The Letter

Monday 30 May 2004

Tax revenue is up one third since Labour took office. Inflation means the 39c tax rate will raise around $700 million this year. Spending is up $3.5 billion in this budget.

Growth is projected to slow to 2.8% this year and to just 2.5% the next. Our trading partners are projected to grow an average of 4.2% this year. After a decade of outperforming the OECD, NZ is falling behind.

There is no attempt in the budget at fairness. It penalises Labour's enemies and openly rewards its supporters. Just 15% of taxpayers now pay 55% of all personal income tax and 56% of all taxpayers now pay just 14% of income tax.

There is a surplus of $6 billion. A flat tax of 25c would have cost $3.5 billion. A flat tax of 20c on all personal and company tax would have cost just $5.6 billion (assuming no extra growth).

Labour’s budget delivers an extra $1.1 billion dollars to eventually 300,000 households in three years. 5% growth instead of 2.5% delivers an extra $7 billion dollars in two years, $20 billion dollars in five years and an extra $48 billion dollars in 10 years! Labour’s extra spending is money taken from fellow citizens and adds nothing to the wealth of the nation. With a flat tax of 20 cents, a reformed RMA, more flexible labour market, and less red tape, a growth rate of 5% a year is achievable.

While media commentators love the politics of redistribution – 90% of the budget coverage has been on it – the public do not. The Letter predicts the budget will be a disaster electorally. Firstly, four out of five households receive nothing. Labour’s real problem is those who do eventually benefit are not grateful. Working families cannot see why they need to wait three years. Beneficiaries are not grateful because they do not plan to stay on a benefit.

Labour’s strategy is built on a myth that NZ has a permanent underclass that must be given money to get out of poverty. The membership of the poorest 20% of households is constantly shifting. People join the poorest households temporarily through events like taking time off work to get a qualification. Half of the households that qualify for Labour’s assistance today will not qualify in two years.

To qualify, households must apply. Such schemes have never worked. Large numbers of genuinely deserving households miss out because they do not apply, while others work the system. So, Labour is going to spend $21 million on advertising which will only have the effect of reminding the majority of NZers the budget is unfair.

The effective tax rate on a low income family is 88c on every new dollar they earn. A family with two children qualifying for all the allowances would have to earn $21,000 a year extra to increase their net income by the $2,500 they would immediately receive on having another child! The incentive in the budget is for households with dependent children to reduce their income, refuse promotion or overtime and to work fewer hours.

Voting ballots are being sent out today and must be returned by 5pm, Friday 11 June. You can still register and receive a ballot form for voting right up to 5pm this Friday on http://www.act.org.nz/join There is a candidates meeting 7:30pm tonight at New Plymouth, Omata School Holloway Rd.

The primary has been a huge success. More than a thousand people have attended one of the 13 meetings, and thousands have logged on to ACT’s web site to view the primary candidate sites. As Sir Roger Douglas has said today, all four candidates have shown they could lead the party. Ken Shirley has surprised the members by the quality of his speaking and his answers. Rodney Hide has run a typical front-runner’s campaign with no risks. He is the best platform speaker who says he has the media skills and can win Epsom. Muriel Newman is running a strong campaign to win the women’s vote.

Muriel would make welfare reform ACT’s principal issue. Stephen Franks campaigned strongly. Stephen points to Don Brash’s success as evidence that integrity, not charisma, is needed for polling success. All four candidates support ACT’s policies of low tax, less government, freedom of choice and more personal responsibility. All four favour savings based superannuation, with Stephen and Muriel for compulsion and Rodney and Ken for voluntary saving. All are hoping it is a big poll and a decisive result giving the new leader a clear mandate.

Parliament’s special session celebrating 150 years produced predictable platitudes and three good speeches. Michael Cullen, Bill English and Richard Prebble used the occasion to warn about the threat of judicial activism to parliamentary democracy.

Richard Prebble also criticised the power of the PM to create unlimited numbers of ministers and so overwhelming parliament. Dr Cullen's speech included a criticism of the Chief Justice’s claim that parliaments sovereignty had never been tested. Bill English made the reasonable point that parliament passing laws saying "the principles of the treaty" was an invitation to the courts to make judge-made law. All three speeches are worth a read - see http://www.act.org.nz/judges

Muriel Newman won last week's poll for the deputy leadership, followed by Deborah Coddington (who is not a leadership candidate). Readers seem to favour a woman in one of the two top slots. This week's poll: Out of 10, how do you score the budget? Go to http://www.act.org.nz/poll to record your views. We’ll announce the result in the coming budget debate.

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ENDS

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