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Newman On-Line: Pulling the Wool Over Our Eyes

"Newman Online"

Weekly commentary by Dr Muriel Newman MP

Newman On-Line: Pulling the Wool Over Our Eyes

This week, Newman Online looks at how the Labour Party is planning to pull the wool over our eyes to hide a surplus that is big enough to give tax relief every New Zealand worker.

The rather infamous quote: “there are three kinds of lies: lies, damned lies and statistics”, attributed to Benjamin Disraeli, has never been more relevant to New Zealand than now. The reason is that the Labour Party, elected on the promise of delivering open, honest, transparent and accountable government, has taken the art of manipulating statistics to new heights.

High amongst the victims of Labour’s new art form are our national crime statistics, the official indicator of whether crime in the country is rising or falling. According to media reports, political pressure is now forcing police to record crimes as being “resolved” in the official statistics, even though alleged offenders have not been seen, spoken to, arrested, charged or convicted. This amounts to a gross manipulation of the figures with the single purpose of making the Government look good.

The problem is that while the strategy has backfired by totally undermining the credibility of the police crime statistics in the eyes of an increasingly sceptical public, it has not stopped Labour from reaching new heights in the quest for half-truths and misinformation.

This time their target is not crime, but tax.

As a result of the economic reforms of the eighties, coupled with Labour’s hefty tax hikes, Government coffers are now overflowing with cash. The operating surplus has been estimated at over $7 billion. This is effectively only the fourth time in New Zealand’s history that a Government has had surpluses of over four percent of our gross domestic product. The first three cases were in 1921, 1947, and last year, when the surpluses ran at 4.3, 4.3 and 4.7 percent of GDP respectively. This year the surplus is running at a record 5.3 percent of GDP.

With the largest surplus in New Zealand’s history now at it’s disposal, the Labour Party’s ruling out of tax relief is surely the strongest symptom yet of their greed. That they can get away with overtaxing New Zealanders to such a massive extent, is still a mystery to me. In the United States, when states overtax their taxpayers, there is public revolt and the result has been tax cuts and a proliferation of Taxpayer Bill of Rights legislation.

Taxpayer Bill of Rights legislation effectively imposes spending limits on governments to restrain spending to the previous year’s levels with increases for inflation and population growth. Any excess revenues collected then has to be returned to taxpayers through tax rebates.

Amid growing calls here in New Zealand for tax cuts, Labour has become so desperate to hide its greed that it is going to the extraordinary lengths of fiddling the books. Labour wants to make the $7 billion surplus disappear as quickly as possible so that when the demand for tax cuts grows stronger in the run up to the election, the Prime Minister will be able to justify her claim that tax cuts are unaffordable.

The plan to pull the wool over our eyes is already underway. It began with the Minister of Finance calling for a return to the old simple way of government accounting, using cash flows rather than accrual accounting. In doing so he is effectively alleging that the decades of public sector financial reforms, which have given us far more accountable governments, were misguided. Further, he is now backtracking on his own decision to adopt the OBERAC accounting measure - which provides a much clearer measure of the overall health of the crown accounts - in favour of what BNZ’s chief economist Tony Alexander recently described as “the biggest smoke and mirrors exercise since the 1990s”.

Right up until November 2003, the Crown financial statements (released monthly) contained a summary table highlighting the operating balance, and containing no reference to the cash balance.

In the December 2003 statements, the summary table included the cash measure at the foot of the table. In the March 2004 statements, the cash measure had been promoted to mid table. Then in the November 2004 statements (released 28 January 2005) the cash measure had become the headline figure at the top of the table.

This sequence of events shows there has been a concerted strategy involving Treasury officials, to first introduce, then slowly promote to the position of headline indicator, the cash measure. The significance is essentially the difference between the Government having $7 billion extra tax to spend or being able to claim it only has around $1 billion.

If the Crown accounts honestly show a $7 billion surplus then it creates the perfect opportunity for ACT to heavily promote tax cuts as an election pledge. If voters this year decide they have had enough of being ruled by a Labour Party that has become increasingly arrogant and interfering and decides to demand tax relief, then ACT, as a partner in a centre right government, could insist on lower taxes as a condition of support.

Calculations show that dropping the top tax rates of 39 cents and 33 cents to 25 cents in the dollar, the 19.5 cent tax rate to 15 cents and 33 cent company tax rate to 25 cents, would cost around $5.5 billion. That figure, which does not factor in the dynamic growth effects of tax cuts, is easily affordable when you have a $7 billion surplus.

If the surplus is only $1 billion however, the Labour Party’s response to ACT’s calls for tax cuts will be that the country can’t afford it.

But the country can afford tax cuts. If we are ever to close the standard of living gap with Australia then we must lower taxes as a priority. It is simply outrageous that in a country where the Government is awash with cash, so many taxpaying families are struggling hard financially. Any government would do well to heed the words of a former Chief Justice of the USA, John Marshall: “ An unlimited power to tax involves, necessarily, a power to destroy because there is a limit beyond which no institution and no property can bear taxation”.

The Labour Party should not be allowed to get away with their plan pull the wool over our eyes and rob taxpayers of our $7billion surplus!.

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