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Richard Prebble’s Letter From Wellington – 29/10

Letter from Wellington
Monday, 29 October 2001

Dr Cullen Is Unhappy

It's been reported to the Letter that Michael Cullen said of the McLeod tax review: "I've spent $985,000 of taxpayers' money proving ACT's tax policies". We think it's money well spent.

Dr Cullen rejected the report after 10 minutes and we've seen no evidence that National has read it. The media have concluded the report has become an instant doorstop.

But that's a mistake. The last comprehensive tax review, the 1982 McCaw report which Sir Robert Muldoon ignored, was later implemented by Sir Roger Douglas.

Tax Could be 28 Percent

The McLeod report's main flaws are its terms of reference - the government required it to be fiscally neutral. However, the report states: "A $1 billion cut in government spending would enable the top personal and corporate (tax) rates to be cut to around 31 percent. A $2 billion reduction would enable both rates to be cut to around 28 percent".

A $1billion cut would be easy - the $850 million on Air NZ and $100 million on the People's Bank. Government spending has been increasing by $1billion a year.

So a 28 percent top tax rate is quite achievable. Thank you, Dr Cullen.

Present Tax Rates Unfair

The McLeod committee examined the arguments for proportionality (a flat tax) and progressivity (the current escalating tax rates). The committee, which under Dr Cullen's instructions couldn't recommend a flat tax, said: "Proportionality is much simpler. The fiscally-neutral proportional (flat) tax is 25 percent, including corporate taxes".

Thank you Dr Cullen. With no spending cuts, we could have a flat tax of 25 percent.

The report says: "Progressivity is not the main driver of redistribution .... (with a flat tax) significant income redistribution takes place. The households that have the lowest market incomes pay the least tax but receive the greatest direct benefit from government spending".

Tax Paid is Roughly the Same

The report says: "The amount of tax paid under the current progressive scale and under a proportional (flat) rate of 25 percent is roughly the same for most deciles ... households with the highest incomes pay the most tax and receive the least benefit under proportionality or progressivity".

Flat Tax is Best

The report concludes: "The review notes the large benefits of proportionality (flat tax) and the small contribution of progressivity to redistribution". However, it doesn't recommend a flat tax because: "many New Zealanders value progressivity". (In other words, Dr Cullen would have been really angry.) See

Increasing the Mortgage to Punt on the Sharemarket

The National Bank last week issued a damning report on the Cullen superannuation scheme, stating the fund will erode economic growth, keep interest rates up and fail to reach forecast returns. The report states that every dollar in the fund will be borrowed. It's the equivalent of increasing your mortgage to punt on the sharemarket.

The Cullen super scheme is based on a simple mistake. When he proposed the scheme, Dr Cullen thought the government would have a surplus for the next four years. But when the first Crown balance sheet (required under the Fiscal Responsibility Act) was published last December, separating capital from income, it showed a deficit of $1.6b - before borrowing the $6b for the super scheme.

The government is now going to spend $1 million on TV ads to promote the Cullen scheme - will the ads tell us that every dollar in the scheme is borrowed?

$500,000 Fines for Stress

The latest ideological attack on small business is Margaret Wilson's Health and Safety in Employment Bill whereby trade unions will be able to bring prosecutions against firms for causing workers stress! Fines of up to $500,000 can be imposed. The money can go to the stressed employee - so we can all feel a stress attack coming on. As a comparison, the fine for causing death by dangerous driving is just $20,000.

This law will be a huge blackmail weapon for unions. The public sector is included and public sector managers, especially in health, believe many cases will be brought. For details of the bill see


Margaret Wilson's spin on the Bathgate affair is unravelling. She told Parliament last week she had only referred her friend Susan Bathgate's "availability" to officials and had assumed that the "normal processes" would take place.

Unfortunately for Ms Wilson, Cabinet papers show her famous September phone call to Ms Bathgate to "check her availability" came after the selection panel's recommended 15 names had gone to Cabinet and the "normal processes" had been completed. Ms Wilson then rubbed out Mike Loftus's name and added Ms Bathgate's to a paper she re-submitted to Cabinet.

Ms Bathgate never applied for the job and was not interviewed or recommended. Mr Loftus applied, was interviewed and was recommended. So much for the normal process.

GM- What Now?

The government will introduce two bills on GM - the first maybe this week to impose a two-year ban on the commercial release of GM products. A second bill will attempt to introduce the Treaty of Waitangi into the approval process for GM trials. There are 20 applications for field trials ready to go.

The bitterness of Labour's debate on GM can be judged by the way the ninth-floor has leaked that the Maori MPs who staged a walkout from caucus, had not read the Royal Commission's report - they thought GM meant human cloning! If the Maori MPs are going to legislate their spiritual beliefs on us all, they at least have a duty to read the report.

No Maori MP could explain what their obejction was. When you eat food, you mix genes!


This week's question is: "Do you support GM field trials?" Vote at

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