Home > Dollars & Sense, The Body Politic > Did National knowingly commit economic sabotage post-2008?

Did National knowingly commit economic sabotage post-2008?

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cheesecolour tax cuts

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By now, it has become fairly well known that National’s tax cuts in 2009 and 2010 were unaffordable and impacted disastrously on government revenue (and subsequent spending) in following years.

In 2008, National tempted voters with promises of “self funding” tax-cuts. (Though “self funding” was never very clearly explained.)

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

[...]

This makes it absolutely clear that to fund National’s tax package there is no requirement for additional borrowing and there is no requirement to cut public services.

Source: Economy – Tax Policy 2008

The pledge of  “no requirement to cut public services  ” was also one that was made (and subsequently broken in dramatic fashion).

In May 2008, Key was making bold statements  of  “meaningful”  tax cuts,  “north of $50“,

John Key…  said National would be looking at economic figures and what other promises Dr Cullen made in the budget on Thursday… But he was very confident” National could deliver an ongoing programme of tax cuts, like that promised in 2005”.

See: National’s 2005 tax cut plans still credible – Key

Despite the growing black clouds of  a global downturn, Key was still optimistic. When questioned by Sue Eden of the NZ Herald whether National’s tax cuts programme of 2005 were still credible given uncertain economic circumstances, Dear Leader replied,

Well, I think it is.”

See: IBID

By early August 2008, as United States mortgage-institutions Fannie Mae and Freddie Mac  were  sinking into a credit crisis, Key remained defiant in the face of looming recessionary forces,

National will fast track a second round of tax cuts and is likely to increase borrowing to pay for some of its spending promises, the party’s leader John Key says.

But Mr Key said the borrowing would be for new infrastructure projects rather than National’s quicker and larger tax cuts which would be “hermetically sealed” from the debt programme.

The admission on borrowing comes as National faces growing calls to explain how it will pay for its promises, which include the larger faster tax cuts, a $1.5 billion broadband plan and a new prison in its first term.

It has also promised to keep many of Labour’s big spending policies including Working for Families and interest free student loans.

Mr Key today said there would be “modest changes” to KiwiSaver.

See: Nats to borrow for other spending – but not tax cuts

How does one ” “hermetically seal” tax cuts  from the debt programme ” ?!

The ‘crunch’ came on 6 October 2008, when Treasury released a document known as the “PREFU” (Pre-Election Economic and Fiscal Update). This Treasury report analyses and discloses the fiscal and economic state of the nation, with short and medium-term outlooks, based on international and local trends.

The 2008 PREFU started with this dire warning,

The economic and fiscal outlook has deteriorated since the Budget Update

In the five months since the Budget Update was finalised, we have witnessed a number of significant domestic and international developments: in particular, the deepening of the international financial crisis, the slowing housing market, and growing pressure on households and businesses. These developments are key factors in our updated view of the economy and the government’s finances set out in this Pre-election Update.

We are now expecting weaker economic growth over the next few years, resulting in slower growth in tax revenue and higher government expenditure. Combined with increases in the costs of some existing policies, these factors lead to sustained operating balance deficits and higher debt-to-GDP ratios.

The economic outlook is weaker …

Imbalances have built up during nearly a decade of sustained growth, including inflation pressures, an overvalued housing market, high household debt and a large current account deficit, with implications for interest rates and the exchange rate. With the economy slowing, these imbalances are starting to unwind – as are imbalances in the global economy – but there is a long way to go.

See: PREFU 2008 – Executive Summary

The opening statement went on to state with unequivocal frankness,

The international financial crisis has deepened and is having an adverse impact on global economic growth. New Zealand is expected to feel the effects of the financial crisis principally through the tighter availability and increased costs of credit, but also through a fall in business and consumer confidence, falling asset values and lower demand and prices for our exports.

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The weaker economic growth that we are forecasting is reflected in reductions in our tax revenue forecasts. Compared with the Budget Update, we expect tax revenue to be on average around $900 million lower for each of the next three years.

  • The weak outlook for the household sector will have a direct impact through GST, which is forecast to grow by around 4% per annum over the next five years, compared with 7.5% over the six years to 2007.
  • With firms’ margins under pressure and profitability low, underlying corporate income tax is forecast to decline by 3% in the 2009 June year, and growth is expected to be negligible in 2010 as accumulated tax losses offset profits.
  • A relatively robust forecast for wages over the next few years helps to keep underlying growth in PAYE up at around 5% per annum.

The largest single change in government spending in the Pre-election Update is an increase in the expected costs of benefits. Compared with the Budget Update, benefit expenses are around $500 million per annum higher, reflecting both an increase in numbers of beneficiaries as a result of the slowing economy, and the impact of higher inflation on the costs of indexing benefits.

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As a result of the various factors set out above, the government’s debt outlook deteriorates. This leads to higher debt servicing costs, which are forecast to be around $500 million per annum higher

See: IBID

Treasury continued – in considerable detail – to outline the gloomy prospects  for New Zealand’s fiscal and economic short-term and medium-term outlooks (see:  Fiscal Outlook),

In Risks and Scenarios, Treasury wrote,

Since the Budget Update, global developments have been more in line with the alternative scenario than the Budget forecast and global financial and economic conditions have worsened significantly. On the domestic front, finance companies have continued to face reduced debenture funding and more finance companies went into receivership or moratorium in the past three months. The speed and magnitude of the slowing in domestic demand has been more abrupt and greater than forecast in the Budget Update.

Reflecting these recent international and domestic developments, we have made significant downward revisions to our growth forecasts in this Update. However, the financial turmoil has intensified since the finalisation of our economic forecasts. As a result, we have seen the downside risks to our growth forecasts increase markedly, particularly in the years to March 2010 and 2011.

See: 2008 PREFU – Risks and Scenarios

Unlike his “lack of knowledge” over the GCSB monitoring of Kim Dotcom, or the Police report on John Banks, John Key cannot feign ignorance over the 2008 PREFU report,

John Key has defended his party’s planned program of tax cuts, after Treasury numbers released today showed the economic outlook has deteriorated badly since the May budget. The numbers have seen Treasury reducing its revenue forecasts and increasing its predictions of costs such as benefits. Cash deficits – the bottom line after all infrastructure funding and payments to the New Zealand Superannuation Fund are made – is predicted to blow out from around $3 billion a year to around $6 billion a year.”

See: Key – $30b deficit won’t stop Nats tax cuts

Especially when Bill English admitted his knowledge of the PREFU,

The figures outlined in the Prefu are a bit worse than we expected, and we are currently digesting them. However, National is not content to run a decade of deficits.”

See: IBID

In an example of black-humoured irony, English went on to say,

New Zealand can no longer afford Michael Cullen and Labour’s big-spending low-growth policies.”

See: IBID

But evidently New Zealand could afford National’s  “ big-tax-cutting low-growth policies“?

On 6 October 2008, Key reacted to the PREFU (proving he had full knowledge of it’s contents, and made this astounding comment when questioned about National’s planned tax cuts, at 0:40,

“REPORTER: What is your growth programme, does it include tax cuts?.”

“JOHN KEY: It certainly does include tax cuts. We have a programme of tax cuts.”

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Key reacts to 2008 PREFU figures

See: Key reacts to [2008] PREFU figures

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Key’s comments following 0:40 seem equally bizarre, and at 2:28 admits that “… we can’t deliver anything other than, ‘yknow,   a legacy of deficits for New Zealand…” – and still continues to warble on about cutting taxes, including trying to justify “debt for future growth“.

The consequences were a $2 billion hole in government tax revenue (see:  Outlook slashes tax-take by $8b;   Govt’s 2010 tax cuts ‘costing $2 billion and counting’); budget deficits (see:  Budget deficit $1.3b worse);   increased borrowings (see:  Govt borrowing $380m a week); cuts to the State sector in terms of services and jobs (see:  Early childhood education subsidies cut; 10 August: Unhealthy Health Cuts, 2500 jobs cut, but only $20m saved); and surreptitious increases in government charges and taxation elsewhere (see:  Petrol price rises to balance books; Student loan repayments hiked, allowances restrictedPrescription charges on the rise); and asset sales  (see: Govt says asset sales will cut debt).

The point of this blogpost is simple.

It’s not to look back, at the past…

… it is to look forward to the future.

When National makes Big Promises, be wary of the nature of said promises, and the underlying , invisible “hooks” contained within them.

Quite simply when the Nats offer you a “tax cut”, the first question that should pop into your head is not, “Oh goody, I wonder how much I’ll get!”

The first thought should instead be, “Uh oh, I wonder how much that’s going to cost me!”.

Because as sure as evolution made little green apples and the sun will rise tomorrow, the Nats care very little about your pay packet.

They care only about “rewarding hard work” [translation: more income for the rich] and “making the veconomy more competitive”  [translation:  implementing their neo-liberal agenda for their ideological crusade to turn this country into a Market-driven economy, away from an egalitarian society].

In the process, if they have to turn our country into a slow-rolling, economic train-wreck, then so be it.

They can always blame someone else,

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Key blames Labour for his Govt's wage gap failings

See video: Key blames Labour for his Govt’s wage gap failings

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Key even blames Labour for the  global recession !? (see @ 0:48)

In the meantime, did National recklessly  damage the New Zealand economy with unaffordable tax cuts, despite Key & Co being given ample warning by Treasury – simply to get elected in 2008?

Draw your own conclusions.

The evidence speaks for itself.

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I lied  get over it!

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Additional reading

The Atlantic: Tax Cuts Don’t Lead to Economic Growth, a New 65-Year Study Finds (16 Sept 2012)

References

National Party: Economy – Tax Policy 2008

NZ Herald: National’s 2005 tax cut plans still credible – Key (20 May 2008)

NZ Herald: Nats to borrow for other spending – but not tax cuts (2 Aug 2008)

The Treasury:  Pre-election Economic and Fiscal Update 2008 (6 Oct 2008)

NZ Herald: $30b deficit won’t stop Nats tax cuts (6 Oct 2008)

BBC News: Bank shares fall despite bail-out (13 Oct 2008)

Bay of Plenty Times: John Key: We cannot afford KiwiSaver (11 May 2011)

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= fs =

  1. Ralph Lawrence
    24 January 2013 at 3:00 pm | #1

    Tax cuts had nothing to do with common sense or fiscal responsibility in my opinion anyway. It was just a classic carrot and stick move aimed at National voters and other poor mugs who thought it might help pay for sliced bread and milk.

    • Paul Carruthers
      24 January 2013 at 3:26 pm | #2

      Playing to the simple people, of which there is clearly no shortage.

  2. Paul Carruthers
    24 January 2013 at 3:23 pm | #3

    They are divvying it up between their mates before Key pulls the plug.

    Crafar (16,700 hectares of NI dairy farms).

    Hubbard (45,000 hectares of SI dairy farms).

    SCF (some very good strategic assets).

    What do they have in common?

    All private assets, seized and sold by the Crown on the basis of accusations alone, without one single court order, and without any trials (“guilt” was entirely established in, and by, the media).

    In both Crafar’s and Hubbard’s case, as well as SCF, they all have certain players in common:

    John Key – strongly influenced public opinion against Hubbard, particularly.

    Bill English – pulled the strings.

    Michael Stiassny – wrote the report that condemned Hubbard and was appointed receiver of Crafar’s farms (ironically, Stiassny is also a very close friend of John Key).

    Bernard Hickey – so called journalist. Led the charge against Hubbard in the media trial that ensued, and still to this day, no one has ever questioned what motivated a ‘journalist/economist’ from Herne Bay to drive to the South Waikato in the early hours one morning, trespass on Crafar’s farms, secretly film pigs, and then race back to Auckland to upload the video to YouTube – sparking a media uproar (out of nowhere- within 48 hours) about “animal welfare”.

    The animal welfare issue was the pretext for Crafar losing his farms to receivership.

    Both Hubbard and Crafar were absolutely, well and truly hijacked and set up – by exactly the same people.

    Conversely, every time anyone questioned any of the “evidence” that was continuously planted in newspaper headlines and on TV, in the media trials that ensued, the standard response from Key and his mates was “we won’t comment while the matter is before the courts!”

    So….they sit back and allow full-blown media trials to occur, outside of proper court processes, and those media trials establish “guilt” in the public’s minds…….but every time you push for proof (accusations in the form of headlines are not “proof”, and John Key’s word for it is not “proof”), they say they “can’t comment because it’s before the courts”.

    See the double standards?

    And you can’t win it, because of the shallow way in which most people think.

    For example, when I once questioned the lawfulness (or lack of it) of the process by which Crafar’s land was seized and sold, one woman wrote to me privately and said I shouldn’t be standing up for him because she knew him and thought he was a wanker.

    How do you ensure people’s rights are upheld when so many Kiwi’s think in such small-minded, self-serving ways?

    And that’s just the private wealth they have stripped, before we even get to talking about state owned assets.

    New Zealanders have lower standards than the people of Afghanistan when it comes to challenging corruption. The financial illiteracy of most Kiwi’s, coupled with their willingness to deliberately turn a blind eye to corruption, is positively staggering and incomprehensible.

    While it is extremely easy to blame Key and his merry band of thieves directly for the fact that they are absolutely robbing us blind, the fact is the real culprits are the Kiwi public, because they KNOW it’s happening but simply won’t say or do anything about it.

    Government is busy telling us our standards and expectations are far too high, but the actual truth and the reality is that our standards are far too low!

    • SpaceMonkey
      25 January 2013 at 1:32 am | #4

      Agree completely. I have wondered if Alan Hubbard could’ve been murdered.

  3. SW
    24 January 2013 at 3:28 pm | #5

    Of course they knew. They were running the GOP / Bush playbook from 2001: run up the debt, use it as an excuse to do – whatever….and crash the state so you can transfer large chunks to the private sector.

    There can’t be any serious doubt about this. It was obvious in 2008…and more so now.

  4. mick
    24 January 2013 at 3:29 pm | #6

    “I just want to emphasise that it is not our best guess; it’s just a guess. It’s just to put some numbers in that look like they might be roughly right …” Finance minister Bill English

    with this caliber of civil servants ,why should we be surprised.

  5. Christine
    24 January 2013 at 3:40 pm | #7

    They were of no real or very little benefit to middle and lower income people.

  6. 24 January 2013 at 3:44 pm | #8

    They certainly deliberately chose to ignore the PREFU in order to implement their agenda. That’s undeniable.

  7. JOHN (the good one)
    24 January 2013 at 4:02 pm | #9

    TAX EVASION is the problem, it’s part of the corruption problem.

    In New Zealand 60% of the about 100 who own more than $50,000,000.= file a taxable income of no more than $70,000.=

    Do not ask how rich someone is, ask them HOW they became rich in the first place.

    https://www.facebook.com/photo.php?fbid=458145357568210

  8. Procrastinator
    24 January 2013 at 4:09 pm | #10

    Redistribution of wealth from the lower end to the higher end, it appears we will find further measures scrapping the bottom of the barrel in this year’s budget, probably more ‘paperboy tax’ type stuff:

    Dunne signals more tax grabs in Budget 2013.
    http://www.nbr.co.nz/article/dunne-signals-more-tax-grabs-budget-2013-rh-131272

    Those with the most wealth need not worry; can we imagine a $50+ million PM shooting himself in the foot by reducing his tax break?

    Appears tax is only fit for the poor to pay, while the rich can take full advantage of its benefits. Expect further evisceration of social services, the system will remain however it’ll be near impossible for the needy to qualify.

  9. John H
    24 January 2013 at 7:49 pm | #11

    This article lifts the tarp on the crap i’ve been smelling for some time. Thanks.

  10. 24 January 2013 at 8:44 pm | #12

    I figured this back in 2008 .

    Hence why I voted Labour Green.

  11. SpaceMonkey
    25 January 2013 at 1:22 am | #13

    Yeah… they knew. Their actions to date are tantamount to treason.

    The moment the worm turns for John Key, he’ll be out of NZ like a rat up a drain pipe and back to his bankster mates in London and New York… they’re his real constituents. The vast number of National voters are no more of any interest to John Key than any non-National voter. This is the guy who, I believe, aided Andrew Krieger in the take down of the NZ dollar in 1987.

    http://aotearoaawiderperspective.files.wordpress.com/2008/12/would-you-have-voted-john-key5.pdf

    There’s further treason right there.

  12. 25 January 2013 at 8:16 am | #14

    I can’t help but wonder – how would the Icelanders have dealt with him?

  13. Leftie Lenny
    26 January 2013 at 5:57 pm | #15

    Did National knowingly commit economic sabotage post-2008?

    Verdict – guilty on all counts.

  14. Citizen Gee
    27 January 2013 at 12:38 pm | #16

    Any fool in 2008 could’ve understood that no way could we afford tax cuts with the global economy turning to custard and New zealand already in recession. But a million mugs voted for the scoundrel hoping he could magic-up a few thousand money-trees and just pluck $100 bills from low-hanging branches.

    Instead we got cuts to government services and taxes on paper-delivery boys and girls and now the middle classes are whining their heass of? Pffft! The middle class who voted for Key got what they richly deserved.

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