The Letter

Parliament is in recess. Labour is in free fall. The economy is slowing. The country is rugby mad.

Miscalculation by Clark

Labour MPs are still trying to work out what is happening. In addition to the chewing gum budget, Clark’s refusal to name an election date has cost them dearly. Clark was going early, clearing the order paper pointed to a 30 July election. The disastrous reaction to no tax cuts means a September election and the longest campaign ever.

The Recess

Parliament in session helps the opposition who can ask questions regarding the latest scandal. Recess helps government that can dominate the news by making announcements. Clark’s thinking was that a one- month recess would help Labour but it is not working. We are now in an election campaign and the public are just as interested in the policy announcements of the Opposition.

Out of touch

Clark says it does not feel like a defeat because she can remember how it felt in 1990 when Labour lost. It is hard to know how it feels from the 9th floor of the Beehive or the Presidential suite in the Hilton. Ask the Maori MPs what sort of a year they are having. If more Labour MPs were mainstream and had families they would know how much people who work and have children hate the “working for families” advertising. Just 14,000 families in work have applied. Between 60%-85% of those who will receive assistance are on benefits.

Nat Tax Plan

The Letter has been told by usually reliable sources that National is planning to reduce the company and the 33-cent income tax rate to 30- cents. There will be no movement in the 39-cent tax bracket. National believes those on the top tax rate are already their voters and by leaving the 39-cent rate “until economic conditions permit” they will escape the attack that tax cuts only help the rich. The policy will cost just $0.9 billion.

The politics

ACT’s polling shows there is widespread support for a middle income tax cut and support for lowering the company rate.

Unfair

Parliamentary questions from Muriel Newman reveal there are now 325,000 people earning over $60,000 per annum who will miss out on tax relief, up from 203,000 in 1999 when the 39-cent tax rate was introduced. Labour promised only 5% would ever pay the 39-cent tax rate, however, latest figures show; this new financial year 22% of full time workers will pay the 39% rate.

The Economics

While any cut in taxes is beneficial and running a $7.5 billion surplus means we are over taxed, the National plan, like the Birch tax cuts is poor quality policy. Cutting the top rate of tax increases investment, growth and jobs. It is those on the top rate who invest. Reducing their rate means new investments being shelved today become profitable. Imputation means the company tax rate is essentially a withholding tax and the real beneficiaries of a cut in company tax will be overseas investors and the tax planning industry. Flat rate of tax is best.

Economy is slowing

The long promised economic slow down is happening. Manufacturing in June took another hit. It is a myth that the manufacturing sector was wiped out by Rogernomics. One job in six is in the sector and for a decade manufacturing has been growing strongly. The Kiwi/Aussie exchange rate and just as important the slow down across the Tasman have hit exports hard. The decline in residential building permits demonstrates the housing market is slowing. Every day hundreds of households receive advice that their long-term mortgage rate is being adjusted or the rate on some other loan is going up. The seven interest rate increases are still biting. While retail sales were surprisingly good in April, we predict a decline. We do not know why an election should stop people buying a new fridge but it does. By subjecting us to the longest election campaign in history, Clark has ensured the economy will slow faster than any interest rate rise could have achieved. The commercial building sector is still booming and the extra money the government is spending on infrastructure means there should be no hard landing.

Credibility

Elections as Sir Robert Muldoon used to remark are about credibility, “who do you trust to run the economy.” Cullen must of been having panic attacks to have decided to spend $500 million of disputed tax revenue the trading banks paid to avoid penalties. Spending money he has not got and refusing to publicly admit where the extra $500 million came from has shredded his reputation for prudence. Credibility is hard to earn, easily lost, and almost impossible to regain.

Lost in Mail

Speaker Wilson told parliament that she would reply to ACT’s Ken Shirley’s letter complaining that Labour used parliamentary funds to electioneer. Under the rules Clark must personally pay back the $90,000. As we write no letter has been received. We wonder how long before the Auditor General takes an interest. How is it a political party is able to conduct a back-to-back ad campaign (Labour on one side of the bus stop and so-called non political government ads on the other?) Advertising on hundreds of bus stops would produce a massive discount. Who got it?

To tour or not to tour?

65% of letter readers think NZ Cricket should not tour Zimbabwe. The Letter thinks it is hypocritical of Goff to ask a small sport like cricket to make a huge financial sacrifice while at the same time refusing any compensation. Terrible as events are in Zimbabwe more people have been killed in Pakistan, a country whose leader Goff recently welcomed to our country.

This week’s poll

This week a really important question “ Should Mehrtens berecalled for the last test?’ We will send the results to Graham Henry http://www.act.org.nz/poll.

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