Home > Dollars & Sense, Social Issues, The Body Politic > Tax cuts and jobs – how are they working out so far, my fellow New Zealanders?

Tax cuts and jobs – how are they working out so far, my fellow New Zealanders?

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Setting the scene

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The Rhetoric…

National’s rebalancing of the tax system is self-funding and requires no cuts to public services or additional borrowing.”

National Party: Tax Policy 2008

The Reality…

The public service has slashed 555 jobs in the past year and is expected to lose almost 400 more by June 2014, the government has revealed.”

Fairfax Media: 555 jobs gone from public sector

“Treasury today published the Government’s financial statements for the 10 months ended April 30, which showed the debt mountain had grown to $71.6b.”

Fairfax Media: Government debt rises to $71.6 billion

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The Rhetoric…

In the longer term, our tax package encourages people to invest in their own skills and make best use of their abilities, because they get to keep more of any higher wages they earn. It encourages them to look for and to take up better and higher-paying jobs that make more use of their skills.”

National Party: 2008: Personal Tax

The Reality…

Thousands of New Zealanders – including many disillusioned immigrants – are looking for new jobs and new lives in Australia…

… And, judging by the long queues for the $15 event, it seems many of the employers will have no problem finding takers among job seekers who say they are fed up with New Zealand and believe the lifestyle, pay and opportunities are far better across the Tasman.”

NZ Herald: Fed-up Kiwis head to Oz en masse

The unemployment rate rose half a percentage point to 7.3 per cent in the September quarter, the highest level since June 1999, according to Statistics New Zealand’s household labour force survey.

NZ Herald: Unemployment up to 7.3pc – a 13 year high

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Consequences

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On 1 October 2010, as National implemented it’s second round of tax cuts, John Key made this statement,

Our changes to the tax system are about:

  • Helping hardworking families get ahead
  • Boosting growth to create jobs and lift incomes
  • Encouraging savings and investment
  • Making the tax rules fairer for all New Zealanders.

Many of you have told me that you are worried about the increasing cost of living. That’s why the tax changes are so important.

From today, the average family will be about $25 a week better off, even after the increase in GST. The average earner will be about $15 a week better off. A retired couple receiving only NZ Super will be about $11 a week better off.

National was elected to secure a brighter future for New Zealanders and we are delivering on our promises.”

See: National Party: Special Edition – Tax cuts today

It is a common theme amongst the New Right and neo-liberal dogma that cutting taxes equates to more jobs. The idea is that with more money in people’s pockets; they spend more; consumption rises; industry has to produce more; and subsequently hires more staff.

That’s a lot of assumptions to make. As John Key, Bill English, and other National ministers stated, many people used their tax cuts to save and/or pay off debt,

One of the things we are trying to do is lift the national savings rate. When you lift the consumption taxes and lower personal taxes, you encourage people to save. That’s definitely happening, we’ve got a positive savings rate in New Zealand now.” – John Key, 2 April 2012

See: Key defends tax cuts in light of zero Budget

And I think it is going to keep dropping. Kiwis have got the message that debt is a bad thing” – but they had been convinced about the merits of saving more. People do want to save and they know there is no free lunch.” – Bill English, 14 March 2012

See: Debt being paid off, but savings not growing

And even if people do spend more, there is no guarantee that businesses will hire more staff. Much of our consumer goods now originates from overseas, and what we spend here in NZ probably has little effect with overseas manufacturers.

Even locally, there is certainly no guarantee that an extra $15 or $20 in taxcuts will result in more jobs. Especially when gst, fuel, electricity,  and government charges have risen to eat up tax cuts for low and medium paid workers.

New Zealand finance bosses are feeling good about the economic recovery, but research shows that optimism doesn’t extend to hiring new staff.

Global finance and accounting firm Robert Half’s survey of 200 chief financial officers and finance directors found 79 per cent were confident about the prospects of national growth in 2012.

Those who thought their own company would pick up speed in the year ahead made up an even higher proportion, at 87 per cent.

However, the rise in confidence did not translate to more jobs – just 13 per cent planned to take on new finance and accounting staff. “

See: Confidence up, but jobs still not a priority

So John Key’s hopelessly optimistic vision of   “boosting growth to create jobs” has become a distant dream, based on -?

  • Naive faith in a discredited “free market” dogma?
  • Helping out his rich mates?
  • A misguided belief that creating jobs could be easily done at the stroke of a pen?
  • Free Market fairies and Employment angels?!
  • All of the above?

To make the picture complete, I present for the reader’s interest this graph, correlating the ’09 and ’10 tax cuts, with unemployment levels,

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Source

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The graph above vividly illustrates the fallacy linking tax cuts to job creation.

Indeed, after two taxcuts, this country has little to show for it except slashed state services; thousands of state sector workers sacked; and having to borrow billions more from overseas to make up for the shortfall in the tax-take.

The closure of two schools for disabled children, Salisbury Residential School in Nelson and McKenzie Residential School in Christchurch, is perhaps the most tragic face of National’s harsh policies.  When we cut taxes, we cut essential state services, there is no other option.

National supporters and low-information voters may hold cherished beliefs  that cutting taxes are a good thing – until they themselves, or a family member,  requires a state service that has been wound back, or eliminated altogether.

Whilst most of us understand that cutting taxes does not lead automatically to the Holy Grail of  more jobs, our Dear Leader seemed stunned by the shock rise in unemployment,

I’m very surprised with the numbers I’ve seen this morning, goodness knows what the next one will look like.

Oh goodness, Dear Leader. “Surprised”, were we?

How can he have been surprised when unemployment has been rising since January, when it was at 6.4%?!

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Source

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Was he not paying attention – much like his briefing at GCSB offices when Kim Dotcom’s arrest was discussed?

Mr Key really needs to bring his mind back from the golf courses of Planet Key.

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Postscript

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Speaking from Japan (where it’s probably the safest place for him, right about now) John Key dismissed ideas of investing in job creation policies, saying,

 “It would be a dangerous precedence for us to start saying we are going to support a particular industry over another where there’s change. If you want to roll that all the way back we’d still be producing cars in New Zealand and that probably wouldn’t be in New Zealand’s best interests.

See: No tax break plans to keep jobs in NZ – Key

Key is happy to throw  tax breaks at the highest income earners in this country – but thinks that tax breaks for preserving jobs “wouldn’t be in New Zealand’s best interests“?!?!

And let’s not forget the generous tax breaks he gave to Warner Bros – a multi-billion dollar corporation – as a ‘sweetener’ to keep “The Hobbit” in New Zealand (when there was in reality no risk of production going overseas, according to Peter Jackson).

This man may have been raised in a state house, by a solo-mum, but it appears that he has lost all perspective. His fitness to be Prime Minister has to be seriously questioned.

Only six months earlier, Key was reported in the Dominion Post thusly,

The number of unemployed people increased 6.1 per cent to 160,000 but the labour force participation rate also rose, by 0.6 points to 68.8 per cent.

Key said the unemployment rate was “a very weird one at the moment”.

About 9000 jobs had been created and the Government was on track to create 170,000 over four years, he said.” – Dominion Post, 7 May 2012

See: Key – “Europe shows zero Budget wisdom”

Deluded? Make up your mind after  he went on to say the following (Warning: Contains Crazyiness),

The number of people looking for work or in work is virtually a record in New Zealand, the second highest rate ever. What that shows you is that New Zealanders are more confident the economy is coming right and actually bothering to look for work. I know it sounds crazy.” – John Key, 7 May 2012

See: Ibid

Well, yes; crazy.

Only John Key could be so utterly disingenuous as to laud rising unemployment as ” New Zealanders are more confident the economy “.

Batshit crazy, actually.

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Sources

Fairfax Media: Key defends tax cuts in light of zero Budget

National Party: Special Edition: Tax cuts today

Radio NZ: Tax breaks to save jobs ‘a dangerous precedent’

TV3: Opinion – Is our economy collapsing?

Sh*t to p*ss you off

TV3: NBR Rich List 2011 – NZ’s wealthy doing just fine

NZ Herald: We’re doing all right, says English, despite GDP slowdown

NZ Herald: Fed-up Kiwis head to Oz en masse

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= fs =

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  1. 10 November 2012 at 2:49 pm

    Interesting, after each tax cut there was a jump in unemployment. Coincidence?

    Was he not paying attention – much like his briefing at GCSB offices when Kim Dotcom’s arrest was discussed?

    When governing via ideology you don’t need facts and figures.

  2. 10 November 2012 at 2:52 pm

    “When governing via ideology you don’t need facts and figures.”

    Thank you, Draco. That about sums it up, perfectly.

    “Interesting, after each tax cut there was a jump in unemployment. Coincidence?”

    I noted the same effect after two tax cuts in the late 1980s, under Rogernomics Labour, and in the 1990s, under Bolger/Shipley National: unemployment actually jumped after each tax cut.

  3. 10 November 2012 at 4:03 pm

    Bill English’s response…

    “Today, Deputy Prime Minister Bill English couldn’t say how many jobs have actually been created.

    “Well I couldn’t give you that right now, we’ll let you know in December,” says Mr English.”

    http://www.3news.co.nz/Key-surprised-by-high-unemployment-rate/tabid/1607/articleID/275989/Default.aspx#ixzz2Bmjao700

    Incredible.

    There is one good thing that may come out of National’s two terms in government; hopefully their reputation for “sound management” will finally be shot to pieces. (As it was after Muldoon’s reign.)

    • 10 November 2012 at 9:12 pm

      “Well I couldn’t give you that right now, we’ll let you know in December,” says Mr English.”

      Translation: We’ll have made up some suitable figures come December.

      • 11 November 2012 at 12:14 am

        Draco, more like,

        “The tanks will be in position on every street corner by then, and we’ll have rounded up all these pesky lefties and bloggers…”

  4. Denny Weisz
    10 November 2012 at 4:18 pm

    With the latest Unemployment figures out now I can’t wait for the next set of polls …. oh they probably won’t be published? Haha!

  5. Recluse
    10 November 2012 at 8:43 pm

    If anyone is interested checkout:

    http://www.johnpemberton.co.nz/html/government_debt.html

    http://www.johnpemberton.co.nz/html/new_zealand_government_debt_eom.html

    According to this website the current government debt is over $104 billion, looking at the historic figures notice the staggering increase in debt since this government was elected. The rate was already high before the Christchurch earthquakes, which could rule that out as a factor.

    Considering the mounting lack of progress to be seen anywhere. What is this money borrowed for? It just doesn’t add up.

  6. mcclairy
    11 November 2012 at 8:56 am

    “Current government debt is over $104 billion” says it all really. This is a government that inherited a $10 billion government debt when they took over from Labour 2008! How the PIIGS would be over the moon with such a $10b debt. The tax cuts benefiting the wealthy went not on jobs/savings but upgrading cars, overseas holidays, shopping trips to Oz, a bigger, better yacht, adding another room to the “Bach” while the low waged, middle class went backwards with the increases in GST – the most regressive tax imaginable. And they can’t figure out why we have increases in child poverty, underfed kids in schools, if fed at all ? Never mind, Key has assured us the privatization of energy assets will make a difference to the debt level ! Yeah, when pigs fly.

  7. 11 November 2012 at 5:44 pm

    Ad don’t forget Labour colaition had paid off all but that 10 billion of the previous national goverment debt.
    To all intents and purposes we were almost debt free when national took over.
    Plus labour had salted away millions in the superanuation fund which national are not apying anything into.

  8. 12 November 2012 at 12:12 pm

    How much did Mr Key personally benefit from these tax cuts?

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