The Letter

Monday 29 Sep 2003
Richard Prebble
Letter From Wellington -- Other

RECORD TAX REVENUE

Tax collected in the last financial year was up $3.57 billion. A massive 9.9% increase in tax. The biggest increase in NZ's history. The government's surplus is now a record $5.6 billion - $1.5 billion higher than was predicted in the April budget. So Labour has taken an extra $1000 in tax from every man, woman and child in NZ.

IT'S AN ENVY TAX

The tax revenue shows that Labour's 39-cent tax rate was never needed. Much of the extra tax comes from Labour's refusal to adjust the income tax rates for inflation. Now 18% of the working population is paying the 39-cent tax rate. (The promise was that no more than 5% of taxpayers would pay the new top rate.) The government's response to the record tax increase is to say, "...our overall fiscal strategy is to maintain a cautious fiscal stance with enough head room to provide a buffer against forecast changes or unanticipated events". How much headroom does he need? ARE WE THERE YET? The Finance Minister has several times hinted at reductions to the company tax rate to allow NZ to be on a par with Australia "when financial conditions permit". If $5.6b surplus is not enough, what is?

REDISTRIBUTION

It's not a fiscal policy, it's political. Labour wants to use the surplus for the goal of the social engineer - redistribution of income. Cullen indicates that Labour will increase family support. As family support is paid to beneficiaries, Labour will continue to over tax those in work and increase high marginal tax rates faced by people moving from welfare to work.

MCLEOD TAX REFORM

The government surplus is so great that Labour could implement the McLeod Tax Reform now. Labour could for $5 billion: lower the top rates of tax from 39 cents and 33 cents to 25 cents; lower the company rate to 25 cents; reduce the bottom rate to 18 cents. There would still be a surplus. The benefits would be a lower company rate than Australia's and tax relief for every worker. It is just immoral for the government to increase taxes faster than inflation.

THEY'RE OK, WE'RE IN DEBT

Government increasing taxes faster than inflation has reduced gross debt to its lowest level for over 30 years. The Westpac household survey shows this was achieved by NZers taking on record personal debt. The money is being lent to us by foreigners, and this means NZ's per capita debt to the world is now the highest in the world! It's unbalanced and is a crash waiting to happen.

DEFICIT BLOW OUT

The trade deficit to June has blown out to $5.9 billion - $2.7 billion worse than last year. The increased deficit comes from a continuation of increased imports and falling receipts for dairy, wool and wood. The only favourable sign is that the main increase in imports was for capital equipment for industry.

A US 62 CENTS KIWI

The Kiwi dollar continues to surge upwards. Michael Cullen, speaking from overseas, expressed concern at the effect of the Kiwi on exports at a level over 55 cents to the US. The dollar fell one cent in response. No finance minister has ever talked down or up a currency for any length of time. The Letter believes the Kiwi is heading to over 60 cents US by year's end. More worrying is what happens next year. It appears the US dollar is revaluing down. The good news for NZ is that on a trade weight basis, the Kiwi has hardly moved. After spending (NZ) $120 billion, the Japanese have stopped trying to prevent the yen from appreciating. (No doubt they will be back at it again soon.) If the Japanese cannot prevent the yen from rising, what could the Reserve Bank do? The only option would be an interest rate cut, to put NZ rates lower than Australia's. What would then happen to Auckland's rip roaring housing price boom?

A DRAFTING MISTAKE

Stephen Franks' researching for the Foreshore, Law & Politics Conference has found the Maori claim is the result of Geoffrey Palmer's Resource Management Act. Why are we not surprised? When they were drafting the Act it was decided to repeal s.150 of the Harbours Act (a very old law) that stated the seabed was in crown ownership, and no seabed or foreshore could be sold without an act of parliament. Under the Resource Management Act, Regional Councils have regulatory authority over harbours, and so it was decided to repeal the section. It never occurred to Geoffrey or the draftsmen that they were repealing Crown ownership and opening the door to a Maori claim. FORESHORE CONFERENCE Analysing the government's so called principles reveals them to be no more than contradictory propositions. If the government wanted certainty it could simply legislate to reinstate the Ninety Mile Beach court case to be NZ law. You can still register for this Saturday's Foreshore Law & Politics Conference at the Beehive - ( http://www.act.org.nz/foreshore) .

ANOTHER PETROL TAX COMING

In the government accounts there is a leap in the valuation of the ACC claims liability due to lower interest rates. The increase is $1.4 billion! This increase is larger than actuarial adjustment last year which Labour used to justify the second petrol tax rise to fund ACC. As this year's ACC result is worse, is there a third petrol tax rise coming?

CENTRE-RIGHT STRATEGY

At ACT's Christchurch regional conference National's Don Brash and ACT's Richard Prebble both endorsed the need for the centre-right to form an electorally attractive coalition. Don Brash pointed out that as recently as 1995 the centre-right received 50% of the vote and the importance of winning the economic issue. Richard Prebble said race based laws are Labour's weakness and the foreshore issue the tipping point. Both speeches are at ( http://www.act.org.nz/chchconf) .

ENDS

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