Monday, May 28, 2012

Marc Alexander: NZ Idle

The zero budget released last week was an exercise in managing perceptions rather than achieving anything of lasting value. While the buzzwords of ‘prudence’, ‘restrained’, and ‘sensible’ were bandied about in the tranche of media statements belching out of the Beehive, a closer inspection reveals what wasn’t done to get our economy off the critical list. 

For a start, nothing other than lip-service was done to realistically improve our woeful lack of productivity. With an average growth of a meagre 0.2% growth over the last seven years, it’s no wonder that wages have stagnated and, along with it, our living standards. Given that the major reason is our lack of being able to attract greater capitalization of labour (i.e. investing in technologies to improve productivity), the first thing that should have been tackled was our archaic levels of depreciation. Put simply, you cannot expect to compete with state of art word processors while thumping away on clunky type-writers. We need to depreciate our means of production faster and innovate technologically quicker.

Nothing much has been done to entice business investment with lower corporate tax-rates. Going from 30% to 28% in 2010 was too modest to make much difference.  All the more so when other charges accruing to businesses went up. While many of the problems were inherited from the Labour years, National have now had four years in government and must shoulder the responsibility of talking big but achieving little.

Our balance of payments deficit is growing not shrinking yet the budget failed to reflect the need to shrink costs. Instead they ‘found’ around $6.5billion and then, instead of returning those funds to those that generated it, instead spent it somewhere else. The euphemism‘re-allocation’ or‘re-prioritizing’ just means that someone else gets the spoils when there was an opportunity to shrink the size and cost of government. And let’s face it, if core government spending is expected to be around $75billion for a nation of 4million people then the term ‘core’ has certainly lost its principal meaning. How can it be a core government function to fund useless ministries, commissions and quango’s that meet political needs rather than legitimate core functions?

Most of what government does these days isn’t really necessary except as a sop to special interests in lieu of votes. The budget changes none of this. Taxpayer funds are shifted around placating some groups while creating perceived deprivation amongst others. Lost in all this is the reality that it shouldn’t be up to government to choose which Peter to rob and which Paul to reward. The fundamental truth is that Peter and Paul is the same person: the taxpayer who is being conned into a forced symbiotic relationship with a government that he never needed in the first place. The deprivation calling for the salve of government is in reality a tax robbery manufactured to create the obligation in the first place.

The Budget also did nothing in terms of financial ‘repression’ whereby debts are being borne on the backs of savers (woeful in NZ at the best of times), including pension funds. Very low nominal interest rates combined with captive lending by large banks and/or pension funds facilitate the servicing costs of public debts. Combined with modest inflation this results in zero to negative real interest rates that reduce government debt. Basically it’s a wealth transfer from savers to debtors using negative real interest rates with government as the key debtor. It’s politically expedient but obviously puts even more pressure on savers whose returns are restrained further.
The so-called zero budget isn’t even accurate. It gives the impression that no new money will be spent yet government expenses are set to rise by around $4billion (from $69.6billion – 2011/12 to $73.7billion – 2012/13) which is hardly chicken feed. Brighter future? Not with this budget. My advice: better get a flashlight and make your way to an airport nearest to you... while it’s still open.

Marc Alexander, a former Member of Parliament and author, has a degree in Political Science and is a qualified Chef.


The Gantt Guy said...

Wonderful column, Marc. I think you've hit at least one of the primary issues around right now; that ofnthe corporate tax rate. Combined with economy-destroying legislation such as the RMa and the Emissions Trading Scam, and out-of-control local government empowered and emboldened via the Local Government Act, it must be very, very difficult to run a small or medium sized business in New Zealand right now.

To my mind, the only appropriate rate at which to tax corporate earnings is 0%. All profits (after tax) are distributed to shareholders by way of income (n which tax is paid) so in effect the government is getting a double-dip n corporate tax (something the Minister of Finance knows a lot about already).

The lack of any principle or ideology in he Key government is really coming home to roost, and to hear Bill English crowing (sorry for the bird metaphors) in the paper the other day that National will romp home next election when they have no line they won't cross, no principle they won't sell out for a vote is just sick-making.

If NZ's classical Liberals and Conservatives can ever stop arguing about peripheral issues and start fighting the real enemy (the Nationa/Labour/Watermelon/Apartheid Oarty coalition) on the big stuff, NZ might not be completely rooted in 10 years (or now). Sadly, there are too many who are obsessing about "gay" "marriage" to ever get around to fixing the economy!

Marc Alexander said...

Couldn't agree more regarding the corporate tax rate. As you correctly point out, there is no excuse for taxing income twice, which is effectively what it is. And while we're at it, I suggest we get rid of taxes on interest earned (or at least reduce it to a nominal amount equal to, and paid out as, bank charges to encourage and reward savings. We should also dispense with secondary tax. Additionally we need to remove market distortions by removing levies on items such as petrol where the government charges are higher than the company profits on a per litre basis.It's ridiculous to have artificially inflated prices skewing the market and costing us adversely on our production, exports and incomes. And yes... totally agree regarding the mindless and idiotic carbon tax. At least in Australia it will be the undoing of the government... no such luck here... we're too apathetic.