25 October 2007

Economic ‘Billiteracy’ infects National Party benches

National Finance Spokesman Bill English and his leader John Key need to explain how they made a serious error in calculating the income of their hypothetical “Joanna Average”, Finance Minister Michael Cullen said today.

On Tuesday, Bill English invented a “Joanna Average” – a sole income worker, without children on the average wage. Unfortunately, Mr English used gross income instead of net income when calculating the worker’s income. The error meant that Mr English, and the media reports that relied on his numbers, significantly understated the increase in take-home home pay over the last seven years.

The actual increase is more than three times higher than Mr English reported.

“Not only was the National Party’s example dismissive of the significant impact Working for Families is having for hundreds of thousands of middle income workers, it was just plain wrong,” Michael Cullen said.

“After Bill English used the inaccurate information in the House on Tuesday, John Key made matters worse by tabling the document in the House during Question Time yesterday. This was not a small error, especially for two people who make claim to economic credibility.

“For Bill English, it has been a bad week in this regard. Just yesterday he attempted to say that by changing the way the government accounts for bad debts, we could somehow discover more money available for tax cuts.

“Today in the House he criticised me for running a loose fiscal policy after weeks of attacking the size of the government surplus.

“After months of conflicting statements on fiscal policy where he and his leader have called for bigger surpluses and then smaller surpluses, and argued both against and for tax cuts, the latest string of mistakes will have many people asking if the National Party can be taken seriously on economic policy.”

Attached: Explanation of the error in “Joanna Average” example

Bill English has suggested that while an average worker’s wages have increased by $10,154 per year dollars since Labour came to office, the real net increase in their income each year has been around $500. This is very misleading as it does not account for working for families, let alone major savings for the average worker from cheaper doctor’s visits, prescriptions, etc.

But more importantly it shows how sloppy Mr English is with his numbers. He has interchanged net and gross figures to significantly exaggerate the figures he has used in the House and provided to the media.

National's example English's figure corrected
Increase in nominal earnings $ 10,155 $ 10,154
less Increase in nominal tax $ 2,807 $ 2,867
less Inflation compensation $ 6,842 $ 5,536
equals Real net increase $ 506 $ 1,751

ENDS

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