Maxim Institute

real issues.
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this week: No. 112, 27 MAY 2004

Contents:
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* Budget - Government can only spend what it takes
* Manipulating Language - 'surplus'
* Change Agent Workshop - Auckland, June 12
* www.stoptheabuse.org.nz goes live

Government can only spend what it takes

The greater part of this year's Budget has been devoted to a major package to provide extra financial assistance for families with children - an extra $3 billion to be phased in over the next three years. Although delivered by the Finance Minister, it reputedly contained the fruits of several years work by Social Development Minister Steve Maharey.

One of the government's roles as part of the social contract is to support those institutions which contribute to society, of which the family is primary. It is good, therefore, to see that the government wants to support families. Indeed, it is in its own interests to do so. Unfortunately, while its heart is in the right place, its means of delivery is flawed. While it appears the Budget will improve the lot of middle New Zealanders, ultimately it will disempower the individual citizen and increase state power.

Just like a Christmas pet is forever, so are the expectations of people once they have been handed a new social entitlement. We may be able to afford massive increases in benefits during the phase-in period, but will we be able to continue affording them in 5 years, or 10 years? If there should be a downturn in the economy, what happens then? The government that is forced to wield the knife in that case, is going to be the target of a gigantic hate campaign, as happened to National when Ruth Richardson cut benefits in the 90s.

The government has no money of its own. It can only give what it has taken from someone else. So serious questions need to be asked about whether it is morally just for governments to rack up big surpluses year after year... just as it needs to be questioned whether governments should go into debt year after year.

Too few people in New Zealand are questioning whether massive redistribution of other people's money actually works in the long term. Does it ultimately really improve the lot of the average person? What does it do to the nation as a whole?

In the 1950s, one income earner was able to support a family. Today few families are supported by one income alone. Government spending and the level of taxation to support that spending have risen as a proportion of the economy. In 1955, government spending was about 20 percent of the economy. It is now about 30 percent. On a broader basis, used by the OECD to make international comparisons, government outlays today total about 40 percent of GDP.

Certainly the budget gives 300,000 households more money to spend (average $66 per week), but it does so at a great cost. The contribution to economic growth will be minimal, and it will further entrench the culture of entitlement and dependency on the state. What New Zealand really needs is a simplification of its welfare and tax systems, and a government mindset that allows citizens to keep more of what they earn rather than giving some of their taxation back to them in welfare. We need to reduce the number of people getting handouts-not increase it. For example, a family on $55,000 per year would be better off paying less tax rather than getting their own money back from the state in the form of a welfare cheque.

A huge opportunity has been missed. Tax policy could be aligned with growth objectives by lowering personal and company tax rates. This had been advocated by the Treasury, which estimated that all tax rates could be reduced to 18 percent for an annual cost of $4.7 billion, much less than the current surplus, which will create more unsustainable dependency at the expense of long-term growth.

Discuss this article in our on-line discussion forum: http://www.maxim.org.nz/discuss/?topic=112.1

Manipulating Language - 'surplus'

The word 'surplus' used to mean a genuine mistake by the Government in taking more tax than what it spent; 'what is not required for the purpose in hand'. Now it means a calculated scheme of money collection for redistribution in election year. Finance Minister Michael Cullen has been sitting on a $7.4 billion surplus, the biggest mountain of spare cash a New Zealand Government has seen (up from March last year when the figure was $3.4 billion). The Treasury said the record surplus arose because the accounts were running $1.5 billion ahead of forecasts in the first nine months of the financial year. Income from GST was up $225 million and investment income by Crown entities had swollen by $548 million.

The $7.4 billion surplus is a record both in dollars and as a proportion of GDP. For every $100 spent in the economy, $5.60 is spare cash for the Government to do with as it likes. Dr Cullen has boasted of his tight-fistedness in previous Budgets, but today he's delivered an old-fashioned spend-up, despite a refusal to lower tax rates.

What we're seeing is a Government creating all sorts of bureaucracies to distribute public monies, but it's only austere tax policies that enable it to create a 'surplus' and present its actions at budget time as 'compassionate'.

Discuss this article in our on-line discussion forum: http://www.maxim.org.nz/discuss/?topic=112.2

Change Agent Workshop - Auckland

Come and be equipped with practical tools to make a positive difference in your community on issues such as Civil Unions (same-sex marriage), Education and the Citizens Initiated Referendum on Prostitution law, at the Auckland Change Agent workshop.

WHEN: Saturday 12 June, 10am - 1 pm. WHERE: Maxim Institute, 49 Cape Horn Rd, Hillsborough, Auckland. COST: $10 at the door (includes action pack and refreshments). TO REGISTER: Contact Amanda McGrail on 09 6273271 or at workshop@maxim.org.nz

www.stoptheabuse.org.nz goes live

The prostitution trade causes untold harm to thousands of vulnerable women and children. Last year parliament voted to decriminalise the prostitution industry, with the intent of 'protecting the human rights of sex workers'. Unfortunately, the law offered protection for pimps, not for women.

A new website has been launched to equip concerned citizens to successfully collect the 310,000 signatures required to have a referendum at the 2005 general election asking; "Should the Prostitution Reform Act 2003 be repealed?". Visit www.stoptheabuse.org.nz to get informed and active.

THOUGHT FOR THE WEEK - Larry Reed

Government has nothing to give anybody except what it first takes from somebody, and a government that's big enough to give you everything you want is big enough to take away everything you've got.

Principles of Sound Public Policy #6

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