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The Letter

The Letter

The Haps

It is "D" or "T" day for National. The announcement of National's tax package and the first head to head leaders debate. The next 24 hours will decide the election.

Tax package

We have only seen the costing but tax cuts of around $3 billion a year are affordable. The surplus is huge. Significant savings are possible. Welfare abuse by those on the unemployment, sickness and invalids benefits costs hundreds of millions of dollars a year. 17,000 people received the invalid and sickness benefits in 1970. Allowing for a population increase of 44% there should be 35,000 today, but there are 135,000. Just cutting out the Labour Department's social spending would save $300 million a year from hip hop tours etc.

Labour's package

Tax cuts are affordable if they result in more investment, jobs and growth. Labour's family package now renamed "tax relief" fails this test. The money will go into consumption and imports. It is government spending not a tax cut. The policy involves a great deal of churn. The cost of collecting the money and then redistributing is very expensive, at least 11 cents in each dollar. Patrick Caragata in an IRD study estimated that the cost of collecting $1.00 of tax to the economy was a whopping $2.64! Family support as the $20 million ad campaign shows is very expensive to administer. Many in employment miss out because to get family support they must apply. Once on, it's a trap, because payments depend on estimating annual income. Thousands of families will end up owing money each year. A promotion or overtime means a very high effective tax rate. In Britain a miscalculation by IRD has meant over NZ$3 billion in payments has been overpaid and has to be returned. The incentive once on is to hold income down and then cheat. Labour finances the package by an investment tax rate of a crippling 39 cents.

Supply side Economics

ACT proposal is to lower company and personal tax to a flat rate of 25 cents while lifting the low-income rebate rate of 15 cents to $38,000. The Treasury estimates that such a low tax rate increases growth by 1 to 1 1/2% a year. While this does not sound much, it's huge. In 20 years an extra 1 1/2% growth increases the nation's wealth by 35%. How wealthy a nation is determines its ability to pay super. The Cullen fund should be canned in favour of lower taxes. In the UK work done by the British Treasury showing that flat taxes are best, was rejected by the Labour Govt (just like Cullen) and has now leaked. The spectacular growth rates achieved by Eastern European countries, such as Estonia that have adopted flat taxes are proving the supply side economists to be right. See

Growth is the key

Flat taxes grow the economy not just because they are cheaper to collect but also because lowering the investment rate makes a significant range of business proposals viable. Capital is global. The money goes to the best return. At 25 cents we are competitive with Australia and more attractive as a place for skilled people to live.

ACT can win

Tracking polls in Epsom show that 38% of voters now say they will vote for Rodney Hide if that will give the centre right a winning coalition. The electorate knows that Worth is high on National's list and will still be an MP. Just 22% will vote for Rodney to keep ACT in parliament, but to give National a reliable ally then the number voting for Rodney jumps. As 23% of Epsom voters support Labour and a small number support other parties 38% of the vote is enough to win. A stroll down Remuera Road by Don and Rodney, like Helen and Jeanette, should be enough to do it. But in case Don is busy ACT is blitzing the electorate.


Did Clark know that Fitzsimons owned $115,000 worth of shares in Wind Flow Technology Ltd before the Labour government gave the company's subsidiary $10m worth of taxpayer's carbon credits? Fitzsimons is threatening to sue the Herald on Sunday Herald for revealing in Deborah Coddington's article that the Green Leader had not told parliament or members of the environment select committee she chairs of her shareholding. She seems oblivious to the conflict of interest in that the changes her committee made to the RMA made wind farming more profitable.

Consumer Confidence Up

The latest Roy Morgan survey show that 63% of consumers think it's a good time to buy a major appliance and 50% think they will be better off next year. Just 18% believe they will be worse off. Consumer confidence index is at 125.6 and Roy Morgan says, "around the world governments do not lose power unless the Consumer Confidence drops below 100 points".

Bring your own Hecklers

Mike Williams, Labour Party President and Cullen's wife Ann Collins sat in the front row, shouted interjections and laughed loudly at Michael's weak jokes during a recent radio NZ Radio debate of party finance ministers.

God's helpers

ACT MPs report the Destiny party candidates at joint meeting have proven to be well prepared and impressive. The party now showing in the opinion polls is justified.

Extra subscribers

Thanks to those who supplied new subscribers to The Letter, your books are in the mail. This week send us 4 new subscribers and you will have your choice, if available, of one of Richard Prebble's best selling books. Go to

Our Poll

A massive 82% of readers think a Labour/Green coalition will be unstable. This week's question, the issue of the election "Do you favour Labour's tax package or National's?" We will send both parties the result. Vote at Remember if you don't like either you have two votes in the election and can vote for ACT's flatter tax.


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