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Cutting taxes toward more user-pays – the Great Kiwi Con

31 January 2017 4 comments

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Introduction

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The following is the amount spent by Labour, on Vote Education in the 2008 Budget;

Total 2008 Vote Education: $10,775,482,000 (in 2008 dollars)

Total students in 2009: 751,330* 

spend per student: $14,341.88

The following is the amount spent by National, on Vote Education in the 2016 Budget;

Total 2016 Vote Education: $11,044,598,000 (in 2016 dollars)

Total students in 2016: 776,948**

spend per student in 2016 dollars: $14,215.36

Total 2016 Vote Education: $9,608,800,000 (re-calculated in 2008 dollars)

spend per student in 2008 dollars: $12,367.37

Calculated in real terms (2008 dollars), National’s spending on Vote Education was $1,166,682,000 less last year than Labour budgetted in 2008.

In dollar terms, in 2016, National spent less per student ($14,215.36) than Labour did in 2008 ($14,341.88). Converting National’s $14,215.36 from 2016 dollars to 2008 dollars, and the sum spent  per student is even less: 12,367.37.

In real terms, National has cut the total*** education budget by $1,974.51 per student.

*  Not including 9,529 international fee-paying students

**  Not including 11,012 international fee-paying students

*** Total spent on Vote Education, not just schools and tertiary education.

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Tax-cuts and Service-cuts

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Writing in the Daily Blog recently, political commentator Chris Trotter had this to say on the matter of taxation and social services;

Speaking on behalf of the NewLabour Party, I felt obliged to spell out the realities of tertiary education funding. I told them that they could have free education or low taxes – but they could not have both. If the wealthy refused to pay higher taxes, then students would have to pay higher fees. If the middle class (i.e. their family) was serious about keeping young people (i.e. themselves) out of debt, then they would have to vote for a party that was willing to restore a genuinely progressive taxation system.”

Since 1986, there have been no less than seven tax-cuts;

1 October 1986 – Labour

1 October 1988 – Labour

1 July 1996 – National

1 July 1998 – National

1 October 2008 – Labour

1 April 2009 – National

1 October 2010 – National

 

The 2010 tax-cuts alone were estimated to cost the State  $2 billion in lost revenue.

Taxes were raised in 2000 by the incoming Labour government, to inject  much needed funding for a cash-strapped health sector. The previous National government, led by Bolger and later Shipley, had gutted the public health service. Hospital waiting lists grew. People waited for months, if not years, for life-saving operations. Some died – still waiting.

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four-forced-off-waiting-list-die-the-press-15-march-1999

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During that time, National cut taxes twice (see above). Funding for public healthcare suffered and predictably, private health insurance capitalised on peoples’ fears;

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heartwatch-insurance-cover-advertisement-otago-daily-times-21-february-1998

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A decade late, National’s ongoing cuts, or under-funding, of state services such as the Health budget have resulted in wholly predictable – and preventable – negative outcomes;

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patients-have-severe-loss-of-vision-in-long-wait-for-treatment

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A critic of National’s under-funding of the health system, Phil Bagshaw, pointed out the covert agenda behind the cuts;

New Zealand’s health budget has been declining for almost a decade and could signal health reforms akin to the sweeping changes of the 1990s, new research claims.

[…]

The accumulated “very conservative” shortfall over the five years to 2014-15 was estimated at $800 million, but could be double that, Canterbury Charity Hospital founder and editorial co-author Phil Bagshaw said.

Bagshaw believed the Government was moving away from publicly-funded healthcare, and beginning to favour a model that meant everyone had to pay for their own.

“It’s very dangerous. If this continues we will slide into an American-style healthcare system.”

Funding cuts to the Health sector have been matched with increases to charges;

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prescription-price-rise-hits-vulnerable

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cuts to NGOs offering support services;

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kiwi-charities-and-ngos-face-closure-with-impending-funding-cuts-tvnz-tv1-news

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… and  leaving district health boards in dire financial straits;

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leaked-document-shows-10-district-health-boards-face-budget-cuts-king-nbr

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The critical correlation between  tax cuts and consequential reduction of state services was nowhere better highlighted then by US satirist and commentator,  Seth Meyer. He was unyielding with his  scathing, mocking, examination of  the travesty of the Kansas Example of “minimalist government”;

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Here in New Zealand, National’s funding cuts have not been restricted to the Health sector and NGOs. Government agencies from  the Police , Radio NZ, to the Department of Conservation have had their funding slashed (or frozen –  a cut after inflation is factored in).

The exception has been the Prime Minister’s department which, since 2008, has enjoyed a massive  increase of $24,476,000 since 2008 and  a near-doubling of John Key’s department and Cabinet expenditure since Michael Cullen’s last budget, seven years previously.

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Tax cuts, slashed services, and increasing user-pays

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By contrast,  parents are finding more and more that the notion of a free state education is quietly and gradually slipping away. User-pays has crept into the schools and universities – with harsh penalties for those who fail to pay.

In May 2013, National’s Tertiary Education Minister, Steven Joyce, announced;

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student-loan-defaulters-to-face-border-arrest

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True to his word, in January 2016, the first person was arrested for allegedly “defaulting on his student loan”. By November the same year, a third person had been arrested. Joyce was unrepentant;

“There probably will be more, we don’t know of course how many are in Australia but that’s a very good start, and I think it’s probably a reasonable proportion of those who are in Australia.”

Joyce, of course, has nothing to fear from being arrested for defaulting on a student loan. His tertiary education was near-free, paid for by the tax-payer.

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joyce

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National had no choice, of course. The entire premise of user-pays was predicated on citizens paying services that until the late ’80s/early ’90s, had been either free or near-free. With student debt now at an astronomical $14.84 billion, National cannot afford to let ‘debtors’ get off scott-free. That would send the entire unjust system crashing to the ground.   According to Inland Revenue;

… nearly 80,000 of the 111,000 New Zealanders living overseas were behind on their student loan repayments.

IRD collections manager Stuart Duff said about 22 percent of borrowers living overseas were in Australia.

He said the $840m owed to New Zealand was a substantial amount of debt.

Figures show that student debt has been increasing every year since it’s inception in 1992. At this rate, student debt will achieve Greece-like proportions;

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Graphic: acknowledgement - NZ Herald

Graphic acknowledgement:  NZ Herald

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Unsurprisingly, loan ‘defaulters’ have surpassed $1 billion, including $16 million  written off through bankruptcy. Some never pay off their “debt” with $19 million  lost after death of the borrower.

But it is not only tertiary education that has attracted a user-pay factor. School funding has also been frozen, with operational grants the most recent to suffer National’s budgetary cuts;

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at-risk-school-funding-revealed-with-1300-to-lose-out-under-new-model

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Education, Inc.

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Schools are so starved of funds that they are having to rely on outside sources of income  to make up shortfalls;

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schools-using-foreigners-fees-to-staff-classrooms

 

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Reliance on foreign students to make up shortfalls in government spending is essentially turning our schools into commercial ventures; touting for “business” and ensuring “clients” achieve good results so as to ensure repeat custom.

When did we vote for a policy which effectively commercialised our education system?

Schools are also funded more and more by parents – to the tune of hundreds of millions of dollars. Fund-raising and ever-increasing school fees are required, lest our schools become financially too cash-strapped to function.

In 2014, school “donations” (actually fees by another name) and necessary fundraising reached  $357 million and is estimated to reach a staggering $1 billion by this year;

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parents-fundraise-357m-for-free-schooling

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It is estimated that a child born this year will cost his/her parents $38,362 for thirteen years of  a “free” state education. In 2007, that cost was 33,274. Our supposedly “free” state education is being gradually whittled away, and replaced with surreptitious user-pays. According to Radio NZ;

Some school principals say many schools are considering a hike in parent donations next year and cutting teacher aide hours, as they respond to a freeze on core school funding.

More than 300 school principals responded to a survey by teacher unions.

About 40 percent of school principals said they were considering cutting back on the hours of teacher aides and other support staff next year.

Thirteen percent said they were looking to increase parent donations.

The president of the teacher union NZEI, Louise Green, said the survey showed it was students who miss out when school funding was frozen.

The neo-liberal princiciple of user-pays is being covertly implemented throughout the public sector and nowhere is this more apparent than in education. Parents and guardians are expected to pay more for education and this is “off-set” by cuts to taxes. This is core to the concept of user-pays.

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User-pays is hard to pay

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The problem is that this is not an overt policy by National. The public have not been given a clear choice in the matter and instead increasing user-pays has crept in, barely noticed by the voting public. Even when challenged, a National Minister will use mis-information to attempt to use Trump-like “alternative facts” to hide what is happening;

But Education Minister Hekia Parata said parents contributed just $1.80 for every $100 spent by the taxpayer on education.

The Government was set to invest $10.8 billion in early childhood, primary and secondary education, more than the combined budget for police, defence, roads and foreign affairs.

New Zealanders have been lulled into a false sense of security that, even after seven tax cuts, we still have “free” education.  But as Chris Trotter pointed out with cool logic;

I told them that they could have free education or low taxes – but they could not have both.

The question is, what kind of society do New Zealanders want: a free education system or  tax cuts and more user-pays?

Because we can’t have both.

At the moment, politicians are making this choice for us.

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Postscript

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From a Dominion Post article on 24 January;

Student loans are getting bigger and graduates are taking longer to pay back the money they owe.

Figures from last year’s Student Loan Scheme Annual Report show the median loan balance in this country grew from $10,833 in 2008 to $14,904 in 2016.

The median repayment time for someone with a bachelor’s degree also lifted from just over six years, to eight and a half.

Since a peak in 2005, the numbers of people taking up tertiary education have declined.

[…]

Labour education spokesman Chris Hipkins said there was a variety of factors that lead to higher student loans and longer repayment times. Tuition fees continued to rise, as did living costs.

“The long term impact for people is quite significant, basically they have a large debt for longer,” Hipkins said.

“If they’re weighed down with student loan debt it will be difficult to get on the property ladder, it’s already a burden, and this is making it even harder for the next generation.”

Universities New Zealand executive director Chris Whelan said that when it came to universities fees increasing, one need only look at published annual accounts of the country’s eight universities to see they were not “raking in” a lot of money.

Currently two-thirds of the cost of tuition was covered by subsidies, and one-third was covered by the student.

LOANS ON THE RISE

Median loan balances

2010 – $11,399

2012 – $12,849

2014 – $13,882

2016 – $14,904

Median repayment times for a bachelors/graduate certificates or diplomas

2010 – 6.9 years

2012 – 7.8 years

2014 – 8.5 years

 

 

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References

Reserve Bank NZ: Inflation calculator

Treasury: Vote Education 2008

Treasury: Vote Education 2016

Educationcounts: School RollsStudent Rolls by School 2005-2009

Educationcounts: School RollsStudent Rolls by School 2010-2016

The Daily Blog:  Don’t Riot For A Better Society: Vote For One!

Infonews: Government’s 2010 tax cuts costing $2 billion and counting

The Press: Four forced off waiting list die

Otago Daily Times:  Heartwatch Insurance Cover

Radio NZ: Patients have ‘severe loss of vision’ in long wait for treatment

Fairfax media: Researchers claim NZ health budget declining, publicly-funded surgery on way out

Radio NZ: Patients suffering because of surgery waits – surgeon

Fairfax media:  Prescription price rise hits vulnerable

TVNZ News: Kiwi charities and NGOs face closure with impending funding cuts

NBR: Leaked document shows 10 District Health Boards face budget cuts – King

Fairfax media: Police shut 30 stations in effort to combat budget cuts

Youtube: Kansas Tax Cuts –  A Closer Look

Scoop media: Budget cuts continue National’s miserly underfunding of DOC

Fairfax media: Student loan defaulters to face border arrest

NBR: Arrested student loan defaulter claims to be Cook Island PM’s relative

Fairfax media: Third arrest of student loan defaulter made following government crackdown

Radio NZ: Govt tightens education purse strings

NZ Herald: ‘At risk’ school funding revealed – with 1300 to lose out under new model

Fairfax media: Student loan borrowers seeking bankruptcy as millions in debts wiped due to insolvency

NZ Herald:   Schools using foreigners’ fees to staff classrooms

NZ Herald: Parents fundraise $357m for ‘free’ schooling

NZ Herald: Parents paid $161m for children’s ‘free education

NZ Herald:   School costs: $40,000 for ‘free’ state education

Motherjones: Trickle-Down Economics Has Ruined the Kansas Economy

The New Yorker: Covert Operations

CBS News: Kansas loses patience with Gov. Brownback’s tax cuts

Kansas City Star: Gov. Sam Brownback cuts higher education as Kansas tax receipts fall $53 million short

Bloomberg: Kansas Tried Tax Cuts. Its Neighbor Didn’t. Guess Which Worked

Fairfax media: Tourism industry claims DOC will be severely handicapped by funding cuts

Previous related blogposts

The slow starvation of Radio NZ – the final nail in the coffin of the Fourth Estate?

12 June – Issues of Interest – User pays healthcare?

The Mendacities of Mr Key # 16: No one deserves a free tertiary education (except my mates and me)

The Mendacities of Mr Key # 19: Tax Cuts Galore! Money Scramble!

The seductiveness of Trumpism

Steven Joyce – Hypocrite of the Week

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student-debt

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This blogpost was first published on The Daily Blog on 26 January 2017.

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Andrew Little’s “dangerous” speech – a cunning plan for the Middle and the Left

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Labour Party - Andrew Little - pre-budget speech (24)

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Wellington, NZ, 22 May – Speaking to a fully packed downtown conference centre in Wellington, on a cold, gloomy rainy afternoon, Labour-leader, Andrew Little launched into a fiery attack on the current National Government focusing  on it’s inarguably lack-lustre track record for the past eight years.

With a heavy media presence, Rimutaka MP, and Labour spokesperson for Education, Chris Hipkins, was tasked with making the introduction;

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Frank Macskasy Frankly Speaking blog fmacskasy.wordpress.com Labour Party - Andrew Little - pre-budget speech

 

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Hipkins said;

“Certainly there is a mood for change around the country now and that mood for change is increasing.  But the question that everybody has been asking us, is is Labour ready? And that’s a fair question to ask.”

“They say that being the leader of the Opposition is the toughest job in politics. Well I can tell to tell you that Andrew has taken to that tough job in politics like a duck to water.”

“In all of that time that he has been doing that job, and all the hours he has put in, he has never forgotten why is there; for people. And that is why the Labour Party is here.”

The short  introduction over, the audience of committed Labour members clapped enthusiastically as Little mounted the podium;

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Frank Macskasy Frankly Speaking blog fmacskasy.wordpress.com Labour Party - Andrew Little - pre-budget speech

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To say that Little had plenty of material to work with would be an understatement as the growing crisis for both affordable housing; skyrocketing rentals; and shortage of state houses have been well publicised in the media and by bloggers.

From just one day in Wellington’s Dominion Post Monday 23 May edition;

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dominion post - housing crisis

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Jane Bowron’s piece especially – Marae shows up Government with haere mai to homeless  – is a must-read, head-on assault on the warped ‘values’ which currently afflict our government and some peoples’ thinking.   Yet, the Dominion Post is hardly known as a bastion for marxist agitation.

Little wasted no time as  he launched into a recitation of National’s failures after eight years in government;

“It’s becoming harder for many people to get ahead.  Harder to find a good job or get a pay rise. Harder to find a home, put some savings aside, or get the health care you need. Parents are paying more for their childrens’ education, but our schools aren’t performing as well.

[…]

Look at the headlines from the last couple of weeks: Children sleeping in cars or forced to lives in houses that make them sick; plummeting home ownership; rising unemployment, [and] stalled wages for many people.

[…]

And while the few at the very top got to enjoy special rules that meant they didn’t have to pay their fair share – everyone else is paying the cost.

We’ve seen increases in unemployment. There are now 144,000 people out of work in New Zealand, 40,000 more than when National took office.”

Little is correct on those stats. According to the convenient graphs and data from US website, Trading Economics, the increase in unemployment in New Zealand has remained stubbornly high;

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unemployed persons 2008 - 2016

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Little explained that the unemployment problem was worse than just sheer numbers;

“And it’s not just that more people are out of work – it’s that many more are out of work for longer.  Under this government the number of people unemployed for more than a year has tripled – up over 11,000 since they took office.

The situation is especially tough for our young people. Under this government the number of young people who aren’t in work, education or training has risen by more than 26,000.

The truth is those are the young people this government has given up on – the ones they label as ‘pretty damn hopeless’.”

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Bill English describes some Kiwis looking for work as 'pretty damned hopeless'

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Little pointed out the numbers who had not gotten any wage increase in the last year, and more importantly that workers were missing out on the benefits of economic growth;

For those in work, getting a pay rise has become harder. 43% of New Zealanders saw no increase in their incomes at all in the last 12 months.

[…]

Under the last Labour government, the share of economic growth going to wage and salary earners was over 50%.

Today, it’s 37%.

The slice of the economy going to workers has fallen each year under National.

This year, that lost income works out to be fifty bucks a week for the average family.

His comments will most likely resonate with those workers who feel they are working harder and longer hours – and yet do not seem to be progressing. The back-stories of mega-rich tax-evaders hoarding their wealth in tax havens will fuel feelings of resentment by those who work and pay their  taxes so we can have roads, hospitals, schools, etc;

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Panama Papers investigation 'NZ absolutely, conclusively is a tax haven'

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Little then hit the big story of the last few weeks – growing homelessness in New Zealand. Coupled with a fall in home ownership rates since 1991 (from 74% in 1991 to 64% in 2015), and we get a clear picture how “free” market economics has impacted on our society.

National’s response was to deny that a problem existed in New Zealand at all. According to Social Housing Minister Paula Bennett;

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"I certainly wouldn't call it a crisis. I think that we've always had people in need."

“I certainly wouldn’t call it a crisis. I think that we’ve always had people in need.” – Paula Bennett, 20 May 2016

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Andrew Little’s response was less dismissive of the challenges facing 21st century New Zealand families;

“When kids are sleeping in cars. That’s a crisis.

When families are crowded into garages. That’s a crisis.

When an entire generation is locked out of ever owning their own home, that is a crisis.”

He firmly sheeted home blame for our current predicament, in no uncertain terms;

“Instead of owning up to that and fixing it, the government is siding with property speculators and land bankers, while everyone else misses out.

Every initiative our bumbling housing minister Nick Smith has tried on housing has failed. Rather than go after the causes of the problems, he’s flailed around with gimmicks.

Remember special housing areas? Fewer than 1000 homes actually built.

Remember his gimmick from the last Budget? Releasing crown land? It turned out to include substations, cemeteries and even the back yard of Government House.

While the government’s been tinkering, the problem’s gotten so much worse.

In March, the average house price in Auckland rose by over $2,200 a day.”

For maximum effect, Little repeated that startling factoid to the audience and media;

“Let me say that figure again. Over twenty two hundred dollars a day.”

On Radio NZ’s political panel on Monday, 23 May, former Labour Party President, Mike Williams complimented Andrew Little’s speech, referring to it as “dangerous”;

“Middle New Zealand is concerned about health, education, housing, and the economy. And I think, as far as John Key is concerned, this is the most dangerous speech a Labour leader has given since Helen Clark resigned.”

Williams also made an interesting observation regarding how Middle New Zealand felt about their rising house values;

“I think there’s a bit of schizophrenia going on in Middle New Zealand which is showing up in the UMR numbers. If you own a house you are feeling pretty good because the value of your asset has been going through the roof. However, if you’ve got kids, you’re worried about their schooling; you’re worried about will they get a house; and  you’re worried about will they get a job that pays enough  to pay for a house. So I think, that, yes,  home-owning New Zealanders [are]  feeling ok, but parents are not.”

Little then addressed the growing under-funding of  public healthcare;

According to Infometrics, we’ve had $1.7 billion dollars cut in real terms from our health budget over 6 years.

That’s meant that 160,000 people in the last 5 years have been unable to get the appointment they need with a specialist.”

Which seems to be a replay of National’s cuts to the Health budget in the late 1990s;

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acute-heart-surgery-list-nearly-400-otago-daily-times-5-february-1998

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In response, Little promised;

“Under Labour, Kiwis will know that if they get sick, the public healthcare system will be there for them.  That’s why we are committed to meeting the cost pressures that are depriving people of the care they need…

…Budgets are about priorities, and under Labour, health will be a priority again. We shouldn’t be spending money on $3 billion of unaffordable tax cuts when we could be fixing our health system instead.”

Which, if the previous Clark-led Labour government’s actions are anything to go by, can be counted as a solid committment;

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1-5b-injection-for-health-9-dec-2001

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Little was also scathing at National’s taxpayer subsidies being thrown at Charter Schools;

“At the same time as National has poured millions of dollars of taxpayers’ money into privately run charter schools, our public education system is struggling.

In the last year alone, National has cut funding for pupils by $150 each.

And so schools load more costs on to parents in order to fill the gaps.

Ask any parent and they’ll tell you the cost of uniforms, class activities, camps and of course ‘voluntary donations’ just keep on rising.”

For all of National’s much-vaunted “reforms” in our education system, the results are less than impressive. Little rattled off a list of stats that should raise concern with all New Zealanders;

But here’s the thing: while costs are rising, standards are falling.

In 2006, we were ranked 5th in the world for reading.

Now we’re 13th.

We were 7th in science.

Today? 18th.

And in maths? We’ve fallen from 11th to 23rd.

So much for National Standards. And so much for the neo-liberal ideology that has not only not delivered on promises of excellence in our education system – but has seemingly damaged it. Our fall in international rankings are stark evidence that National’s policies in education have failed spectacularly.

Little then offered what can only be  described as Labour’s manifesto for the 2017 General Election;

  • We’ll crack down on the offshore speculators who are driving up house prices and locking families out of the market.
  • Labour will launch a mass home building programme to deliver new, affordable homes in Auckland and around the country.
  • That’s why we are committed to three years’ free post-school education so that Kiwis can train and retrain across their working lives, without having to take on huge debt. That’s how we support our people and its how we tackle the challenge of the future of work.
  • We’ll introduce a dole for apprenticeships scheme to give young people the opportunity to get into paid work.
  • We’ll raise the number of hours people can work without having their benefit cut.
  • We will feed hungry kids in schools…

In six, short, sentences, Andrew Little has put the boot into neo-liberal so-called “reforms”. If elected, and if Labour does not water-down it’s promises, we will be witnessing the dismantling of thirtythree years of the neo-liberal paradigm in New Zealand.

No wonder right-wing commentator, Matthew Hooton, seemed perturbed by Little’s speech during his regular ‘slot’ on Radio NZ’s Nine to Noon programme on 23 May.

Perhaps the most revolutionary aspect to Little’s promises is that of  “three years’ free post-school education“. This is, in effect, partially undoing user-pays in our tertiary institutions.

But the most clever aspect to Little’s speech is that it is “talking” to two different parts of New Zealand.

His reference to “that lost income works out to be fifty bucks a week for the average family” is a direct pitch to Middle New Zealand that feels it is not progressing whilst the mega-rich rort the tax system.

But his reference to abandoning part of user-pays in tertiary education is directed at the Left who are demanding that the Labour Party make a public commitment to renouncing it’s Rogernomics past.

The trick for Labour’s hierarchy and strategists is to achieve both – appealing to Middle New Zealand and the Left – but without spooking the former, or further alienating the latter.

In effect, Labour has taken a firm step-to-the-left – and the public have not noticed.

Mike Williams was right: this was a “dangerous” speech from Andrew Little.

And a damned clever one.

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Addendum

Full text of Andrew Little’s speech here.

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Labour victory

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References

Fairfax: Jane Bowron – Marae shows up Government with haere mai to homeless

Trading economics: New Zealand Unemployed Persons 

Fairfax media: Bill English describes some Kiwis looking for work as ‘pretty damned hopeless’

TV1 News: Panama Papers investigation – ‘NZ absolutely, conclusively is a tax haven’

Interest.co.nz: Collapse in home-ownership rates among families formed since 1991 is an unfolding disaster for NZ’s economy

Radio NZ: No housing crisis in NZ – Paula Bennett

Radio NZ: Nine to Noon – Political commentators Mike Williams and Matthew Hooton

Scoop media: Andrew Little: Pre-Budget Speech 2016

Related

Pundit: Have We a Housing Policy?

Other bloggers

Chris Trotter: Left Unsaid: What Andrew Little Didn’t Say In His Pre-Budget Speech

Kiwipolitico: Not Quite But Getting There

No Right Turn: National should give us our $13,000 back

The Standard: Little’s $50 a week message getting through

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capitalism taking from those who work

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This blogpost was first published on The Daily Blog on 25 May 2016.

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= fs =

Steven Joyce – Hypocrite of the Week

6 August 2015 8 comments

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Fun Fact #1: Student loan stood at $14.235 billion, as at 30 June 2014 – up from 9.573 billion in 2008.

Fun Fact #2: As at 30 June 2013, 721,437 people had an outstanding student loan, registered with Inland Revenue. That’s roughly 16% of the population.

Fun Fact #3: Approximately 1.2 million people – roughly a quarter of the population –  have taken out  student loans.

Fun Fact #4: Students have borrowed $20.119 billion of which  $9.157 billion has been collected in loan repayments.  More than 415,000 loans have been fully repaid.

Fun Fact #5: $1.031.7 billion in loan repayments were received, $22.2 million less than last year. The total number of students completing formal qualifications reached 144,000 in 2013 – a decrease of 0.6% from 2012. The number of people enrolled in tertiary education has dropped, from  504,000 in 2005 to  about 420,000 (in 2014).

Fun Fact #6: The student fees/debt system began in 1992. Prior to that, students had access to Bursaries and Student Allowances and tuition fees were minimal.

Sources: Ministry of Education, Beehive, NBR, and The Wireless

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During Bill English’s Budget speech on 16 May 2013, the Finance Minister made perhaps the most  extraordinary announcement that I have ever heard from a New Zealand politician;

Introducing the ability to arrest non-compliant borrowers who are about to leave New Zealand

Making it a criminal offence to knowingly default on an overseas-based repayment obligation will allow Inland Revenue to request an arrest warrant to prevent the most non-compliant borrowers from leaving New Zealand. Similar provisions already exist under the Child Support Act. This will be included in a bill later this year.

It was extraordinary on at least two levels.

The first is because a loan defaulter does not normally fall under the Crimes Act. It is what is known as a Civil matter.

If, for example, you, the reader, default on your mortgage, rent, or hire purchase, the Lender does not involve the Police (unless deliberate fraud is involved). Instead, they apply to the Courts for a remedy.

The Tenancy Tribunal and Small Claims Court are examples where litigants can take their cases before a Court, and make their claims. Police are not involved. In the Tenancy Tribunal, there are not even any lawyers (generally).

For National to intend issuing arrest warrants, for student loan defaulters, takes the matter of a civil contract into the realm of the Crimes Act.

Secondly, this law – if enacted – would not stop people leaving New Zealand. It would prevent people returning to New Zealand.

The law targets ex-students with loans  who had moved overseas; who had defaulted on their loan repayments whilst overseas; and who then returned to New Zealand (perhaps for a funeral, holiday, or visit family). Only then were were they to be  arrested at an airport as they attempted to board a plane to fly out of the country again.

Shades of former USSR and it’s Eastern Europe satellite-states!

Under such circumstances; what loan-defaulting New Zealander in their right mind would ever consider coming back to this country?

The law was enacted, and as Alex Fensome reported for Fairfax Media last year;

However, others believe the increase [in former students declaring bankruptcy whilst overseas] is down to the Government’s more aggressive pursuit of recalcitrant debtors, and an attempt by some of the borrowers to wipe their New Zealand slate clean.

Student-loan defaulters can be arrested if they try to enter or leave New Zealand, under legislation passed last year.

A few days ago, it was reported;

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IRD monitoring 20 for possible arrest in student loan repayment crackdown - student debt - steven joyce.

To complete National’s Soviet-style crack-down on loan defaulters, the story also reported;

Ministers have also considered refusing to renew passports for those who do not engage with Inland Revenue.

As Finance Minister Bill English desperately tries to balance the government’s books and return to a Budget Surplus, it appears that National Ministers are prepared to go to any extraordinary lengths to claw back cash from New Zealanders. Whether those New Zealanders are low-paid paper-delivery boys and girls or the sick needing medication or ex-pat New Zealanders living overseas – this government is reaching deep into peoples’ pockets.

Tertiary Education Minister Steven Joyce said this about issuing warrants-to-arrest for loans defaulters;

Just because people have left New Zealand it doesn’t mean they can leave behind their debt.  The New Zealand taxpayer helped to fund their education and they have an obligation to repay it so the scheme can continue to support future generations of students.

Which, when one looks into Joyce’s background, finds something curious.

Steven Joyce,  benefitted from a free, tax-payer funded, University education, with no debt incurred from his  tuition.

The facts are simple;

  1. Steven Joyce, born: 1963.
  2. After completing a zoology degree at Massey University, Steven started his first radio station, Energy FM, in his home town of New Plymouth, at age 21 (1984).
  3. Student Loan system is started: 1992.

Joyce completed his University studies and gained his degree eight years before the Bolger-led National government introduced student fees/debt in 1992.

Joyce’s university education was mostly free, except for minimal course fees. He was most likely  also eligible for a bursary and/or student allowance, as well, to assist his living costs.

As Joyce was reported in the Fairfax story;  “The New Zealand taxpayer helped to fund their education and they have an obligation to repay it so the scheme can continue to support future generations of students.

Will Joyce repay the cost of his University studies?

Or will he simply be one of those who benefitted from a near-free University education – paid by other hard-working taxpayers at the time  – and now insisting that others pay for their own tuition, racking up huge debts in the process?

Another case of a Baby Boomer telling Gen X to “do as I say, not as I do”?

Neither Joyce, nor Revenue Minister Todd McClay, have any moral authority to demand payment for tertiary education from any New Zealander.

Both men are hypocrites.

No one should take them seriously.

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References

National Business Review: Budget 2015 – student loans – does the government dare to act?

Ministry of Education: Student Loan Scheme Annual Report 2014

Beehive.govt.nz: Celebrating student support under Labour

IRD: Budget 2013 announcements

Fairfax  media: Wipe your student loan – go bankrupt

Fairfax media: IRD monitoring 20 for possible arrest in student loan repayment crackdown

NZ Herald: Budget 2012 – ‘Paper boy tax’ on small earnings stuns Labour

Fairfax media: Prescription cost to rise to help pay for Budget

Wikipedia: Steven Joyce

National Party: Steven Joyce

Additional

Salient: A short history of tertiary education funding in New Zealand

NZ Herald: Minister to students – ‘keep your heads down’

Previous related blogposts

Greed is good?

It’s official: Political Dissent Discouraged in NZ!

Shafting our own children’s future? Hell yeah, why not!

Budget 2013: How NOT to deal with Student loan defaulters

Budget 2013: Student debt, politicians, and “social contracts”

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040512_toon

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This blogpost was first published on The Daily Blog on 1 August 2015.

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= fs =

Budget 2013: Student debt, politicians, and “social contracts”

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budget 2013 - education - tertiary education - student debt

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The problem of student debt – now at over $13 bllion – continues to be a thorn in the side of successive governments. Labour tinkered with it by cancelling interest whilst student were studying; National has taken a ‘stick’ to the problem  by threating to arrest so-called “loan defaulters” if they dare return to New Zealand.

If National’s aim was to force New Zealanders to stay overseas and never return, it’s a fantastically clever plan. No one in their right mind would come back to New Zealand if they faced a risk of arrest.

Even conservative media have jumped into the fray with this anonymously written editorial in today’s (20 May) Dominion Post,

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Dominion Post Editorial Loan defaulters break 'social contract'

Acknowledgment: Dominion Post – Editorial – Loan defaulters break ‘social contract’

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Part of the unattributed (are editorial writers so frightened of public back-lash?) editorial stated,

“After all, if the people concerned had a low income and found it genuinely hard to repay, they were free to argue the point and try to make a deal with the tax-gatherer. Others could easily repay their loans but simply ignored the Government’s inquiries.

Those who have refused to do anything now face the threat of the bailiffs and, if they persist, of arrest. It’s hard to know what else the Government could do. Those who refuse to respond are breaking the social contract.

Students, after all, do not pay the full cost of their tertiary education. Even with the loans, they are being subsidised by the taxpayer. In return for that aid, however, they must make a contribution themselves.”

Acknowledgment: IBID

This demanded a response to the anonymous author of that piece;

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from:     Frank M <fmacskasy@gmail.com>
to:     Dominion Post <letters@dompost.co.nz>
date:     Mon, May 20, 2013 at 12:03 PM
subject:     Letter to the editor

 

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The Editor
DOMINION POST

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In your editorial, “Loan defaulters break ‘social contract”you state, “Those who have refused to do anything now face the threat of the bailiffs and, if they persist, of arrest… Those who refuse to respond are breaking the social contract.” (20 May)

There is no such “social contract”.

The original social contract was for taxpayers to fund education; allow students to graduate without massive debt; get into good careers;  earn good salaries, and then pay it forward for the next generation to gain a free education.

That was the social contract.

And considering the numbers of politicians who got a free education in the 1970s and 1980s (John Key, Steven Joyce, Peter Dunne, Judith Collins, Bill English, Nick Smith, et al), it worked very nicely for them.

How much have they paid paid of their tertiary education?

Not one bean, I’ll wager.

Perhaps Key and English should set an example and make a “contribution” (plus interest for delayed payment) for the free tertiary education that was paid by taxpayers at the time.

It’s called leading by example.

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-Frank Macskasy

(address & phone number supplied)

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Previous Related Blogposts

Budget 2013: How NOT to deal with Student loan defaulters

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“It’s fundamentally a fairness issue”- Peter Dunne

16 January 2013 15 comments

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student debt

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In a recent blogpost (see: Children’s Health: not a high priority for Health Minister Tony Ryall) the nadir of National’s cost-cutting to funding of our public services was revealed in a succession of NZ Herald stories,

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Govt eyes cuts to elective surgery

Full story

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In a repeat of  (then-Health Minister) Bill English’s cost cutting of the public health sector  in the late 1990s, National is once again targetting social services that will impact most harshly on our youngest and most vulnerable – our children. It defies understanding  and flies in the face of our supposed reputation for being “a great place to bring up children”.

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Govt's proposed health cuts could affect children - Labour

Full story

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As one respondent stated on a previous blogpost,

“One of the major reasons in combatting glue ear is improving a child’s academic performance.

Ensuring academic success with today’s children offers the best prospect of growing tomorrow’s economy, reducing unemployment, increasing the living standard, generally reducing the country’s/ world’s problems, etc.

Is this not a smart investment? How National fails to understand this is bewildering.” –  ‘Procrastinator’, 12 January 2012

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Doubt over savings from restricting ear treatment

Full story

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“Bewildering”, indeed.

Until one starts to “connect-the-dots” and a slightly new – though all-to-familiar – picture emerges.

To complete the picture, some more “dots”,

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Parents face burden of preschool squeeze

Full story

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Budget 2012 - 'Paper boy tax' on small earnings stuns Labour

Full story

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Student loan repayments hiked, allowances restricted

Full story

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Meds price hike - 'Children will die'

Full story

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Petrol price rises to balance books

Full story

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And the latest,

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Student-loan dodgers face tough crackdown

Full story

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Revenue Minister Peter Dunne sez,

It’s fundamentally a fairness issue.”

I call “bollocks” on that.

This has as much to do with “fairness” as the US invasion of Iraq had to do with locating Saddam Hussein’s mythical  “weapons of mass destruction”.

Let’s be upfront and honest here, Mr Dunne. This has squat to do with “fairness”.  After all,  if  National ministers and their coalition “partners” truly wanted to make this an issue of  ” fundamental fairness “, then perhaps Mr Dunne and his colleagues should look in the mirror first.

Starting with Peter Dunne himself…

Peter Dunne ” graduated from the University of Canterbury in 1977 with a Master of Arts Degree with Honours in Political Science, and has also studied business administration at Massey University ” (see: Beehive.govt.nz: Peter Dunne ).

With student loans for tertiary education fees  not kicking in until 1992 (see: Timeline of New Zealand history), Peter Dunne’s own University education was  free.

He paid nothing for his Master of Arts Degree with Honours in Political Science, nor for his  business administration studies at Massey University which were most likely carried out prior to 1988, when he was an Associate Fellow of the New Zealand Institute of Management (see: Beehive.govt.nz: Peter Dunne ). I can find no record indicating whether or not Dunne graduated from his business course at Massey.

On top of his free education, Dunne probably also qualified for a student allowance – again courtesy of the New Zealand taxpayer and non-repayable.

The Prime Minister, John Key, and Social Welfare Minister, Paula Bennett, also gained their respective University education free of charge – courtesy of the taxpayer. In Bennett’s case, she used the WINZ Training Incentive Allowance to pay for her tertiary education – which she later cut back so it is now no longer available for other solo-parents (see: Bennett cutting a benefit that helped her).

Peter Dunne was partially correct in one respect, though,

There’s a certain sense of annoyance amongst people who stayed in New Zealand and diligently worked to pay off their loans that these freeloaders overseas are, in some cases, getting away with it.”

See: Student-loan dodgers face tough crackdown

The free-loaders though, are not the students who’ve escaped the double-standards; hypocrisy; and sheer plain selfishness of our country. The real free-loaders are every single Tory politician and bludging right-winger who gained a free taxpayer funded tertiary education – and then proceeded to force subsequent generations of young New Zealanders to pay for their University education.

The real free loaders are hypocrites such as Peter Dunne who paid nothing for his years at  University – whilst now expecting others for pay. And on top of that, using the full force of the State to enforce payment.

No wonder that so many New Zealanders, like Matthew Fraher, who  left for Australia in 2000, are justifiably angry. As he pointed out about politicians, they,

“… didn’t pay a dime and they’re having a go at us.”

See: Student loan debtor: I’m better off in Australia

And the system is actually encouraging graduates to leave the country. As Mr Fraher correctly stated,

I was paying about $10,000 a year just doing the minimum amount for the last three and a half years.

When I go to Australia I’ll be paying back $3000 a year.

They’re actually making an incentive to leave the country. “If anyone thinks that’s sensible or good policy, their head’s not right.”

See: IBID

None of the student fees/loans/debt makes any sense. Not socially, not economically, and certainly not for our country’s future as we continue to bleed people to Australia and further afield.

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evansknowlegewave

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Only  certain politicians and the low-information voters who voted for this mess could possibly think any of this was a good idea.

The sad thing is that New Zealand was warned of this eventuality in the 1990s by social commentators, left-wing activists,  and political parties such as The Alliance.

The real motive for National’s under-funding and cutting social services; taxing newspaper-delivery boys and girls;  and their latest witch-hunt to grab back every cent they can manage to ring from ex-students, is quite simple: National is desperate for cash.

After two unaffordable tax-cuts in 2009 and 2010, which cost this country in billions of dollars in lost revenue (see; Govt’s 2010 tax cuts costing $2 billion and counting, Deficit halved, but still higher than forecast), National is scrambling to cut services to save money and to raise revenue from every possible source.

All for promises of two tax cuts we couldn’t afford in 2008 – and still can’t afford now, five years later.

Alex Tarrant, from Interest.co.nz,  summed matters up succinctly when he wrote last year,

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Treasury lowers govt's forecast for 2014 2015 surplus to NZ$66 mln

Full story

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Mr Tarrant left out one vital factor: the tax cuts. He refers to “government receiving almost NZ$8 billion less in tax revenue over the next four years” – which is precisely the figure that The Green Party uncovered after some judicious political detective work,

The Green Party has today revealed that the National Government has so far had to borrow an additional $2 billion dollars to fund their 2010 tax cut package for upper income earners.

New information prepared for the Green Party by the Parliamentary Library show that the estimated lost tax revenues from National’s 2010 tax cut package are between $1.6–$2.2 billion. The lost revenue calculation includes company and personal income tax revenues offset by increases in GST.

“The National Government said that their signature 2010 income tax cut package would be ‘fiscally neutral’ — paid for increased revenues from raising GST. That hasn’t happened. The net cost for tax cuts has been about $2 billion,” Green Party Co-leader Dr Russel Norman said today.

“Borrowing $2 billion in 18 months to fund upper-income tax cuts is fiscally irresponsible.

“National’s poor economic decisions have led to record levels of government debt and borrowing.

“They have also broken a promise to the electorate when they said their tax cut package was going to be fiscally neutral.”

See: Govt’s 2010 tax cuts costing $2 billion and counting

Dr Norman is correct – National did indeed promise that tax cuts would be “fiscally neutral”.  But more than that, in 2008, National also pledged,

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

See: National/Economy/Tax Policy

That has to be the biggest,  bare-faced lie from National since John Key took over leadership of that Party in November 2006.

It is also worth noting that  National’s expected surplus for 2014/15 is a mere $66 million. That is a fraction of the $72.9 to $74.9 billion in Core Crown expenses for the 2014/15 period (see:  Fiscal Outlook). It’s the cost of a damaged bridge-repair  or other unforeseen circumstance requiring government expenditure.

Little wonder that Ministers are directing their departments to scrimp and scrape to save every dollar they can get away with.

The reason this is so vital to National?

Because every other economic and social indicator is either stagnating, or getting worse. With their free market “hands off” policy, National is unable to intervene directly in the economy  in any meaningful way (except provide subsidies to certain industries like multi-billion dollar movie conglomerates).

National finds itself unable to engage in job creation programmes – that is the role of business, said Dear Leader,

Nothing creates jobs and boosts incomes better than business growth. ” – John Key,  24 August 2012

See: Key Notes: Honouring our fallen soldiers

National can’t even bring itself to help Cantabrians with housing – that is the role of private enterprise, said Roly Poly Leader, Gerry Brownlee. (see:  Christchurch rent crisis ‘best left to market’)

With much of the economy “off limits” on ideological grounds and National unwilling to address critical social problems (I refuse to call them “issues”) – there is only one area where Key and his Party can show the voting public that they are an effective Party in power and “on top of things”: government spending.

In a bizarre form of political roulette, Key and English are gambling their political reputations on one throw of the dice; returning to Budget surplus in 2014/15.

That’s all they have. Most other economic and social indicators are worsening on an almost weekly or monthly basis and National’s Party strategists know that come the  2014 general election, they are in for a real nasty hiding if they cannot demonstrate to the public that they can return to surplus. After all, if the Nats can’t achieve even that, then voters would be scratching their heads and wondering what on Earth Key has been doing for six years.

That’s when Labour, NZ First, et al, will be showing clips of John Key dancing at radio stations, Gangnam-style. Or gormless-style.

Peter Dunne was being dishonest when he said, “It’s fundamentally a fairness issue“.

Rubbish. It has nothing to do with “fairness”.

What Dunne was really saying was, “It’s fundamentally a fiscal  issue”.

If Dunne was really interested in fairness, then I suggest that he, John Key, Paula Bennet, Stephen Joyce, et al, all pay back the full amount of student fees and living allowances that were paid to them when they were at University. Plus interest.

It might not dent the debt that National has accumulated since 2009 – but at least they’d be setting an example to the country, and not engaging in rank hypocrisy.

What about it, Mr Dunne – will you be paying for your University degree?

Addendum 1

Date: Wed, 16 Jan 2013 at 0:06
From: Frank Macskasy <fmacskasy@yahoo.com>
Subject: Student debt
To: “peter.dunne@parliament.govt.nz” <peter.dunne@parliament.govt.nz>

Kia ora Mr Dunne,

You have been recently reported in the media as pursuing student loan holders who have left the country and who are not re-paying their student loan debt.

In the NZ Herald you are quoted as saying,

“There’s a certain sense of annoyance amongst people who stayed in New Zealand and diligently worked to pay off their loans that these freeloaders overseas are, in some cases, getting away with it.”

It is common knowledge that you yourself (along with John Key, Paula Bennett, Stephen Joyce, et al) are all beneficiaries of a free, tax-payer funded tertiary education.

The record states that you graduated from the University of Canterbury in 1977 with a Master of Arts Degree with Honours in Political Science, and has also studied business administration at Massey University.

You may even have been in receipt of a taxpayer funded and non-repayable student allowance.

To show true leadership on this issue and to set an example to student loan holders, can we assume that you will be paying the cost of your tertiary education, along with repayment of any allowances received; plus interest?

To many people it seems curiously hypocritical that you are demanding payment for education from other people whilst not paying your own fair share.

As you said in the NZ Herald on 10 January,

“It’s fundamentally a fairness issue.”

Let’s put it to the test, shall we? It’s fundamentally a fairness issue that you pay for something that others have to pay for as well.

Regards,
-Frank Macskasy
Blogger

Addendum 2

National’s (tax payer funded) media spin doctors have been using a particular ‘line’ when it comes to cost-cutting our social services; instead of reducing government debt, they say that “savings will be reinvested” in other areas of state services.

Here are a few examples from above,

The money would be used for smarter investment in other parts of the health system.”

See: Govt eyes cuts to elective surgery

Joyce says the changes will slice $250m off the loan book and create $60m to $70m per annum savings for the Government, which would be re-invested in the tertiary sector.”

See: Student loan repayments hiked, allowances restricted

The Government has announced it will make the first increase in prescription cost in 20 years at next week’s budget to fund reinvestment in the health sector in lean economic times.”

See: Meds price hike: ‘Children will die

It’s such a subtle piece of BS spin that it’s hardly noticeable. But it all a lie, of course. The cost-cutting – which they refer to as “savings” – will be used to reduce borrowing. And the borrowing is necessary because of the unwise, progligate taxcuts of 2009 and 2010.

Eventually, of course, most New Zealanders become weary of constant cuts to essential services and vote for a return to a Labour-led government. The re-building of our social services then begins in earnest,

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$1.5b injection for health - 9 December 2001

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Been there. Done that. Lost the t-shirt off my back.

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Previous related blogposts

Children’s Health: not a high priority for Health Minister Tony Ryall

The Great New Zealand Scam

An Expensive Lesson?

It’s official: Political Dissent Discouraged in NZ!

Greed is good?

References

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

NZ Herald: Outlook slashes tax-take by $8b

Fairfax media: Budget 2012: The main points

Scoop.co.nz: Govt’s 2010 tax cuts costing $2 billion and counting

Fairfax media: Student loan repayments hiked, allowances restricted

Dominion Post: Ten students owe $2.9 million in loans

NZ Herald: Student-loan dodgers face tough crackdown

NZ Herald: Student loan debtor: I’m better off in Australia

Beehive.govt.nz: Peter Dunne

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It’s official: Political Dissent Discouraged in NZ!

28 September 2011 12 comments

Government Minister to political dissenters: “Pull your Head in!”

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Steven Joyce

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The government has ordered Auckland University to cease political protest action. Government minister, Steven Joyce yesterday decreed that “my  general advice to NZUSA (NZ Union of Students’ Associations) on the cost of living for students is to keep your heads down”.

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Full Story

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As usual, the full force of the State was brought in to “control” the situation,

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PROTEST: Police on standby at Auckland University after students took over the business building.

Full Story

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Joyce further added, “I think most New Zealanders think students are reasonably well looked after at this point in time”.

“Mr Joyce said university students had 75 per cent of the tuition subsidised on average and benefited from interest-free student loans.Source

This is true:  university students currently have much of their tuition fees subsidised by the State. And their student loans are interest free.

However, the Minister for Tertiary Education forgot to reveal to the NZ Herald that he recieved a free tertiary education. No student fees. No student debt. It was all paid for by the tax-payer.

So, it seems rather curious that Mr Joyce, who benefitted from a free, tax-payer funded, tertiary education, with no debt incurred from his tuition – can order fee-paying students to cease all political dissent.

Another case of a Baby Boomer telling Gen X to “do as I say, not as I do”?

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Source for information

  1. Steven Joyce, born: 1963.
  2. After completing a zoology degree at Massey University, Steven started his first radio station, Energy FM, in his home town of New Plymouth, at age 21 (1984).
  3. Student Loan system is started: 1992.

Additional reading

“Greed is Good?”

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Greed is good?

28 August 2011 54 comments

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As we look back on the last 25 years of neo-liberal “reforms”, including User Pays; the canning of “Labour’s” superannuation savings plan in 1975 (by Muldoon – after being elected into office with his infamous “Dancing Cossacks”  TV ad); and National’s continuing high popularity in the polls, despite their avowed proposal to sell-down 49% of several State assets,  – it seems abundantly clear who has been  pulling the “strings”.

No, it’s not Washington. Nor the Bilderbergers. Nor the UN/New World Order/Illuminati.

The answer is mind-numbingly far more prosaic:  it’s us – the Baby Boomer generation. The 1960s and 1970s rebellious youth  weren’t just an “aberration” – they were a clear signal that the Baby Boomers had arrived; could be inclined to  incredible selfishness (hence the term the “Me Generation”); and we voted individually for personal gain – on a collective basis.

Yep. We have seen the “enemy” – and it’s us; graying; self-centered; resentful of the young (who we’ve well and truly shafted);  and looking back at ourselves in the mirror, wondering where it all went wrong.

The case of  Surgeons Ian Penny and Gary Hooper, who tried to rort the tax system using Trusts  and companies – even though they had graduated BEFORE student loans and fees were implemented in 1992 – is the clearest example ever of our collective unbridled selfishness.

To re-cap;

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A court battle is over for two surgeons who challenged Inland Revenue over claims they tried to avoid tax bills worth tens of thousands of dollars.

The Supreme Court has ruled unanimously against Ian Penny and Gary Hooper, saying they underpaid themselves from their own businesses to avoid the top personal tax rate.

The issue arose after the previous Labour-led Government raised the top personal tax rate to 39%, compared to the company rate which was then 33%.

The orthopaedic surgeons openly paid themselves a lower salary than the market rate, arguing that they had a choice about how they operated their business.

They tried to challenge a Court of Appeal decision that found in favour of Inland Revenue, which said the surgeons had paid themselves salaries too small to be commercially realistic.

It said they were therefore able to avoid paying the top tax rate, while the balance of their businesses’ profits went as dividends to family trusts.

The trusts funded items such as a loan for one surgeon, and a holiday home for the other.

Inland Revenue said using those business structures to create artificially low salaries amounted to tax avoidance, saving each man between $20,000 and $30,000 a year for three years, beginning in 2002.

Supreme Court Justice Blanchard on Wednesday delivered a judgement supporting that argument, ordering Mr Penny and Mr Hooper to pay Inland Revenue $25,000 in court costs.

Mr Hooper told [Radio New Zealand ]Checkpoint the court has created a salary benchmark that is higher than the one countless private practitioners have been using.

He says they have been following Inland Revenue advice and calculating their salaries based on public hospital rates.

An Inland Revenue deputy commissioner welcomed the ruling, telling Checkpoint it clearly states and reaffirms what the department’s commissioner felt was the case all along. Carolyn Tremain says IRD has yet to fully absorb the implications and consequences of the ruling.

PricewaterhouseCoopers John Shewan, who appeared as a witness for the surgeons, said the case is important for individuals and firms. He said tens of millions of dollars may now be claimed by Inland Revenue from cases it still has open on this matter.

Source:  Radio New Zealand

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Specifically,

Surgeons Ian Penny and Gary Hooper set up companies, owned indirectly through trusts, to buy their surgical services and paid themselves artificially low salaries.

After 2000, Hooper’s personal income fell from $650,000 to $120,000 a year. Penny’s dropped from $302,000 to $125,000, and then to $100,000, while the income of their companies grew.

Source:  Dominion Post

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What makes this case of case of tax avoidance stand out is that none of it was ever necessary in the first place.

Dr Ian Penny received his Bachelor of Medicine Bachelor (MB ChB) of Surgery from Otago University in 1981.  He became a Fellow of the Royal Australasian College of Surgeons in 1990.

Dr Gary Hooper received his Bachelor of Medicine Bachelor (MB ChB) of Surgery  from Otago University in 1978 and became a Fellow of the Royal Australasian College of Surgeons in 1985.

In simple terms, they graduated as doctors in the late ’70s and early ’80s. Tertiary education then was still nominally free. Plus,  student allowances were available to most students,

“Up until 1992, nearly every student (86.4 percent) studying at a public tertiary education institution in New Zealand received a living allowance or grant while they studied.

 Prior to the mid 1970s, student support was based on a system of bursaries and scholarships. In 1976, a new system of government-funded tertiary bursaries was introduced. This included a study or living costs grant that was available to most students.”

Source: NZUSA

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Student fees and student loans came into effect in 1992, during the Bolger-led National Government, when Ruth Richardson was Minister of Finance (and coincidentally the same year that Shortland Street came on air).

In simpler terms, Dr Penny and Dr Hooper enjoyed the benefit of near-free tertiary education before fees were raised in 1992. They had no student loans to repay, as  medical students currently do, and may well have benefitted from receiving a Student Allowance.

Contrast their free tuition with that of medical students, in the 21st Century:  “on average medical students will graduate with around $80,000 of debt and nearly 90% will have a student loan“, according to the  New Zealand Medical Students’ Association in April, last year.

So with a free education; in receipt of student allowances; and no student loan; Dr’s Penny and Hooper were, as Revenue Minister Peter Dunne stated;

… the important thing about this decision is to bear in mind the scale of what was happening. This wasn’t people minimising their income because they were reinvesting in their business. This was people minimising their income because they were actually minimising their tax liability but still enjoying the full benefits of the income they were in reality earning.

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So not only did these gentlemen benefit from a free education – but they were now minimising their income because they were actually minimising their tax liability [whilst] still enjoying the full benefits of the income they were in reality earning.”

God, you’ve no idea how sick this incident has  made me.  Let me explain why.

Prior to the introduction of “Rogernomics” in 1984 (and National’s addition from 1990 onward),  education in this country had been free (or as close as possible to free) to nearly all New Zealanders. Education whether at Primary School or University was funded by the previous generation; our Mums & Dads; Grandmothers & Grand dads. The idea was terribly simple; education was a right, and not to be determined by ability to pay.

In turn, as we graduated from schools and Universities, we – my generation, the “Baby Boomers” – were to fund our children through their education, through our taxes.

Except, it did not quite happen that way.

In 1984 we unknowingly elected a Labour Government that had been taken over by a secret cabal of neo-liberals, conservatives, and proponants of the Free Market. A raft of  radical changes were implemented throughout the economy and impacting directly on society.

Despite public objection; mass protests; and even vocal opposition from within the Government by some Labour MPs such as Jim Anderton, Labour was re-elected in 1987.  Curiously, they had increased their majority from 55 to 57.

During Labour’s two terms (1984 to 1990), they cut taxes twice, and implemented a new tax in 1986, called GST.

National followed, implementing User Pays in tertiary education whilst  cutting taxes in 1996 and 1998.

In 2008, despite evidence that the world was plunging into a global recession, John Key promised that National would again cut taxes. As New Zealand went into deep recession; unemployment rose; businesses closed down – National cut taxes in April 2009 and October last year.

Most of the public, it seems, will swallow User Pays if they stand to reap a benefit from tax cuts.

The social contract therefore, was well and truly broken between our (the Baby Boomers) generation, and our parents/grandparents.

We had taken their gift – that of free education which they had paid for – but we decided not to pass it on to our children. Instead, we accepted one tax cut after another. And social services were either cut or User Pays applied, to pay for those tax cuts.

To my generation of fellow Baby Boomers, I say this; we’ve well and truly  shafted our own children. We denied them the very same opportunities of a free education that our parents had bequeathed to us. Instead, we voted ourselves seven  hefty tax-cuts; instigated User Pays; and left our children saddled with $13.9 billion in student debt.

Is it any wonder that our children our leaving New Zealand in greater and greater numbers? They’re not just emigrating to seek better paying jobs – they’re sticking it to us for our unmitigated greed. Whether consciously or sub-consciously, our children realise what our generation has wrought, and by god, they are not happy.

No doubt there are some folk who will cheer on Drs Penny and  Hooper. These people  feel that paying taxes is “unfair” and that it is unreasonable for the State to take the money that they have worked hard for.

Perhaps I should take a moment to remind these people what their taxes were, and in many cases  are still, used for…

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Inter-island Ferry, Aramoana

Dams and other power generation projects

Our first television broadcast system

Roading and highways

Hospitals

University education

Dental care for our Children

Our Police and justice system

Railways and other public transport

Schools

State Housing

Infrastructure such as power transmission lines

Social welfare and superannuation

Bridges

Postal and telecommunications systems

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Many of these assets no longer reside in public ownership – but they were originally built and maintained by previous generations of taxpayers; our parents, grandparents, et al.

As the Baby Boomer generation, what have we built and left our children?

$13.9 billion in student debt?

No wonder they are departing our shores…

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But I leave the last word to this expat Kiwi, now living in Australia,

A Victorian-based Kiwi with a student loan debt, who did not want to be named because he did not want to be found by the Government, said he did not intend to pay back any of his student loan.

The 37-year-old’s loan was about $18,000 when he left New Zealand in 1997. He expected it was now in the order of $50,000. The man was not worried about being caught as the Government did not have his details and he did not want to return to New Zealand.

“I would never live there anyway, I feel just like my whole generation were basically sold down the river by the government. I don’t feel connected at all, I don’t even care if the All Blacks win.

“I just realised it was futile living [in New Zealand] trying to pay student loans and not having any life, so I left. My missus had a student loan and she had quite a good degree and she had paid 99c off the principal of her loan after working three years.”

Source: Dominion Post

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Further Reading

Greed of boomers led us to a total bust

New Zealand’s wealth gap widens

Over-55s own most of NZ’s wealth

 

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