The Letter – Monday, 22 May 2006
The Haps
The do nothing budget. Our last issue for a while.
The key statistics
A surplus of $8.5 billion. The tax take has risen 50% since Labour took office. The country has been cumulatively over
taxed by $28 billion over the last 6 years. Growth is predicted to fall to 1% before rising again to plus 3%
What is not in the budget
Tax cuts. No policy to tackle our Kyoto commitment to reduce green house gas. Nothing to reverse the slide in NZ's
competitiveness. No comment on inflation.
Inflationary
Michael Cullen's budget is highly inflationary. Cullen claims that the Australian tax cuts are inflationary but the $1.6
billion "Working for Families" will all be spent on consumption. The roading industry is working at capacity.
Construction costs have been increasing at 10% a year. Transit's shortfall of $600 million is caused mainly by the
increased cost of construction. The hope was that the slowdown in residential building would free up resources to switch
to infrastructure. What slowdown? We predict the cost escalation will continue.
Fueling inflation
The impact of higher fuel prices is still working its way through the economy. Cullen did not mention inflation because
it will continue to be over 3% with state sector wage rises especially adding to inflationary pressure.
Predictions always wrong
This year Cullen predicts a rosy picture of the economy slowing as resources switch from consumption to export led
growth. While we think this will happen, we think growth will be higher and the switch into exports much slower. Apart
from forestry, where the main product is already in the ground, it takes a long time to get back into exporting again.
The government's prediction of tax revenue is again far too low. Much of the government's "investment" in health,
education and welfare will be taken by increased wages, increased staff and increased costs.
Spin not substance
It is said that political parties start to die when they swallow their own propaganda. Calling social spending
"investment" may be good spin, but it is not investment.
Huge risk
The budget did not give any benchmark measure of how unbundling Telecom's network will improve broadband. Telecom's
prediction that it would wipe significant value has been proved correct. It is hard to see how a weakened Telecom can
increase investment.
Paying for mis investment
When Telecom is doing its own review of what went wrong they should look into the reasons why the xtra network failed
last week. The Letter, as a significant email user has suffered constant problems over the years with xtra. If only
those millions wasted in Australia had been spent at home. The lack of broadband coverage has influenced our decision to
stop publishing. The statement by Telecom that the failure of the xtra network has only cost customers an average of $2
to $3 just outrages us!
Charles Chauvel
Since the unsuccessful coup against Helen Clark's leadership 10 years ago, the Labour caucus has kept its rivalries
secret. The front page story in last week's Sunday Star Times suggested that the "leadership" wants a number of Labour
list MPs to "retire" so that the caucus can be strengthened by new talent. Mr Chauvel, who is only known to the public
for his international travel bill while on the Lotteries Commission, is next on Labour's list. Chauvel thinks that
parliament needs him and he is busy lobbying through his "dear" friends to get the party to drop a list MP in his
favour. The caucus blames him for the newspaper story and the MPs named have no intention of resigning to assist his
ambitions.
Caucus Unsettled
What has been upsetting the Labour caucus is the uncertainty about Cullen's future. It is going to be a close vote on
who succeeds to the finance and deputy positions and becomes the successor to Clark. Clark's own instinct now is to wait
but she also knows that Labour cannot afford another do nothing budget.
Pinch National policy?
If government revenues continue to be strong, it will be very easy next year to announce a major movement in the tax
thresholds, lifting the 39 cent bracket to say $80,000 - a measure that costs very little. The government could also
inflation adjust all the other thresholds and then claim to have "spent" it all.
Survived another week
Rodney danced himself out of danger. For the first time Rodney got the judges' approval and escaped the axe. We thought
as a middle aged white man he couldn't last but then we did not think he could learn to dance either. We find ourselves
giving him a vote each week purely for his enthusiasm. Vote 0900 89 818 or text Rodney to 8981.
Stopping
For a number of reasons The Letter is stopping its weekly editions. While we keep getting new readers and remain NZ's
biggest email newsletter. We have been driven mad by Telecom and we think today's politics are very dull. We have
stopped before. We took a holiday from the Goss. We may go monthly. We are also working towards publishing Richard
Prebble's new book "Out of the Red". The critics think it is his best book. We will give loyal Letter readers an
opportunity to obtain pre publication copies. To keep you up to date with the goings on in Parliament,
www.act.org.nz\lettersubs for Heather's diary and Rodney's blog www.rodneyhide.com Muriel Newman also puts out a good
news sheet at www.nzcpd.org.nz
Our Poll
97% of readers believe that the Australian budget will result in more skilled New Zealanders crossing the Tasman.
Nothing in last weeks budget would have changed that opinion.
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