Home > Dollars & Sense, The Body Politic > Is this where I insert, “I told you so, NZ!”?

Is this where I insert, “I told you so, NZ!”?

In the last couple of years,  this blogger has been pounding away, wearing out one keyboard after another; shooing cats of piles of documents; drinking enough coffee to deny me sleep for the rest of the decade…

To make a point.

By early 2008, recession was looming following a banking crisis that started in the US,

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John Key’s history in international finance would have alerted him immediatly of the looming crisis. It was irresponsible of him to campaign on tax cuts when he must have known they were unachievable, as New Zealand’s economy began to slump.

To point out the blindingly obvious:  New Zealanders in 2008 voted tax cuts for themselves that we could ill-afford as a nation. We were warned, even as far back as 2008,

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No one who voted for National in 2008 can genuinely claim ignorance – we were warned. News of the building crisis and recession filled the media. New Zealanders’ greed for money simply outstripped their common sense,

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We should have taken note when John Key “assured” us,

Our tax policy is therefore one of responsible reform…  We have ensured that our package  is appropriate for the current economic and fiscal conditions… 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… National’s rebalancing of the tax system is self-funding and requires no cuts to public services or additional borrowing.’ “ – National Party: Tax Policy

Yeah, right.

Despite all the media reports; despite all the warnings; despite all the criticisms that National’s programme of tax cuts was unaffordable, on 8 November 2008,  1,053,398 New Zealanders voted for National.

As a result of cutting taxes in April 2009 and October 2010, government revenue dropped. The supposedly “fiscally neutral “tax-switch” wasn’t so much a “switch” as a parlour-trick. It wasn’t our money that John Key was giving back to us – it was money borrowed from overseas.

The first tax cuts kicked in on 1 April 2009. That was followed by this media report,

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The second round of tax cuts took effect on 1 October 2010. Predictably, that was followed by this media report, eight months later,

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Yesterday, the NZ Herald  published this piece penned by Bernard Hickey. It wasn’t just highly critical of the National  – it accused the John Key’s government of;

  • being fiscally irresponsible
  • enacting policies designed to please its wealthy backers
  • borrowing money overseas, to fund taxcuts
  • economic treason
  • and generational selfishness

Bernard Hickey did not mince his words,

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Hickey went on to state,

“The charts reveal the results of the cut in the income tax rate from 39 to 33 cents, which was in theory partly paid for by an increase in the GST rate from 12.5 to 15 per cent. They also reveal a massive reversal in a decade-long trend of improvement in New Zealand’s public debt position.

Our tax-to-GDP ratio has crashed from almost 34 per cent in late 2008 to 29 per cent last year, which means yet more borrowing on the horizon.

At the same time, the tax from individual incomes has fallen from around 32 per cent to around 24 per cent.

This is a direct result of the cut in the top personal tax rate and consumers’ shift to spending less and saving more. This means the higher GST rate is not collecting the revenue expected.

Meanwhile, interest-free student loans and Working For Families are deepening budget deficits. That is being paid for with increased Government borrowing to the tune of 15 per cent of GDP.

A collapse in the corporate tax take is only partly responsible and is largely due to the recession rather than any change in policy. It is now rebounding but the tax-to-GDP ratio is worsening.

This is unsustainable without an immediate and extended surge in economic growth, which few expect.

Voters will have to repay this debt in decades to come. Why are they not revolting at this national act of selfishness?” – Ibid

To illustrate his point, Hickey charted New Zealand’s economic progress (or lack, thereof),

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Hickey condemns the borrowing-funded tax cuts by calling it for what it is: inter-generational theft. It is a massive debt that will have to be repaid by loading that debt onto future generations of taxpayers.

Like hell !!

Many of the next generation won’t have a bar of paying of their parents’ debt. They’ve already decided to take the only logical step,

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Bernard Hickey, and many other political, economic, and social commentators have highlighted the bad decisions that voters continually make. Unsurprisingly, we all like tax cuts – who wouldn’t want more money to spend on nice, new, shiny things.

Voting for wealth is not enough to make us wealthy. Especially if, at the same time, we expect all the nice things that a modern social democracy has to offer; free education; free healthcare; good roads and public transport; a pension at retirement; and lots of other state services funded by – taxation.

Well and truly, we have shot ourselves in the foot. We voted for more wealth, through taxcuts, and comprehensive social services – and we’ve ended up with neither.

And we have no one to blame but ourselves. We did this; 1,053,398 New Zealanders voted for it.

Here’s an idea: every single person who voted for National in 2008 and 2011 should be sent an invoice for their share of our country’s debt. Wouldn’t that be a lovely prospect?

Meanwhile, the final word goes to National’s Finance Minister, Bill English,

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A few previous blogposts on tax cuts

A warning from a very, very rich man (17 August 2011)

Greed is good? (28 August 2011)

Blood from a stone? (27 January 2012)

Tax cuts & school children (2 February 2012)

Authors of our own mis-fortune? (20 February 2012)

The Muppet Show – Kiwi style! (21 February 2012)

Additional

Surplus date looks increasingly tough, says Key

Budget deficit keeps getting worse

 

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= fs =

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