Bank Holiday weekend

Which means 3 days without any time in front of a computer - because I'm off to the Bosphorus. Back late on Monday BST.

Don't spend all weekend partying away your imminent tax cuts on ... a kebab, a pint and, oh yeah that's about it isn't it?

Tories await victory

How do you turn a 7000 vote majority into a defeat? Ask Gordon Brown. The Crewe and Nantwich by-election is happening as I type, as a result of the sudden death of long standing hardworking Labour MP Gwyneth Dunwoody, a leftwing battleaxe who didn't put up with much nonsense (except her own socialist leanings) and was an MP since 1966 (sad to die while an MP at 77, I mean, why not have a life?).

Crewe is solid working class Labour territory, being a famous railway junction with major railway workshops. Nantwich is solid Tory, but the seat has never been anything but Labour since it was created, and its previous inculcations have been Labour since 1945.

Labour is about to get punished. This fairly solid Labour working class seat is going to go Tory. The BBC is already reporting 2 hours before the results come in that Labour is quietly conceding. Labour's campaign has been shocking though. Dunwoody's daughter is the Labour candidate and the Labour campaign claimed the Tory candidate is a top hat wearing toff with a large landholding with horses who doesn't even live there. Well he doesn't, he lives 30 miles away, but the landholding he is accused of owning is next door to his home, and he is no toff. However the Labour candidate has an entry in Burke's Peerage and Baronetage, and lives 130 miles away.

It's going to hurt Gordon Brown assuming Labour loses. The next likely by-election should be Henley, assuming Boris Johnson resigns given his new job! However Henley should be a pushover for the Tories. Quite simply Labour looks as tired in the UK as it is in NZ, but then it's awfully hard to please people when house prices are going down in most places, fuel and food prices are going up, unemployment is creeping up and the government finds money to nationalise a failing bank. Old Labour voters are fed up (and are too stupid to not know that more government doesn't work), New Labour voters have been seduced by the new vapid Tories, and that's it. Gordon Brown may face a leadership challenge after tonight.

One welfare recipient wanted more

The NZ Herald has a headline "Beneficiaries angry as they watch pay relativity slide". Yet the article quotes one, before quoting socialist academic Susan St John (what's stopping her paying more) and the Salvation Army.

The one woman quoted was once President of something called the Combined Beneficiaries Union. You might wonder why people who don't sustain themselves financially, who don't have to concern themselves with employment conditions, would need to belong to a Union - well, it is a leftwing lobby group. A bit like the infamously named Unemployed Workers' Union, an organisation that I thought as a child was contradictory. No one is a worker if they are not doing work (and let's avoid the stupid Marxist concept that anyone who isn't some blue collar employee ISN'T a worker). They exist to essentially lobby the state to make other people pay them more money, as crude and self interested as that.

However, wait there's more. The Combined Beneficiaries Union isn't privately funded - YOU pay for it. According to a Parliamentary Question from National MP Judith Collins, this "union" is 40% funded compulsorily by you. About $60,000 a year. Enough for someone's salary.

So you are forced to pay for an organisation lobbying to force you to pay its members more.

But wait, there's more. The woman interviewed was involved in a scandal regarding the firing of someone allegedly making expense claims for personal items. The story is here. To be fair the woman concerned, Helen Capel sounds like she has been treated badly.

However, that is by the by. The bottom line is that beneficiaries have been given nothing - you see they always vote Labour, but that means they don't need to be given anything by Labour. Of course those who care could always take their tax cut and any more, and give it to beneficiaries they know, or can find. However that would involve really giving a damn, and far too many talk about caring about the poor, but wouldn't go near actually helping them directly.

So what should National do?

So after accusing the Nats of wanting to borrow to pay for tax cuts, that’s what Dr Cullen is doing. Going into deficit to give modest tax cuts that STILL mean more tax is collected per person in real terms than was the case than when Labour was elected.

You see, if Dr Cullen had merely spent more to compensate for inflation since he held the Treasury reins, he would have increased spending by only 24.7% according to the Reserve Bank’s own inflation calculator. Now I know it’s a Labour government, you could say, well maybe he could have increased it by double that. No, government spending has increased by four times the amount necessary to make up for inflation since 1999.

Now what should National do? That’s what everyone is wondering. After all will it borrow more than Labour to give back more. Will it cut spending?

I don’t expect much from National, and it typically ensures that I have overestimated that. However , here’s an idea. Let’s say that National had remained in power in 1999. It is a fair assumption that National would have continued pretty much with the policies it had then. If we are to believe the Nats about efficiency in the public sector, then there is little need to grow spending beyond inflation is there? Yes population grows, but spending shouldn’t need to grow beyond that either.

Population growth since 1999 has been 6%, and with the inflationary factor of 25% on top of that, that means in order to maintain a steady state of spending, with no efficiency gains, government spending since 1999 should only have increased nominally by 33.2%. It has increased by 69%.

So National, if it was honestly maintaining the status quo of its policies, should be cutting spending back to where it would have been had it stayed in power.

National’s last full year in power saw total Crown expenses of $33.939 billion. It is now forecast for 2008 to be $57.364 billion. Had spending kept pace with only population and inflation, it should be $45.2 billion. National should be announcing spending cuts of around $12 billion.

What does that mean in tax cuts? Well using the Treasury handy calculations which are admittedly inexact as they don’t take into account the dynamic effect of lower rates generating increasing amount of revenue, this is what you could do:

Implement Dr Cullen’s new thresholds in full immediately ($80k for 39%, $42.5k for 33%, $20k for 21% and the new base rate of 12.5%). That’s $2 billion back in people’s pockets straight away, but that’s hardly enough.

Cut GST to 10%, providing modest relief on fuel and food prices to everyone. Another $1.7 billion

Abolish the 39% envy income tax rate introduced by Labour and cut the 33% rate to 25% along with company tax. A whopping $4.2 billion back to individuals and businesses.

Drop the 21% rate altogether down to the new lower 12.5% rate. Another $3.3 billion.

All up a tax cut of just short of $12 billion. You’d have company tax below Australia’s level at 25%, you’d have a two tier income tax structure with a rate of 12.5% up to $42,500 and 25% above that. GST would be down to a simpler 10%. Think how much more competitive that would look, think how kiwis in Australia and elsewhere may go, hmmm keeping 75% of my income instead of 60%. By the way ACT advocates might note that this goes beyond ACT tax policy from the last election , which advocated 25 and 15% as two tier rates, and no cut in GST.

That’s just if National had been prudent and spent no greater than inflation and population growth since 1999.

So do you think National will get that? Or is it addicted to pork as well? Was the government underspending in 1999 so much, or would you rather it spend like it was then and give you back the surplus? Are you getting value for money that means you'd rather pay the tax you spend now, rather than 12.5% on the first $42,500 and 25% on every dollar above (and a little less on goods and services)? Oh and don't mention roads, I haven't even touched fuel tax.

Cullen really is still taxing you more

So after accusing the Nats of wanting to borrow to pay for tax cuts, that’s what Dr Cullen is doing. Going into deficit to give modest tax cuts that STILL mean more tax is collected per person in real terms than was the case than when Labour was elected.

You see, if Dr Cullen had merely spent more to compensate for inflation since he held the Treasury reins, he would have increased spending by only 24.7% according to the Reserve Bank’s own inflation calculator. Now I know it’s a Labour government, you could say, well maybe he could have increased it by double that. No, government spending has increased by four times the amount necessary to make up for inflation since 1999.

So Dr Cullen has introduced a new bottom tax rate (for up to $14,000) of 12.5% (to please his supporters). A drop from 15% (after the low income rebate).

The raising of the 33% threshold from $38,000 to $40,000 is well under the rate of inflation since 1999. Had he inflation adjusted it, the new threshold would $48,000. The 39% threshold adjustment from $60,000 to $70,000 is also below inflation since the rate was introduced in 2000. The new threshold should be $74,000. So Dr Cullen is still taxing those people more than they were in 2000.

So why? What's the pork? Well the long list is in Dr Cullen's speech here, but here's quite a bit of it:

# Middle class welfare hiked up in the form of Working for Families (looking at National pointing at it to find something to get rid of in exchange for tax cuts). Recycling tax money so thousands of families are grateful they get “given something” from the state that was taken from many of them in the first place. Truly vile stuff.

# More subsidies so people in rural areas (who Telecom is forced to charge below cost for telephone line rental) can get broadband that they would otherwise get if they lived in cities (yet somehow people in cities don’t get the cheap rent, free parking and uncongested roads in return).

# More money to reduce class sizes, but nothing to link performance of the teachers to what they are paid (you can’t you see, because the teachers’ unions support the Labour party and are hard working people who work equally as brilliantly and nobody knows what a bad teacher is like).

# More subsidies for home owners and landlords to increase their property values by installing insulation and clean heating (South Island vote presumably).

# Rail pork, Dr Cullen wants to build the Marsden Point port branchline, a line that the profitable port company wont pay for (even though it apparently is wonderful for it) and which economic appraisal says is not worth the cost. He is Think Big man for rail, wanting a multi billion dollar underground rail link, a rail link to Auckland airport (even though most airport trips don’t start or end anywhere near the city) and one to the North Shore (even though that doesn’t stack up either), admittedly over 20 years. Of course it is a bit too much to expect users to pay even half the cost of that.

# Continuing the $30 million a year Jim Anderton transport pork for Gisborne/East Cape and Northland, essentially subsidising the roads used by forestry trucks (because charging them like is done overseas is clearly out of the question). Jim Anderton promised that forestry would generate jobs galore in those regions, although the share of the vote his party gets there doesn’t show they are grateful. Gisborne/Hawke’s Bay still has the highest rate of unemployment, so that’s worked a treat clearly.

# $27.8 million to the people living the dream of TV programme making with a Screen Production Initiative Fund (wonder why they can’t just borrow or spend their own money on filmmaking, I mean it’s such a difficult and gruelling profession). I’ve mentioned before how that lot are hand in glove with Labour.

# More money for the Ministry of Pacific Island Affairs, which of course does education, healthcare, immigration… oh no that’s right, it produces nothing but bureaucracy.

# $10.9 million so state radio can keep operating supporting statism . You be the judge as to whether a wide range of views on the budget and the role of the state get broadcast on it.

# $72 million to bribe the Winston vote elderly by giving them free off-peak public transport use.

But I'm not surprised. This is after all a Labour government, it believes in growing the state and in Nanny State. A tick for Labour is a tick for more government, all Dr Cullen has done is reduced how much he has increased the real tax take in future years. A tax cut? Hardly.