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Posts Tagged ‘Sovereign debt’

National’s 2005 tax cut plans still credible – Key

From four years ago…

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Frank Macskasy  Blog  Frankly Speaking

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Note this bit,

Questioned on whether National’s tax cuts programme of 2005 was credible today given the different economic circumstances, Mr Key said: “Well, I think it is”.  “

By the end of  2008, the global financial crisis was in full force,

  • March: 76 banks in the USA in financial trouble and at risk of failure – a 52% increase from the previous year – source
  • July: Freddie Mac, Fannie Mae, Countrywide Financial, Bear Stearns, and other US corporations in financial trouble – source
  • September: Lehmann Bros files for bankruptcy – source
  • September: AIG files for bankruptcy – source
  • September: Russian stock exchange closes after 20% drop – source
  • September: New Zealand officially in recession – source
  • September: NZ Super Fund drops $880.75 million – source
  • October: Bush signs US$700 billion Wall Street bail out – source
  • October: Icelandic banks declared insolvent – source
  • October: UK government intervenes to bail out banks Royal Bank of Scotland Group plc, Lloyds TSB and HBOS Plc – source

Despite major banks, financial institutions, and other corporations collapsing or requiring massive bail-outs by tax-payers; despite New Zealand lready being in recession  – John Key went into the 2008 November elections promising,

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. ” – Source

By 1 April of this year, Bernard Hickey wrote in the ‘Herald’,

It is clear now that the Government has effectively cut the income tax rate and paid for it by borrowing money overseas, in large part from China. It is an act of economic treason and generational selfishness when a government has decided an already-wealthy part of the population deserves higher incomes paid for by loading foreign debt on future generations of taxpayers. ”  – Source

Hickey added,

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?

Why indeed?!

Because people are generally fiscally illiterate?

Because National supporters are intrinsically self-centered?

Because those who voted National allowed themselves to be persuaded by a smooth-talking, plausible-sounding moneyman-come-politician?

And for National – they were so desperate to replace Labour as government that they were willing to promise anything – no matter how irresponsible and unaffordable – to win the election.  It is this same willingness to make outrageous promises that are little better than bribes that got New Zealand into economic trouble during the Muldoon years.

To demonstrate how “credible National’s 2005 tax cut plans” really were, Bernard Hickey shared his “chart porn” with ‘Herald‘ readers,

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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.

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Frank Macskasy  Blog  Frankly Speaking

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Frank Macskasy  Blog  Frankly Speaking

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Frank Macskasy  Blog  Frankly Speaking

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Frank Macskasy  Blog  Frankly Speaking

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And some New Zealanders still delude themselves that National are sensible, prudent fiscal managers of our economy?

Not only have we borrowed billions  from China, America, etc to fund our tax cuts – but National is also having to cut social services. Like, teacher-numbers. Which will result in larger class-sizes.

Was it all worth it?

(National supporters need not answer that question. It is purely rhetorical.)

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References

Numbers reveal National disgrace

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“Less Debt and Lower Interest Rates” – Really?

2 November 2011 2 comments

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National’s “statement of intent” for “less debt and lower interest rates”  on one of their billboards,

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It would be a laudable goal, if National’s track record was not somewhat different,

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Our recent double down-grade by Standard & Poors and Fitch will eventually flow into our mortgage rates. Bill English guesses that the amount could be “as little” as “about one-tenth of a per dent” – but of course, he’s guessing.

Whilst National is alleging that Labour will be borrowing to fund it’s policies, the fact is that National has already borrowed $18.4 billion,

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Full Story

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This is borrowings made up, in part, because we could ill afford two tax cuts cuts which gave up to $1,000 a week for someone on a salary similar to John Key’s.

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Full Story

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In fact, National has cut taxes to such a level that they are now having to part-sell State assets to pay for day-to-day maintenance of schools, hospitals, etc. This is not good fiscal  “housekeeping”.

Put another way, it would be like a Courier selling his/her van, to buy groceries and pay other bills. The courier will have enough money – for a while. After that, the money runs out and the Courier is left with no money and no means to earn an income.

This is not sustainable lontg-term. It is a desperate attempt for National to find money it does not have. Otherwise it will have to simply borrow more… or undo it’s 2009 and 2010 tax cuts.

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