Dutch elections, victory for freedom

The elections in the Netherlands have produced two substantial winners and two losers. However, I will let you count the number of times in the media YOU see how one of the winners is portrayed.

The first winner is the new leading party, the VVD (People's Party for Freedom and Democracy) which is a party of economic and social liberalism. It is similar in mould to how ACT (NZ) presents itself. It believes in free markets, welfare only for Dutch citizens, and reductions in taxes. It appears to have gained nine seats, increasing vote from 14.7% to 20.4%.

The second winner, is the new third party, the one that will get the most publicity, the PVV (Party for Freedom). It is led by Geert Wilders, a man who the British government sought to ban because he opposes Islam. The PVV believes in substantial tax cuts and reductions in the welfare state, the abolition of the minimum wage, is sceptical about the European Union, and believes only immigrants who embrace Dutch humanist and Judeo-Christian values should be admitted. Wilders is radically opposed to Islam, which means he is portrayed in much media as being "far right nationalist". However, like the late Pim Fortuyn, Wilders is no fascist. He simply vehemently defends the social liberalism and tolerance for individual diversity that the Netherlands hold dear AGAINST those who wish to destroy it. On top of that, he would implement a radical programme to cut the role of the state. It has gained 15 seats, rising from 5.9% to 15.5% of the vote.

So between those two, 36% of Dutch voters supported scaling back the size of government.

The losers were:

The CDA (Christian Democrat Appeal), a centrist conservative party. It believes in reducing state spending, but also tougher controls on drugs, prostitution, abortion and euthanasia. It supports decentralised control of schools and hospitals, and wider European integration. It is the party of the outgoing Prime Minister, Jan Balkenende. It lost 20 seats, to drop from 26.5% to 13.7% of the vote.

The SP (Socialist Party), which believes in the welfare state, state health and education, and opposes privatisation and globalisation. It was originally a Maoist Party during the height of the Cultural Revolution. It lost 10 seats, dropping from 16.6% to 9.9% of the vote.

It would seem Dutch voters rejected conservatism in favour of small government, and the financial crisis has also seen them turning from Marxism.

Other results were modest losses for the centre-left Labour Party (from 21.2% to 19.6% of the vote), and the centrist (conservative socially, economically leftwing) Christian Union (from 4% to 3.3%).

There were also gains for the Democratic 66 Party (an unusual blend of liberalising labour markets, supporting tax cuts and market reforms to healthcare and education, combined with environmentalism, radical social liberalism and a federal Europe) which soared from 2% to 6.9% (arguably another party that believes in less government) and the Greenleft party (which is an unsurprising mix of environmentalism, former communists and believers in big government socialism) which went from 4.6% to 6.6%.

So capitalism is hardly under attack in the Netherlands when the main parties that gained support believe in more free market policies, with the only leftwing party making any gains hardly making up for the losses from other leftwing parties.

Blogging disrupted

Just to note my blogging regularity has been disrupted because of:

1. Being overseas twice in the last few weeks (with glacial speeds available);
2. Moving home;
3. Two and a half weeks to get a phone line installed to carry broadband (and no, there is no cable TV option, as Virgin Media hasn't cabled my street).

So whilst I wait another 7 working days to get POTS (Plain Old Telephone Service), after which I can get broadband, service is not going to be regular. No, I'm not getting it from BT, not only because it is an expensive and poor quality deal, but also because since BT has lobbied hard to destroy BSkyB's property rights in programming (which were built up commercially against two government owned competitors, and three government licensed ones) I figured I no longer needed to give a damn about BT's property rights on local phone lines.

Meanwhile, the British media has been focused on:
- Gunman who went on a shooting spree (but few have asked whether others having guns might have stopped him earlier);

- The Gulf of Mexico oil leak, Obama's xenophobic attack on BP to make up for his own impotence on the issue, and BP's own incompetence;

- The World Cup (which sadly is unlikely to see a New Zealand-North Korea final, as much as it would upset millions) is hyping up England and South Africa;

- The next stage of austerity, as the Con-Dem government "warms" up the British public for spending cuts perhaps ten times that already agreed (whilst the public continues to remain ignorant about what cuts actually MUST mean, such as cutting the welfare state and increasing university fees). Much good is being said about focusing on the role of the state. Few yet understand how drastic and urgent the cuts have to be, and sadly it will also include tax rises;

- The ultra-tedious contest for leadership of the British Envy, Spendthrift and Spin Labour Party, now no longer including a relative unknown who said Margaret Thatcher should have been assassinated in the 1980s. Most recently it now include Diane Abbott, who is notable for being a black woman. One of the contenders, Ed Miliband, said it showed the diversity of the Labour Party. It was pointed out to him that two of the contenders share the same mother (his brother David Miliband is also standing), and of course another man called Ed is standing as well.

Much ado about 1%

The big news in the UK yesterday was the announcement of £6.2 billion in spending cuts by the government in the current year. It's a cut that both sides of the House of Commons are not being fully honest about. How many lies or evasions of the truth are there? Let's count:

Lie number 1. The Labour Party is claiming that these spending cuts are about "taking money out of the economy" and will precipitate a "return to recession". There is no evidence that running a deficit that is as high as 12% of GDP (higher than Greece) bolsters the economy. In fact quite the opposite. After all, if running huge deficits saves the economy surely it should be steaming along, when in fact in the last quarter it grew by 0.2%.

Allister Heath in City AM proclaims the arguments in favour of continued the high levels of deficit spending are "intellectually bankrupt, pseudo-Keynesian" as the bloated state crowds out the private sector. Why? Because when the state borrows on such a scale, it does so by issuing sovereign debt. It has to do so at market interest rates to attract investors, so it attracts investment from the private sector, in everything from manufacturing to services to banks seeking deposits to boost their own leverage. One of the leading lights of leftwing journalism in the UK - Polly Toynbee of the Guardian - shows up her own economic illiteracy in saying "If Europe causes a second dip, cutting is a bad decision; if Treasury receipts strengthen, then such deep cuts so fast may not be needed." So it is NEVER a good idea to cut government spending according to socialist Polly.

You see the British government is dependent on private investors lending it money to pay for current spending. If confidence lapses in the government's ability to do so then witness Greece. One need not be a libertarian to see how unsustainable fiscal profligacy is. In a world where the term "sustainable" is a buzzword thrown about promiscuously like the favourite harlot of the age, it is curious that most don't understand it outside the platitudes of environmentalism.

So Labour is dead wrong, and largely to blame for the current set of affairs (most of the deficit is not about bailing out the banks, but about the collapse of tax receipts to prop up the bloated state built up by Blair and Brown, and overextended by Brown in recent years). Yet before the election it didn't completely shy away from cutting spending.

Lie Number 2. Labour wouldn't have cut spending. You see Labour did pledge to halve the deficit in five years, which would have meant a sustainable reduction in spending of at least £20 billion per annum. While Labour wouldn't cut spending in 2010, it would have been under enormous pressure to impose significant cuts in 2011. However, its new Great Leader will no doubt simply oppose cuts regardless of the 2010 Manifesto.

Lie Number 3. The savings are all going to cut the deficit. No. £0.5 billion of the savings are actually going to be spent elsewhere and used to start some tax cuts. The latter will be a miniscule boost to the economy, but in essence it sends the message that cutting spending means having money to spend elsewhere. It doesn't while you still have a budget deficit, especially on this scale.

Lie Number 4. The cut in spending is substantial. No. The saving of the total UK budget is less than 1%. Yes that is all that is being saved. It tells you something that total UK government sector spending is 100x this. That comes to the real issue. The budget deficit this year is £163 billion. Less than £6 billion off of that is 3%.

Shifty evasion number 5. There will be further cuts, but this was the hard part. No. Even an optimistic view about the economy, which given the crisis in the Eurozone (which is easily the UK's biggest trading partner) is unlikely, would likely generate sufficient tax revenue to cut the deficit by between a third and a half over time (time during which debt will have increased and the debt servicing costs as well). So there needs to be, at the very least, cuts 12x those implemented yesterday.

Shifty evasion number 6. Future cuts can be made through "efficiency savings" and "trimming budgets". No. Let's assume there needs to be cuts of around £105 billion in spending. You could not do that without hitting some combination of welfare, education, health, defence, or cutting public sector salaries. In other words, significantly limiting the welfare state. The "pain" has just begun, and the dirty little secret is that the UK welfare state as it stands is unaffordable and unsustainable. At some point hard decisions are going to have to be made such as:
- Will health and foreign aid both remaining untouchable areas, both with real increases in spending?
- Should public sector salaries be cut by up to 20% on average?
- Will tertiary sector funding increases have to come entirely from fees?
- Will pensions and welfare benefits be frozen or cut?
- Will middle class welfare, such as winter fuel allowances for the elderly be severely curtailed?
- Will government housing expenditure be halted?

The Conservatives probably know that, and also know that having the Liberal Democrats part of the government that does some of these will help spread the political blame.

However, the public still remains ignorant of the scale of the problem. Which brings me to:

Incompetent explanation of the need for spending cuts. George Osborne as Chancellor of the Exchequer has done a shocking job of selling the need for cuts. He hasn't explained that interest rates could rise if cuts aren't made, he hasn't explained that a bloated state does not allow the private sector to grow, he doesn't convincingly make my first point above, that continued deficit spending is NOT about keeping the economy going - it takes money from the private sector to make the state take it from taxpayers in the future.

What the 1% cut in public spending means is simply a sign of willingness to take steps to deal with Britain's fiscal catastrophe. It is seen as a first step, but sadly is being portrayed as "taking the tough decisions early".

The cuts announced are easy and obvious, although a minor point is that it is odd for government to cut spending on roads when it doesn't allow the private sector to enter the market (and already recover revenue 4x that which it spends on roads from road users).

On top of that it is nice to see the UK doesn't have privatisation -phobia like New Zealand does.

The Royal Mail is to be part-privatised (49%) to raise money and to get private investment into the firm. Far more interesting is that the government is considering a serious proposal to lease the entire motorway network to the private sector.

Hone Harawira is right

Yep I don't say that too often.

According to Stuff "He was having difficulty supporting a tax increase that made things easier for the wealthy "at the expense of those in need".

"GST hits poor people the hardest because nearly all of their money is spent on things that you pay GST on – food, petrol, electricity – so any increase is going to really hurt them.""

Yes, and you don't need to be a socialist like Hone to realise that consumption taxes do this because those on low incomes spend more than they save.

There can, of course, be income tax cuts. In fact simply winding back government spending in real terms to what it was in 1999 would enable the deficit to be abolished and for the top rate to be scrapped and the 33% rate to be cut without raising GST.

Imagine the change in economic activity and international perceptions of NZ if government did scrap the spending outlined by Roger Douglas, wound back spending to 1999 levels, scrap middle class welfare such as "working for families", put serious caps on welfare and see the top rate drop to 21% for income and company tax, and make the first $14000 tax free.

Hone Harawira would be arguing about spending cuts (yes you wont get subsidised broadband, your university fees would go up with inflation and welfare would be far tougher), but he'd not be arguing about tax because those he is interested in would be paying less. Everyone would be.

However, I forgot, many of you elected a Labour Lite government led by Helen John Clark Key with Michael Bill Cullen English as Finance Minister.

After all Labour only increased income tax once (the 39% rate) and then reduced income tax once, and did not ever increase GST.

UPDATE: Oh NOW I know why you voted for Labour National, David Farrar makes it clear it is about staying in power for three terms. Quite why you'd choose the blue team over the red team to keep implementing the red team's policies is beyond me

Fifth bailout in twenty years

The announcement by the New Labour National government that it is spending NZ$750 million of your money, to strengthen a company that the Old Labour government bought for NZ$690 million ought to provoke outrage on behalf of those supporting the current government, and should condemn Labour and its cheerleaders the Greens to history for being the most egregious destroyers of taxpayer wealth since Sir Robert Muldoon.

It should be so obvious to a child that buying something that is worth NZ$690 million and having to spend $750 million to save it is lunacy. Labour receives the blame for the former, and now New Labour National does for the latter.

What to know why you're not getting a real tax cut? Ask both of those gangs of reckless spendthrifts. Why their parents didn't spend a couple of hundred bucks to buy them train sets when they were kids so they could indulge in this pastime is beyond me? (mine did by the way).

Will Kiwirail make a profit that will even approach to recovering this (and the other money poured into it in the past year or so)? No. Indeed, the goal is to be "self-sustaining", which presumably means make an operating profit, not recover the long run cost of capital in this very capital intensive business.

The problem is we've been there before. Government is regularly using your money to rescue railways in New Zealand. The first time was understandable, the second time could even be partly excused as due to the legacy of Think Big, but ever since then it has worn a little thin.

The simple truth railway enthusiasts (and I count myself as one of those) have to accept is that the economically viable future for railways in New Zealand is to operate a severely curtailed network carrying moderately high volumes of containers and bulk commodities.

Two years ago I wrote this post, still valid today, where I outlined what looked to be viable and what did not. Railways north of Auckland have little future, as does the line north of Masterton and between Stratford and the main trunk. The Napier-Gisborne line has had a fortune poured into it, so may be best to keep mothballed in the event of traffic.

David Heatley from the NZ Institute for the Study of Competition and Regulation has an excellent presentation called "The Future of Rail in New Zealand". I wrote about it as well.

You see the railways were bailed out in 1982 when transformed from a government department to a commercially oriented corporation (the first "SOE" before the term SOE was coined).

The railways were bailed out again in 1990, in part to pay the full cost of the main trunk electrification approved before corporatisation (and which was found to be a loss making capital investment even if the electricity was supplied for free), and in part to pay for the restructuring following the removal of the monopoly on long haul freight.

Then it was privatised in 1993.

It was bailed out once more when Dr Cullen bought the track from Toll Rail (having earlier paid over the nose for the Auckland rail network), and then refused to enforce the cost recovery track access charges needed to pay to maintain the network.

The fourth time was the renationalisation, by paying well over the market price for the "business" it kept it open, except that it is unprofitable.

Now you're paying more, this time to make it "viable".

Darren Hughes has said the $750 million isn't enough, because $11 billion is being spent on roads. Yes well done Darren, noticed a railway to every business and home? Noticed how many people use roads compared to railways (most lines you can wait hours for a train of any kind to appear)? Might you be better asking why YOU voted for taxpayers to pay over the odds for this dog of an asset? What is he trying to achieve besides looking like he's addicted to spending bad money after bad? Does he want to spend $11 billion on railways??? He says "I think we need to be looking at how we move freight from, say Gisborne on the east coast, to Napier port". Who is this "we"? Because almost all of it goes by road, as it is substantially cheaper. This was looked at when you were in government Mr. Hughes the simple answer is that there is damn all freight from Gisborne to Napier, because Gisborne has a port. The distance is far too short for a viable rail freight operation.

This example shows all too obviously how inane the Greens are on railways (believe in them, believe in them), how blatantly wasteful the Labour was in renationalising it and how the Nats are too damned scared to do what actually needs to be done - get Kiwirail to borrow the money for its renewal itself.

If there are people willing to buy trains and run them on the network paying to use it, then let them. If there aren't then mothball parts of the network and offer to sell it to whoever wants it.

The arguments that the railways save money are clearly ludicrous.

If there is a desire to ensure rail and road are on an equal footing then set up the highways as a profit oriented corporation that borrows and invests in its network paid for by user fees.

Then both networks can be self sustaining, and be privatised. Hopefully then the ongoing political fetish of saving a network that, by and large, has had its day and is now only viable for a few core freight tasks, will be over.