The Letter Monday 17 May 2004

The Primary

NZ's first primary campaign starts today with a joint candidates meeting in Dunedin. Each candidate will speak and the audience will ask them questions. Then the nationwide tour – Today, Dunedin: Bentley’s Hotel, St Andrews Street, 6:30pm Wednesday, Christchurch: Cashmere Club, Hunter Street, 7pm Friday, Wellington: Museum Hotel, Cable Street, 6:30pm Saturday, Cambridge: Mellow Manor, Corner SH1 and Pickering Road, 4pm Sunday, Tauranga: Bureta Park Motor Inn, Vale Street, 2:30pm It is anyone's race. You can register to vote at http://www.act.org.nz/join.

The Budget

This will be the father of all giveaway Budgets. The goss is, as Labour has fallen in the polls, the giveaways have increased.

The Surplus

A $6 billion surplus is around 5% of GDP; the biggest surplus ever. Cullen complains that the cash surplus is much less and is reduced by depreciation and retained SOE profits. Capital items such as the super fund, student loans and capital works, reduced the cash available. The government will not borrow for capital works so government debt this year will fall to 25% of GDP. (Most economists believe that Cullen's super fund money would be better deployed reducing the debt even further.)

The Giveaways:

Cullen claims his Budget will help working families and aid the transition from welfare to work. The Letter doubts that it will.

Family Facts

The Treasury says the average household income for a couple with two children is $74,000 before tax. Unless they have six children, the average family will receive nothing from the Budget and are likely to be paying the 39% tax rate. Most families (76%) have one or two children. Just 7% of families have four or more children, so Cullen's middle-income family with four children is just not the norm. Even with the Budget’s boost to family tax credits, the credits will rebate away to nothing for a two child family earning in the mid-$40,000 household income.

Beneficiaries The Winners

Over $1.5 billion of the $2.5 billion package will go to social welfare beneficiaries. Changes to the child tax credit will increase the dollar gap between work and welfare but the changes in the rates of family support mean the relativities between work and welfare remain almost unchanged.

Poverty Trap Remains

The steep effective marginal tax rates on family incomes remain. A family earning $35,000 can increase their earnings by $20,000 but the loss of tax credits and other assistance means they keep just $5,000. That family can get $5,000 by just having another child.

It Is Politics

With 350,000 able-bodied adults on a benefit it is just politics for Labour to reward its voting base. It is also politics to spin the line that working families are the winners.

There Is Another Way

In answer to a written question by Rodney Hide in April, Cullen agreed that reducing both company and personal income tax to 20% would cost just $5.48 billion, still leaving a surplus. See http://www.act.org.nz/flattax.

Brash’s Economic Policy

Don Brash gave a major economic speech to the National party’s lower North Island regional conference, 9 May. He said, " We have no need for any thunderbolt of reform…Rather, we simply have to patiently build on and improve what we have.” He cites the need to improve productivity by encouraging business investment through better education, excellent infrastructure, low-cost regulatory environment, and a welfare system than does not undermine the incentive to work. He cites the Holidays Act as an example of anti-business regulation and the RMA, “in particular is a massive roadblock to development". A very conservative programme. Labour would claim that it too is working to improve productivity with a similar list of policy priorities but different solutions. What is significant is what has not been said: the need to reduce the size of government, reduce the level of tax, and there’s no mention of privatisation. ACT’s work is not done. See http://www.act.org.nz/conservative.

Huntisation Of History

Last week the Speaker, Jonathan Hunt, launched The House, 150 years of the House of Reps in NZ. It contains no fewer than six photographs of our Speaker and the index has 19 entries for him. In contrast Richard Prebble, who has made a major contribution to the Standing Orders gets just three entries and no photograph!

War In Digital

It is said the US Army was not defeated in the paddy fields of Vietnam but on the TV screens of America. Middle America was horrified by the pictures of war.

Cheap digital cameras are doing the same thing for the war in Iraq. Reports, by the Red Cross and Amnesty International, of mistreatment of prisoners were ignored, but poor quality digital photographs have had a huge impact on world opinion. The pictures may end the political careers of both PM Blair and President Bush.

The Letter predicts that revealing digital photographs will in the future have a similar impact on our politics. Everyone has to now consider that anyone with a mobile phone might be photographing them, and then putting it on the net for the world to see.

This Week's Poll

Helen Clark claimed that a Foreign Affairs official’s notes of a meeting between Dr Brash and some US congressmen revealed the opposition leader said the nuclear ban would be gone by lunchtime if National was in government – a claim denied by Dr Brash and the US senators. This week's question: Should Helen Clark have revealed the contents of this private meeting? We'll send the answer to the PM. Vote at http://www.act.org.nz/poll.

ENDS

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