The Letter: IT’S BOOMING
The economy is growing. Record volumes of freight are being moved, a first indicator of growth. The much predicted slow
down shows no sign of coming. Judging from our suburb we predict the Warehouse sold record amounts of fireworks. When
people are prepared to literally burn their money it’s a good sign they are confident of earning more. The international
indicators are good. The US share market welcomed Bush’s victory. Oil prices fell significantly last week. Spring has
finally come and with it remarkable grass growth. The Letter predicts that economy is significantly out performing
official estimates.
A QUESTIONNAIRE
Before we carry on, a couple of questions. What do you think is the average household income? What do you think
households pay in tax as a %? Write down your answers below.
HOW THE MONEY ROLLS IN
Record growth means record tax revenues. Cullen has become fixated by having a large surplus. His meetings with Standard & Poors made him realise how much weight the rating agencies place on the surplus. He personally seeks financial
credibility. So Cullen feels he must be more conservative. This would be bearable except Cullen also believes he can
spend your money better than you can.
RECORD TAX
Using parliamentary questions Rodney Hide found out how much of the average household’s income goes to the government in
tax. Treasury replied that the mean household income is $55,600 per year. This is up nearly $5,000 under Labour. How
much do we pay in tax? On these figures on average 46.3%. Before you say that can’t be so, remember GST, and we include
rates, because just try not paying them. If you smoke you are really working until after lunch each day for Helen Clark.
NOT TRUE, SAYS CULLEN
When Rodney Hide revealed that under Labour, average household income after tax had fallen by $1,040. Cullen said that
can’t be right. (So don’t feel bad if your guesses were wrong – even the Finance Minister did not know). When Rodney
informed him that these are Treasury figures, Cullen replied that Treasury was wrong. It’s really unusual for a Minister
to publicly question his department and even more unusual for the Finance Minister to suggest that Treasury can’t do
figures. Cullen said he would get them to redo the figures and they would show household incomes under Labour had
increased.
INCOMES ARE UP
Civil Servants do as they are told. When Cullen told Treasury their figures were wrong and he wanted new figures showing
how much better off we all are the Treasury duly complied. Cullen released them in his war of words with Rodney. Average
household income has gone from $60,510 in 2000, i.e. when Labour came to office, to $68,280, a 12.7% increase. The
average household income is above the mean because some households have a number of incomes. The average household tax
has gone from $19,760 to $24,960, which Cullen concedes is a 26.3% increase! But, Cullen triumphantly points out
households’ after tax income has increased under Labour from $40,800 to $43,320. That is an increase of $2,520, meaning
households are, according to our Minister of Finance, 6.2% better off.
COOKING THE BOOKS
The danger of asking departments to produce figures to prove an answer is that the officials in their eagerness to
comply will often provide information that actually proves the opposite. "You have forgotten about inflation," replied
Rodney. From December 1999 to December 2003 inflation increased by 10.4%. Using the information Cullen got the Treasury
to supply, Rodney recalculated households’ inflation adjusted after tax income.
WE ARE WORSE OFF
In 2000 the average household’s net income was $45,058. Today in 2000 dollars, i.e. inflation adjusted it is $43,320. We
are $1,738.45 worse off. That’s minus 3.9%.
THE RESPONSE
Rodney has fronted up and admitted he was wrong claiming that the average household is $1,040 worse off after tax under
Labour and agreed with Treasury the real figure is $1,738.45. That’s the sort of party ACT is, big enough to admit a
mistake. On Friday Cullen responded to these devastating figures by issuing a bizarre press statement, which said, "Mr
Hide has made a basic mistake. The Treasury household tax estimate includes GST, which is a tax on expenditure not
income. Therefore to do as Mr Hide has done and subtract an expenditure tax from an income base to arrive at net income
is a nonsense". Translated, Cullen is claiming that we should not count GST when working out the average household’s
income because we only pay GST when we spend the income. The problem with this approach is you can’t buy goods and
services without paying GST. Perhaps one could say that the average household’s buying power after tax is down $1,738.45
under Labour. Amazingly there has been no coverage from the Press Gallery. Perhaps because the average journalist can’t
do maths. See http://www.act.org.nz/households
IT IS ON CREDIT
So how do we explain the boom in consumer spending? We read about US consumer’s level of debt. In relative terms NZ’s
debt is higher. The Reserve Bank has halted its interest rate rises because of its concern as to what these rises will
do to the average households financial viability.
POLL
Last week we asked, "Do you support Stephen Franks’ bill restoring the common law rights to self-defence?" 99% of
readers said yes. This week’s question, "Should government adjust the tax thresholds for inflation?" http://www.act.org.nz/poll - we will send the answer to Dr Cullen.