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Heather Roy's Diary: Cullen's Last Stand?

Heather Roy's Diary

Friday, 23 May, 2008
Cullen's Last Stand?

Finance Minister Dr Michael Cullen gave his ninth Budget yesterday, following a long period of speculation about the size of the tax cuts he would deliver.

This budget was widely billed as Dr Cullen's last, with an increasing feeling that there will be a change of government at the election.

I've long wondered at Dr Cullen's motivation in running very large government surpluses whilst denouncing the possibility of tax cuts. His Scrooge-like 'tightness' is often lost in arguments over amounts of money that are so large they leave the head spinning.

Labour has run large surpluses - the latest was $8 billion - while criticising any proposals for tax cuts. The numbers are frequently hard to comprehend; $2 billion here, and $20 million there, all start to merge into just another big number in the minds of many.

To get such numbers down to manageable levels, I have estimated that there are roughly one million households in New Zealand and divided this into the last $8 billion surplus announcement. On those figures, Dr Cullen took $8,000 more from each household than he returned in the last financial year. This might seem close to looting the New Zealand family's finances, but Dr Cullen is self-righteous - he found the thought of a $50 return "irresponsible" and, it would seem, quite offensive.

In the end, Dr Cullen yesterday announced what looks suspiciously like National's tax plan from last election with the movement of tax thresholds. Neither National nor Labour has commented on this, as both the old Parties seek to underline their differences. The truth is that National and Labour both pursue the same centre vote. Their polling will show the concerns of the floating voters and they both want that vote. So forget the theatrical nature of politics - the truth is that National and Labour are closer than they would have you believe.

For too long now, both the big old Parties have quibbled over how to cut up the economy cake - who will get a small slice, and who will get more. ACT believes the real issue is how to grow the cake so that everyone gets a bigger slice - especially those less well off and vulnerable.

In the end, election year and the chance to lure voters by spending the surplus in the coffers was too great a temptation. Dr Cullen has managed to dent his reputation for fiscal prudence without a hope of relieving families of the burden of a rapidly rising cost of living. It is already being seen as a great disappointment. Most who have been asked for comment have taken the view that the tax cuts are "too little, too late".

Many economists have expressed a similar opinion. Some worry that the tax cuts will be inflationary, as the extra cash in circulation will be chasing a fixed supply of goods. So too with increased government spending - and there was plenty of that in the Budget.
The world scene is also relevant with the price of oil reaching $US130 a barrel –as well as dairy, rice and grain prices skyrocketing - and we rightly worry about recession. The Reserve Bank Governor, however, seems only concerned with the inflation rate - he may find that the tax cuts require an increase in our already high interest rates. There goes the extra income.

Lest We Forget
July 30, 1979: Introduction of Car-less Days, Ceased in May 1980.
If you thought 'Car-less Days' were gone for good, think again: just two years ago a consultant's report for the Economic Development Ministry raised again the prospect of car-less days for Kiwi vehicle owners.

The 'Car-less Days' scheme was just one of the Muldoon Government's failed attempts to help the declining economy following the oil shocks of the 1970s. Anyone owning a petrol-powered private vehicle under 4,400lbs - excluding motorbikes - had to designate one day a week on which they would not use their vehicle. Each vehicle displayed a windscreen sticker printed with the chosen day - most commonly Thursday - and infringements were punishable by a heavy fine.

The initiative was a complete failure and lasted less than a year. One reason was that exemptions were permitted, indicated by a special sticker. This quickly resulted in a black market in exemption stickers and imitation stickers, which made the scheme unworkable.

I well remember discussions around our family dining table during which we - Mum, Dad and six kids - listed our various activities and commitments to work out which days the family car was used least. Wednesday was nominated and the old run-a-bout - our second car - was nominated to be parked up on Tuesdays. Like many other such families, we simply nominated different days for each vehicle and continued driving for seven days as before. I'm sure we saved no petrol at all.

There is a lesson to be learned from this: dopey decisions made three decades ago shouldn't be repeated today - 'Car-less Days' didn't work then, and they won't work now.

ENDS

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