’re a pair of liars.
    No other alternative explanation is possible.
    There is a strong case to be made for incompetence, though this jury is still out. For example, this fiscal fool English cites Treasury's projected "decade of government deficits" as a reason not to cut taxes. But you knew about these deficits back in October, Bill, and you committed then to stay on course with your tax cuts. And you completely fail to realise, Bill, that deficits are not inevitable – they depend, in the final analysis, on the commitment and integrity of the finance minister. Deficits for a whole decade simply mean that your government plans to spend more than it takes in for a whole decade.
    Is that sensible? Sound? Competent?
    To say that the projected “decade of deficits” makes it "impossible to deliver tax cuts" is to say that you have no idea how to bring your own spending under control at a time when spending restraint has never been more necessary – at a time when it’s clear enough to anyone who can add that the way to remove those deficits, and to do what you promised, is to cut the level of your spending to fit the new depressed realities.
    Why can’t you do that, Mr English?
    In fact, the economic conditions we now face make tax cuts not less urgent but more urgent. They make it even more essential that you keep your damn promises, not less.
    They make it even more necessary that everyone look to their knitting and cut out waste.  They make it even more urgent that businesses are given significant tax cuts, to help them lower their costs and survive the recession. That wage earners are given significant tax cuts to help them pay their bills and ride out the recession. That ministers do everything they can to make permanent and slashing cuts to their budgets, and senior ministers look to cut whole areas of wasteful spending of their books. Family's Commission and Ministry of Hairy Women's Affairs, anyone?
    Frankly, it’s not enough to say that “economic conditions” now make it impossible to deliver a key election commitment, Mr English. Either admit you’re incompetent, or that you’re a liar, or get you head around the cuts you need to make and then make them, and deliver what it was you promised.
    Either do that, Mr English, or get the hell out of the way for someone who can.
    NB: Read what I said October last year to see that despite an election campaign in denial about the real state of the economy, it didn’t take a genius to see what was afoot.  Key and English were either lying back then about their promises, or they're incompetent now to fulfil them. There are no other alternatives, are there.

Balance the budget, Bill

Bernard Hickey reports that Bill English wants bureaucrats to accept a pay freeze during a time of recession, saying that with debt already up from $30 billion to $45 billion, any rises will endanger NZ's credit rating. 

That's a good reason, but it's nowhere near reason enough: In the absence of plans to sack most of the 38,000 or so bureaucrats who infest Wellington and drain our wealth, prudence dictates that at a time of economic stress they at least accept pay cuts, and that English moves urgently to cut that $45 billion debt, not just wring his hands over it.

And no fear saying such a thing couldn't happen. There are excellent historical precedents.

During the Great Depression, NZ's Forbes Government cut bureaucrats' salaries by ten percent, and moved to balance the budget rather than just minimise debt.  So too, as Steven Kates points out, did Australia's Scullin Labor Government -- "adopting the 'Premiers’ Plan' which sought a cut in public spending, a return to budget surplus and cuts to wages" -- and so too did the United Kingdom, where as Kates reports the Chamberlain Government adopted "a full-scale 'classical' approach.

A policy of balancing the budget and the containment of expenditure was adopted. By 1933, the budget had been balanced and it was from 1933 onwards that Britain emerged from the downturn of the previous four years.

So too did New Zealand and Australia. 

Under the profligate policy settings of the 'Great Engineer' Hoover and then the Great Phoney Roosevelt however, who both encouraged wages and price rises and treated balanced budgets like a Catholic treats contraception, America's depression continued for at least another decade.

The reason the 'classical' approach worked was simple: cutting costs when prices are low allows producers to do more with less.  Cutting government spending cuts taxes, and cutting debt leaves credit markets unmolested by government -- doing both means that, instead of the government hoovering up cash and credit, those twin pilllars of recovery are available instead for producers.

Roosevelt began his presidency saying that the only thing America had to fear "was fear itself."  Not true.  Not even poetically. What it needed to fear was the anti-recovery policies of him and and his predecessor.  As Neville Chamberlain said in one of the few fine moments of his career,

At any rate we [in the UK] are free from that fear which besets so many less fortunately placed, the fear that things are going to get worse. We owe our freedom from that fear largely to the fact that we have balanced our budget.

To that same fact they owed their recovery from the Depression.  Would that the historical lessons were learned by our present generation.

Another election promise broken

Significant tax cuts were a key election-winning promise for National, remember?

And now they want to recant on that promise, just as I told you they would back in October. “Economic conditions” and a projected "decade of deficits” make it impossible, say Prime Minister John Key and his Finance Minister Bill English, to deliver the latter two of the three rounds of tax cuts they promised so loudly back in November.

Excuse me boys, but isn’t it the case that these tax cuts, promised less than five months ago, were a key reason that the public gave you the jobs you have now? Shouldn’t you be doing now what’s necessary to do what you promised then?

Isn’t it just a bit rich to say that “economic conditions” now make it impossible to deliver what you promised back before the election, because it was obvious back then to anyone with eyes to see that economic conditions were going to make it necessary to cut the government’s coat according to the cloth it could afford.

To say that it wasn’t obvious to you back then is not an excuse not to deliver now, it’s a reason for your supporters to realise that you're either not competent enough to do your jobs -- since the whole world and his grandson could see back in October what was coming -- or else you’re a pair of liars.

No other alternative explanation is possible.

There is a strong case to be made for incompetence, though this jury is still out. For example, this fiscal fool English cites Treasury's projected "decade of government deficits" as a reason not to cut taxes. But you knew about these deficits back in October, Bill, and you committed then to stay on course with your tax cuts. And you completely fail to realise, Bill, that deficits are not inevitable – they depend, in the final analysis, on the commitment and integrity of the finance minister. Deficits for a whole decade simply mean that your government plans to spend more than it takes in for a whole decade.

Is that sensible? Sound? Competent?

To say that the projected “decade of deficits” makes it "impossible to deliver tax cuts" is to say that you have no idea how to bring your own spending under control at a time when spending restraint has never been more necessary – at a time when it’s clear enough to anyone who can add that the way to remove those deficits, and to do what you promised, is to cut the level of your spending to fit the new depressed realities.

Why can’t you do that, Mr English?

In fact, the economic conditions we now face make tax cuts not less urgent but more urgent. They make it even more essential that you keep your damn promises, not less.

They make it even more necessary that everyone look to their knitting and cut out waste. They make it even more urgent that businesses are given significant tax cuts, to help them lower their costs and survive the recession. That wage earners are given significant tax cuts to help them pay their bills and ride out the recession. That ministers do everything they can to make permanent and slashing cuts to their budgets, and senior ministers look to cut whole areas of wasteful spending of their books. Family's Commission and Ministry of Hairy Women's Affairs, anyone?

Frankly, it’s not enough to say that “economic conditions” now make it impossible to deliver a key election commitment, Mr English. Either admit you’re incompetent, or that you’re a liar, or get you head around the cuts you need to make and then make them, and deliver what it was you promised.

Either do that, Mr English, or get the hell out of the way for someone who can.

NB: Read this post from early October last year to see that Key and English were either lying back then about their promises or they're incompetent now to fulfil them. There are no other alternatives, are there.