Friday, May 12, 2006

My budget wishlist

With Dr Cullen ruling out tax cuts according to the NZ Herald, I thought I'd have a go at a budget wishlist. It wont happen, yet, but it covers a few key topics that were worth mentioning. It is more modest than a Libertarianz budget, but bolder than an ACT one I think:
1. Cut income tax immediately by abolishing the 39% income tax rate, cut the 33% rate to 30% and the 21% rate to 20% and introduce a $5000 tax free threshold. Cut company tax to 30% immediately. Announce further tax cuts, including abolishing the top rate (introducing flat tax of 20%) next year, with a corresponding cut in company tax to 20%, and introduction of a $10,000 tax free threshold in the following year (and abolition of the low income tax rebate). By 2008 company and income tax at a flat 20% with first $10,000 tax free.
2. Cut GST to 10% (simplifies it and gives some inflationary relief);
3. Implement the first stage of welfare reform by:
- Capping money provided to existing beneficiaries by granting no additional payments for having additional children while on benefits;
- Ending inflation adjustment of benefits including accommodation supplement (excluding war veterans and national superannuation);
- Ending DBP payments for parents where the youngest child is 5 or older, replaced with unemployment benefit. Additional children will not make parent eligible for DBP again;
- Introduce one-year maximum term for claiming unemployment benefit, after one year the benefit ceases. Unemployment benefit cannot be claimed again until recipient has at least paid in income tax what had been previously received in benefits;
- Abolish unemployment benefit for under 20 year olds at home and abolish the independent youth benefit, raises minimum age for all benefits to 18;
- Abolish schemes for benefits for artists;
- Abolishing Working for Families package of tax credits (replaced with tax cuts);
- Sell all empty state housing stock (current and as it becomes available), cease funding new state housing stock (sell any currently under construction).
Abolishing Labour's welfare profligacy and tightening up on current beneficiaries
Announce the second stage of welfare reform by:
- Abolition of new claims for widow’s benefit, domestic purposes benefit, accommodation supplement, sickness and unemployment benefit when the tax free threshold is raised to $10,000 (to give people time to acquire life insurance, income protection insurance and enter into contractual agreements in the event of family separation). This effectively gives the population two years to make plans for predictable eventualities (unemployment, death, sickness). Ceases the entrance of new beneficiaries into the system so that it erodes over time as current beneficiaries are weaned off;
4. Announce comprehensive reform of ACC by immediately opening it up to competition for its employer and motor vehicle accounts. 75% of motor vehicle licensing fees to be abolished, replaced with private motor vehicle accident insurance. Competition for non-work/road injury cover to be introduced within three years, followed by privatisation of ACC;
5. Recommence privatisation programme, selling SOEs subject to competition on the open market, with proceeds used to accelerate debt repayment, some SOEs to have shares partly allocated to the public (e.g. Radio NZ) so that public ownership is genuine public ownership;
6. Require all government departments, Crown entities and Crown agents to prepare a report of no more than 20 pages as to why they should still exist rather than their functions either be abolished, or operated in the private sector and publish it for public comment. Departments with inadequate reports will be abolished, others will be scaled back or privatised subject to passage of necessary legislation. Ministry of Pacific Island Affairs, Human Rights Commission, Children’s Commissioner, Health and Disability Commissioner, Families Commission, NZ on Air, Electricity Commission and Ministry of Women’s Affairs abolished regardless;
7. Cease funding of the arts, sport and broadcast media, including NZ On Air and TVNZ. Radio NZ funding to be abolished when privatisation complete;
8. Cease contributions to the Cullen fund, replaced with debt repayments (which will better secure the long term future). Announce first stage of reform of national superannuation that will see contributions to the Cullen fund privatised and placed in the name of all current citizens not receiving National Superannuation. Citizens will be able to continue contributing, cease contributing or remove contributions to reinvest elsewhere;
9. Abolish import tariffs;
10. Cease direct Crown funding of roads, replace with full dedication of petrol tax to National Land Transport Fund - announce Transit NZ to become SOE and be privatised by issuing of shares to all citizens.
See modest really - just phasing out welfare, flat tax and hardly touching health and education beyond given the state run providers independence. It would be too long for this blog to mention all that, and besides, the biggest leap forward would be to cut welfare dependency. Is this too much to ask for if there is a Brash/Hide government?


CD said...

I think the lack of a tax-free threshold is a good indicator that Labour isn't out to help anyone.

After all, if everyone got rich and independant, they wouldn't vote Labour, would they?

A tax-free threshold is equitable (same for everyone) and yet the lower your income, the more you stand to gain.

Would seem like the perfect thing for Labour to support.

But nope, instead we will take your money, pay a whole bunch of bureaucrats to process all the forms and transfers and give that money back to you as a benefit.

Way less efficient, way more cost and for what?

Anonymous said...

You may have to scratch #5 LS, according to this:

Libertyscott said...

That is NET debt, the government still owes money, it is just that it now owes less than it owns - um hip hip ....

writeups said...

Bravo on your ideal budget. If Finance Commissar Cullen undertook any of the suggestions contained I would no doubt have a heart attack.
George Reisman writes of a good way to abolish the benefits - reduce it consistently until it's lower than what the lowest workers earn. A good read.

Anonymous said...

I notice that you clearly leave hot-potato items like health and superannuation alone, unfortunately they are the big-ticket ones you would have to cut to afford such sweeping ~50% tax cuts. Not to mention police, defence, immigration and pretty much everything provided by government.

Your dogmatic agenda is idealogy-based rather than reality-based, like most of the right's policies, hence the focus on relatively trivial expenditure like welfare.

As unemployment benefits are a small part of the budget, the other option if you didn't want to cut health, education and pensions is to run unbelieveably enormous deficits to afford those tax cuts.

Hardly fiscally responsible.

And as for your ideas on privatization, would this be like the fantastic success of Tranzrail, or Air New Zealand, or the free market provided by Telecom, or most of the other ones that got run into the ground? Privatization of core government services is a discredited policy only advocated by loopy extremists.

If this is any indication of Brash & co's lines of thinking, god help us all...

writeups said...

OMG. Left and right are stupid tags to use. The correct political spectrum is represented on a compass point basis - Left Liberal, Right Conservative, North Libertarian and South Statist. You are also gravely mistaken as to the need to cut health and superannuation, as every single tax cut in history: the Douglas tax cuts of the 80's, the Thatcher tax cuts of the 80's, the Reagan tax cuts of the 80's, the Bush tax cuts of the 2000's, the Kennedy tax cuts of the 1960's, the Hoover tax cuts of the 1920's have all led to one thing: higher tax revenue. You seem to subscribe to Aunty Helen's belief that to have tax cuts you must cut public spending, but that is just another socialist lie.
Idealogy based rather than reality based? Is it real to have the state controlling what goes into children's minds, what happens to you when you are sick and what happens when you retire? Is it real that private companies can't provide most services without excessive regulation, taxation and condemnation? Surely people are capable of providing for themselves, and with tax cuts, more people will be able to decide where they want to spend their money - weaning more people off state services and further decreasing the need for state health, education and superannuation.
Privatisation means privatisation. Tranz Rail and Air New Zealand, if they were going to go under, should not have been bailed out. One of the reasons they struggled was because the state continued to regulate, tax and attempt to use private companies as 'national icons' for 'protection' and bailing out. They also struggled because they were operating in a free market, the real world, unlike how they were operating under state ownership. If they can't make it in the real world there is no reason for them to exist. There is nothing wrong with Telecom owning the lines and 'monopolising' - their shareholders own them and the company can do whatever the hell it likes with its own property. Government interference in Telecom was immoral. If government reduced regulation, taxation etc. then TelstraClear or whoever wanted to would find it easy to build a parallel network - but somehow it's OK to leech off the private property of Telecom with government approval. It's the appropriation of private property by government force and I hope Telecom wins this.
Privatisation of 'core government services' is not a discredited policy. It's never been pursued. Only the fringes of government services have been privatised. Why should the government provide power, roading, healthcare, education, superannuation, subsidies etc.? They shouldn't. Government's role must be to govern, maintain law and order, defence and eliminate public debt.
Through advocation of government provision of 'core services' you, sir, are the loopy extremist.

Anonymous said...

Wow, another true believer.

There is no evidence to support the claim that tax cuts lead to higher economic growth. Interest rates are a far better predictor. The only thing that is guaranteed from tax cuts is massive national debt- have you seen that of the US recently? I really find it hard to believe that you hold GWB as a model of economic management, but I guess denial along with massive corruption is the hallmarks of the right.

And yes, the government should own or control natural monopolies like rail, health, roading, and telecoms infrastructure, as it is far more efficient than private firms. Look at NZ post, pretty much the perfect example of an SOE; versus the disasters when the private sector gets its hands on a strategic asset.

Historically, competitive free markets work very well for breakfast cereals and washing powder, but not at all in natural monopolies. Here in the UK, rail privatization has simply meant a massive wealth transfer to shareholders, while the rail services get crappier and crappier for the general public and we pay more and more.

And I would remind you that property rights come within a legal framework of responsibility, break the rules and your rights are taken away. Telecom had ample warning that it was ripping off the public, stifling competition and generally riding the edge of illegality. Kudos to the govt for standing up to the American investors who own Telecom. Interesting to see the Nats/Act prepared to stomp all over the NZ public- guess they know where their funding comes from eh.

BTW How's that libertarian paradise of Somalia working out recently? I haven't been following the news, but there's not a lot of government interference there, guess it must be great! :-)

Anonymous said...


Berend de Boer said...

I would like to see your arguments to lower the GST. I thought it was better to have tax on consumption than on income. What's your reasoning to lower the GST? I would say increase it, and decrease the tax on working.

MikeE said...

UK_kiwi: explain how somalia, a country without the rule of common law or private property rights is libertarian?

I think you cannot understand the difference between Anarchy and Liberty.

writeups said...

uk_kiwi:You aren't worth arguing with because you can't realise that libertarianism is not on the 'right'. It's north side. If you can stop incorrectly labelling libertarianism as 'right' then I shall continue.

Anonymous said...

Ok, cheap shot about Somalia, its probably not much of a model of libertarianism. I guess a more apt one would be Dickensian Britain perhaps.

And as for the political compass, where do I fit in, given that I believe in both free markets where applicable (most goods and services) and a strong state sector?

Just curious.

Libertyscott said...

Uk_kiwi - you're centre left, you believe in a mixed economy, though I do not know what you believe on personal/social regulation matters like drugs, censorship. as for the rest.... (whew)

Whoa –
Uk_kiwi – Superannuation I do touch by individualising the Cullen scheme, health by starting to make the hospitals accountable once more for expenditure. Health needs enormous reform to not be a black hole for cash, which it is, Cullen knows this only too well. I agree, more would need to be done to secure more tax cuts - which for health and superannuation means moving to insurance modes.

The tax cuts are affordable once you stop funding the Cullen fund, stop state funding of major new capital works that are not user funded (which puts the full cost on the current generation) and you start culling the bureaucracy. $9 billion per annum is a lot of money that can go back. Privatisation also continues to cut debt interest payments which are a substantial part of spending.

Police would be boosted by enforcing less victimless crime, immigration costs bugger all. Defence need not be touched, yet. Welfare is trivial? It forms 60% of the largest budget item - welfare (the remainder is Nat Super). I doubt that is trivial.

Tranzrail actually was a success, a poor performer became far more efficient, but this government wasn’t willing to let it become even more efficient by closing branchlines that had outlived their usefulness. Tranzrail actually hauled more freight per kilometre than state run NZ Rail ever did. Toll Rail still does, remember all that has been nationalised is the track - not the trains, and there is no open access regime for the track.

Air New Zealand was a roaring success, until the Australian federal government stopped it entering the Australian market in its own right, restricted how it could reform Ansett when it was bought, and until the government stopped a willing foreign investor from injecting capital into it. Both of them are pinups from the left that don’t stack up to any analysis. Telecom also invested heavily in new networks, prices for all services declined over the 1990s in actual and real terms, NZ was an excellent performer across the board until the last six or seven years.

Tell me how privatisation is discredited?

I would NOT hold out GWB as a great model of economic success, he has not cut spending, which is the desperate need for the US federal government. You’re also being nonsensically partisan in claiming republicans are more corrupt than democrats, a plague on both their houses. If you think the left is any more free of it, then you’ve been blinded.

Uk_kiwi the NZ treasury commissioned report on optimising tax revenue suggested an average tax rate of 20% was revenue maximising. Remember cuts in income tax boost GST revenue (as people spend more), they also reduce evasion/avoidance levels.

Also since when is rail a natural monopoly? It has competition from other modes across the board. Since when have state rail organisations proved more efficient than private ones? Look at the modeshare for US rail freight compared to European, look at how rail freight in Australia has gone up since privatisation has meant it is competing on service, not the poor second cousin to politicians who only care about second rate passenger services to marginal electorates.

Health is hardly a natural monopoly (hospitals are easy to duplicate), local roads are, highways are not, telecommunications isn’t besides local access in low density areas (Wellington after all has four duplicate networks that can provide local call service if you include mobile).

UK rail privatisation was not the greatest success, but the data on service standards does not bear up to your evaluation. The UK problem is that it has not embarked on road reform and road pricing, which would change the rail industry enormously. The UK also had decades of underinvestment in rail, with some enormous disastrously wasteful expenditure (big expensive shunting yards a few years before shunting became an anachronism).

You talk about the American investors in Telecom, those big hooded horned people that just eat children and burn villages in their path – why don’t you ask my parents, working class immigrants who invested in Telecom as part of their retirement savings? Yeah, they are thrilled at you dancing on their savings like some sort of Stalin – when you could have invested in it too, but were too lazy to do so. What is this legal framework of responsibility, or do you take the Chinese Communist view of law, that it doesn’t have to be transparent and objective, and able to be appealed when it is broken, you just get prosecuted? That isn’t legal.

Berend – Reducing GST is partly about simplifying it (10% is slightly administratively easier and easier for consumers to understand), but also because it is a tax that it too easy to collect. It fleeces people without them noticing or holding government accountable for paying it. Consumption isn’t a bad thing anymore than earning a wage or a dividend. I would much prefer tax was a bill people paid like council rates, then they would notice when it gets increased, they would notice that the government is actually taking their money and call for greater accountability in spending it. GST is the taxman’s dream, the people that pay it don’t notice it and the people that administer it are the retailers, who nobody cares about politically, and who get penalised for underpaying because they are too successful. I want tax to be very transparent and for all taxpayers to know they are paying tax, that is why I’d also abolish PAYE.

Anonymous said...

LS- New Zealander's (foolishly perhaps) don't want individual pensions, we had a referendum on it. The Cullen fund is doing well, and looks like it might actually be able to cover the enormous baby boomers' pension costs if it is left to prosper. Not sure why you would want to spend it all just for tax cuts.

As for healthcare, the individual insurance model in the US has meant its healthcare is twice the price of state health services, there are 40 million USians with effectively no health cover, and its health statistics are comparable to a thrid world nation.

State provision with optional private cover works far more efficiently, and bulk buying of drugs is much cheaper. There is always room for efficiency reforms, but the basic model is succcessful, and only dedicated idealogues would want to change it.

And I do agree with some of your other points- I think the tax brackets must be indexed to inflation, given that unofficial inflation rates (PPI) in the US are now 10% per annum, we are going to feel that pretty soon. And a tax free threshold would greatly simplify the tax system. There is certainly room for tinkering and some adjustments.

But on the balance of it all, the state-funded model for infrastrucutre capex is far more efficient- the state can afford to get a far better deal on say motorway construction or drugs than a whole lot of individual buyers. And it is being funded by the current generation- that's where the surpluses are going. Everyone will benefit, just not in the "want cash now" way that our society seems to be obsessed with.

State spending can also be a driver of growth in this respect- it's not like tax money ends up in a black hole, it's spent and recirculates which drives growth.

The problems with privatization reflect the business environment today, that it has an extreme short-term profit focus, which is not compatible with the long-term outlook necessary for strategic infrastructure.

For example Tranzrail decided there was more money in selling off all the assets, then fleeing the country, than running a rail network. Remember the Wellington commuter trains being forced to go at 30kph due to unsafe track? I suppose they were some of your 'unprofitable branch lines', but it meant massive disruption, traffic jams as 5000 people tried to drive to work, and a net loss to the economy in the millions.

The SOE model has proven much more effective in this regard, because there is not the shareholder pressure to make a profit NOW at any cost, especially by foreign shareholders who don't care about NZers.

And the Telecom issue, they were repeatedly warned and any investor who bothered to research would have known this was coming.

Again, all due to the extreme short term view of big business- if Telecom had taken a long-term view, and co-operated, then the regulation would be unneccessary, but they chose to milk it instead.

Regulation was necessary because of Telecom's army of lawyers who delay and delay any action as long as possible.

The current surpluses are much better spent on the long-term well-being of the country, rather than a temporary tax cut that will do nothing for long term growth or productivity...

Libertyscott said...

I said I would spend the annual surplus invested in the Cullen Fund on tax cuts, and the fund that remains would be individualised, giving everyone a share in it that could be sold or they could choose to invest more.

US health statistics are not comparable to a third world nation, utter nonsense and there are others with insurance models, like Australia and Chile. The left always trots out the US is expensive nonsense, forgetting the US is at the cutting edge of healthcare research and innovation. In other words, the US pays for much of what the rest of the world enjoys.

The Tranzrail problems in Wellington have little to do with the company. It has everything to do with track laid in the late 1980s that was not pre-stressed to handle hot summers - when it was government owned.

However my bottom line is this - tax cuts are about giving people back their own money - money that the government would not have if people had not earnt it. If you can convince them they are better off, then convince them - don't just take it.