Poll Dancer by Keith Ng

Tax Rebates vs Income Supplements: The Eternal Struggle

My head hurts. So, so many numbers. I was staring at National's Tax Cut Calculator, the fields began to blur, and pretty soon I was comparing the tax cut I'd get as a single parent with three dependent children and what I'd get as a Level 11 Elven Ranger.

It really is getting ridiculous: the student loan calculator, the Working for Families calculator, National's tax cut calculator – so many calculators are required just to figure out what we're getting bribed with.

That's been my biggest disappointment with National's tax cut – despite all their talk about smaller government, reducing bureaucracy and cutting government waste, they've gone and made the tax system even more complicated, and loaded all the goodies on as tax rebates.

But before I rant further, one excellent bit of National's tax policy that I'm afraid will be drowned out in the deafening din: Dropping the secondary tax rate from a ridiculous 33% down to 19%. Fantastic. People work two jobs because they're poor, or because their first job pays peanuts, so it makes very little sense to tax them more for working hard (and not necessarily getting rich doing it). Moreover, it's a recognition of the casualisation of work, etc. I hope that, should Labour win, that they look into this, too.

Anyway, the line from Brash that really stumped me:

“During the interim period while the family tax is being developed, a 20% abatement rate will be applied on top of our 19% tax rate out to $50,000. This will mean that even with income support abating, lower income earners will face an effective marginal tax rate no higher than the top rate of personal income tax of 39% (19% plus 20%).”

No, don't bother trying to work it out - you'll waste more time than that tax abatement is actually worth.

That's not a completely flippant remark. We're in an election where our choice of bribes are a) an income-adjusted tax-relief/income-supplement package tied to the number of kids you have, versus b) an expansion of existing tax brackets (along with the addition of a new one) and a swath of tax rebates.

I think I might just work for the goddamn money, thanks.

Then there's the process of actually getting it. I applied for an accommodation supplement under WFF two months ago (worth $30-40/week, I expect), and I'll get to see a case manager later this week (I have no idea why I need to talk to them, or what we'll talk about, but The Bureaucracy demands it), and then my application will be processed and considered.

This is the kind of stuff that gives traction to National's “the government is wasting money on pen-pushers” message and to their shaming of Labour for making people grovel to MSD to get their own money back. But what does National do? Offer to take the money away from MSD's grubby hands and give it to IRD's grubby hands. Instead of applying for benefits like a peasant, you get to apply for tax rebates, like a big businessman.

As the Libertarianz say, “it's enough to make you want to vote Libertarianz”.

Incidentally, I gave my candidate vote to the Libertarianz last election – they were the only ones who offered a universal allowance. It was a remarkably simple concept – instead of the current welfare system, you just give a sum equivalent the dole to every adult, regardless of income, so that nobody has an income lower than that, and you completely remove the problem of marginal tax rates caused by benefits being taken away. That, and you can shave the welfare infrastructure down to the bone, which is a gloriously satisfying concept. And you're not giving rich people more money, because the extra will be funded from their taxes, anyway. It's not nearly as crazy as it sounds...

--

Anyway, I'm sure there are some of you out there who are more mercenary about this, and for you, the choice can be really simple – punch up the appropriate numbers on the various websites and let the calculator decide your vote. After all, that's what a good rational economic agent would do.

If you want to get more reductionistic, don't even bother with being a rational economic agent – just be a blip in a demographic. Do you have a student loan, dependent children, or a low-income? Vote Labour. Are you rich, single, or childless? Vote National.

What? You care about the state of the economy and the nation beyond your own short-term financial gain? You're in the wrong election, buddy.

But then again, I guess I am, too. Watch this space for some geniune economic wonk later in the week. In the meantime, chew on Jordan Carter's numbers.

To the Spreadsheet!

Graphs and tables have been produced on National's tax numbers. Click on the "Audio" link above or the "Audio" button at the bottom to open them up.

Revenge of the Nerds

With the National Party finally prepared to unleash the torrent of fiscal wonk that they've been baiting us with for so long, we're about to enter the geekiest two weeks of the election campaign. This week, I talk to Michael Cullen about what really happened with the "Chewing Gum Budget", tax cuts, and countercyclical whatchamejigs. So put some fresh batteries in your calculator and get ready to *wonk*!

[Sitting-in on the interview was Patricia Herbert, Cullen's Press Secretary, who helpfully chimes in once or twice during the interview. And sorry, I know this is pretty jargon heavy - I was going to make links for all the economic terms, but I was up till 3 transcribing this bloody thing, and I'm supposed to be on holiday. So if you're unfamiliar with any of the terms, google it yourself or look it up on Wikipedia. The entries on Keynesian economics and monetary policy are probably the most relevant background pieces, if that's what you're looking for.]

Would it be fair to say that the Government has surplus at its disposal, but is choosing to invest in long-term assets and debt repayments rather than on present spending or tax-cuts?

In part, yes. In part it's also simply a matter of macroeconomic management.

One of the problems we're running into is, because the economy's been running at a very strong rate for about five years now, we've got around 4% [growth] or very close to it, and sometimes a bit above that, we've forgotten that there's such a thing as an economic cycle. And the rate of growth over the next couple of years is expectedly to be significantly lower than that number, [down] to 2.5%.

So basically what we're talking about, the surplus in last year, is a surplus at the peak of the cycle. In that situation, the government would be expecting to run, effectively, a somewhat contractionary fiscal policy, because it's trying to take some heat out of the economy. And obviously, we have a significant amount of heat in the economy at the present time, looking at labour shortages, inflation at the top-end of the band, and so on. If the government is not doing that, then it'll simply lead to a monetary policy response.

So in effect, what's happening here is good old-fashioned counter-cyclical fiscal management of the sort that doesn't lead to any great lurches, but simply says let your automatic stablisers work. When the economy is growing particularly strongly, you run surpluses, you pay off debt; when the economy is running much more weakly, you're borrowing more, in order to stimulate the economy.

[But] equally, we've also been focusing on the long-term, with the transfers into the superannuation fund and with a concern to keep debt coming down, because in the long-term, we face some significant fiscal pressures around health and superannuation.

In your 2000, 2001, 2002, 2003, 2004 budget speeches, you didn't talk about the cash surplus at all, only the OBERAC. In 2001, when you were talking about the OBERAC, you said that it "may be regarded as the measure of the underlying surplus"...

Yes, I think that's right...

But in the 2005 speech, you focused on the cash surplus as the 'real surplus'.

Yes, because unfortunately the media - and obviously political opponents, for purely tactical reasons - couldn't get it through their heads that the operating surplus wasn't the amount you could spend. I mean, I just couldn't explain to them: out of the operating surplus came the money that went into the superannuation fund, came large amounts of money from capital investment of other sorts that went off deparmental balance sheets, came the retained profits in the SOEs and Crown Research institutes and Crown entities and all the rest of it, and they kept talking of it as though it *was* the cash surplus.

It's still correct, in my view, to say that the OBERAC reflects the *underlying* fiscal position, but that's not [the figure] that tells you what you've got free to spend, over and above what you're spending now. This last year we've had a very large cash surplus. We won't have anything like that much in this current year.

About the counter-cyclical adjustments: Do you consider yourself a Keynesian economist?

In that sense, yes. I believe that one of the secrets of fiscal management is to allow the automatic stabilisers to work as best as you can, rather than actually acting consciously pro-cyclically or counter-cyclically, which assumes you can pick when the turning points are.

It's bad enough the Reserve Bank having to make those decisions, it's terrible if you've got someone else in the economy trying to make them as well - and probably making different ones. And the thing that went wrong with Keynesian fiscal management in the post-War era - and you can see it in this election campaign - it very easily degenerates into one-sided Keynesianism, where you spend at the top of the cycle, because you can afford to do so, and you borrow at the bottom of the cycle, because you need to to stimulate the economy - and so you're *always* turing towards a deficit! [laughs] And so you're always building up debt, and never paying it off! [laughs]

Are you concerned about the political implications of this kind of fiscal management? That you're losing out on the potential political gains from spending the money now, and you could be giving it to a National Government three years down the track? Is it kind of... political selfless, or even politically self-defeating?

Well, we'll know on September 17 whether it's politically self-defeating or not, but the reality is if an incoming National government decided to fund large amounts of tax cuts without reducing any form of spending anywhere, they'll quickly run into trouble. The Treasury reports will be screaming blue murder, and fairly fast, about the direction of fiscal policy over the medium-term. The Reserve Bank will be starting to issue major warnings and probably start to push up interest rates, etc. I think any such government will quickly find that its room to move is rather less than they're assuming.

I think the problem we've got now is a rather odd one, in that we've got both a leader and a finance spokesperson of the major opposition party who are very inexperienced, politically. I don't think they really understand how difficult it is to constrain the growth in health and education spending below a certain level.

Isn't that just the wave of a pen?

That's what they seem to argue. If they do that, they'll very quickly find themselves running into trouble in service delivery - in the hospital sector in particular - and an enormous political backlash, and they'll have to loosen again on the spending side. And that's pretty much common experience over the last 15 years or more now, in New Zealand and indeed any other number of countries similar to us.

What if the money from the tax cuts came from borrowing and from reducing the contribution the super fund?

Well, they've either really got to abolish the super fund or they've got to carry on keeping up the level of payments we're planning, because it's mandated in the statute.

Could they reduce the level of the contribution?

They could reduce it, but they'd have to explain why, and "so we can have some tax cuts now” would not be a very convincing explanation. I don't think that, politically, that would be very acceptable at all.

They could borrow more, but if they were borrowing more to effectively hand that on by way of tax cuts, they'll be stimulating a higher level of consumption, and that would inevitably lead to a monetary policy reaction. That would lead to interest rate rise, so it would be very very bad fiscal management indeed. And I don't believe that someone like Brash, as an ex-Governor of the Reserve Bank, could actually really seriously be thinking about doing that.

I think that Brash does believe that it's going to be quite easy to somehow cut state spending back, and that there's going to be no great political pain in that. That's where I think he's fundamentally wrong.

What do you think about the theory of some people that National is trying to create a strategic deficit?

Well that's a possibility, of course. Certainly, Douglas did that in 1987 with that tax package. No question there was a strategic deficit in there, and the plan was that spending was going to have to be cut back to fill the hole. It's been used before in the United States context - I think that's to flatter Bush's economic management rather heavily. I don't think he's being strategic at all!

As I say, I find it hard to believe that Brash would engage in a fiscal strategy which would lead to substantial increase in debt over time. That's not consistant with everything he's ever said in the past.

But you think that he can use debt as a lever to reduce spending?

Not to a great deal, no. Very hard to justify it. And there'll be lots of very nasty Treasury reports about it, which will cause them all kinds of intense embarrassment. Given what they've been saying, if they got into government, they would have to deliver these tax cuts with both minimal impact on social services and minimum impact on borrowing. I think that's a very hard ask.

You said before that you've being trying to push "cash surplus" into the public discourse to replace people talking about the OBERAC, the message being that "there is no money to spend" rather than the message that "the Government is trying to save money for the future". Do you think that's a political problem, that people don't realise that the Government has these long-term goals in mind?

I think people understand some of that. They certainly understand that around superannuation: putting some money aside to save for the future, to build up assets, etc. What I do think a lot of them believe is that we could actually have a bit of a splurge. But what I find interesting is that at public meetings I go to, there are probably more requests for increase spending than reduced taxes.

It is matter of the Government not really trusting NZers to understand that message [of long-term fiscal planning]?

Er, no. No no. I mean, in a funny way, I suppose we are trusting them - we've put our eggs in that basket, pretty much.

But you haven't really pushed that message very hard?

[Patricia: I think often Dr Cullen's speeches do...]

Yes, that's right. Trouble is, when you keep saying the same thing you don't keep getting it reported. On the other hand, there is a degree of resonance for the argument out there that you've got to be careful about tax cuts, because it's likely to affect spending in health and education, etc. People *do* actually grasp that point. That's what the opinion surveys say.

If you were going to sell the budget again, would you be saying that there was no money for further spending now, or...

No, I'd say it's a budget which is around the long-term. The hard bit of the argument is actually arguing about the fact that, in one sense, you could put tax cuts in now, but that would unwise macroeconomic management. The problem is paying for them further out, when the government is already forecasting to move into substantial cash deficits, and the operating surplus is basically just sufficient to fund the super fund and those bits of capital expenditure which aren't really about increasing our capacity to grow as an economy. There's quite a lot of that in government capital spending: we buy our armed forces equipment, we do various other things; these aren't like buying machines for a factory - we're not going to lift our productive capacity.

Do you feel jibed by the response to the budget earlier this year?

A bit. I'm disappointed that the focus wasn't on the Kiwisaver scheme, and the sort of longer-term plans that represented, and home ownership stuff and so on. [They] got buried in this sort of suddenly created avalance of expectations around tax cuts, which wasn't there a week out from the budget. It sort of suddenly appeared from about Monday onwards... but in politics, sometimes you have to weather through that.

Where did that expectation come from?

That entirely came out from basically two newspapers' sets of journalists in the Gallery here. My failing was not to stamp on that before budget day.

Was it just a simple mistake?

Well... [grins] no comment.

[Patricia: It was more that they started to speculate, and so then if we denied the speculation, then by the process of deduction they can...]

That's right. So we just said we wouldn't get drawn into this sort of "oh well, let's speculate this and you can rule that out, so then once you're silent, we know that's it".

I'm more teed off that they blame me for their speculation, actually! I mean, that, I think, was grossly unfair. And what's really unprofessional is that they resented me for criticising them for blaming me for their false speculation, because I gave them no encouragement about that speculation at all. None at all.

But you didn't do much to discourage it?

No, because as Patricia says, the terrible thing about budgets is you start getting speculation about a range of things. The more you keep ruling everything out, the more the danger is that you end up with no budget to give at all, because basically they've already made sure they've got everything that's in it.

The long-term view of fiscal management - does it reflect your perspectives as a historian?

Yes... short-term pain for long-term gain. It might be my pain and the country's gain, we'll just have to see about that. So, yes it is. But also experience. What's happened over the last 30 years is where debt rose rapidly, and particularly under Sir Robert Muldoon. Very bad fiscal management led to an extrordinarily rapid rise in the government debt in NZ. And that then became a trigger for a period of restructuring which was pretty painful for an awful lot of people. My version of life is that by and large, you should try to avoid pain being inflicted on people. So a little bit of moderation and breathing carefully - which is what I'm saying fiscal management is about now - can save a lot of very nasty pain down the track.

If you did lose the 2005 election on the back of the last budget, would you think that it was worth it, not splurging when you had the chance?

Ha ha... um... yeah, well, I won't say I'll cross that bridge, I'll say I'll swim across that raging torrent when I come to it. [laughs]

Morality is Not Statistical...

...but if it was, at least it should be statistics from a proper sample, not like the Sunday Star Times' "Great Morality Debate", which is trying to pass off a self-selected sample of conservatives brought there under some 1960s conception of "morality" as a "survey" that represents "us".

They tell us to trust them, saying that:

...by crunching the numbers and comparing the demographic patterns of respondents against those of the general population, we were able to conclude that those who took part were roughly representative of the general population, with some exceptions.

One of those exceptions, being, for example, that 17% of respondents were United Future voters. (This is from the print version. The online version omits this.)

Dude, that's not an exception. A 5% under-representation in the 35-45 age bracket, now that's an exception. A 1000% over-representation (M&F's rolling poll put UF at 1.77%) of moral conservatives in a survey about moral conservatism is an invalidating, systematic fuckedupness on the scale of having an ass for a face.

To say that the survey is "roughly representative of the general population", or that it bears any semblance to the the general population at all, is nothing short of a plain, bald-faced lie.

'All in all', concludes Phoenix Research's David Fougere, 'the 10,000 survey participants are not too different from the profiles of all New Zealanders.' (Print version.)

17% UF voters; 1000% over-representation; comprising nearly a fifth of the total sample. "Not too different"? Argggh, this is making my Vulcan blood boil!!

And despite saying that Wellingtonians were much more liberal, they don't do a breakdown of the respondents by geography. And most strikingly, they don't mention the age of respondents at all. Gee, you think that age might have something to do with attitudes towards sex and sexuality?

They use a loaded term like "morality" and ask whether "morality" is important, and then when people who think "morality" is important are the only ones who can be arsed writing in, they consider this to be a "finding"? No, dipshit, it's called a coverage error.

Did I mention that the "survey" was conducted by Phoenix Research? The online version quotes from Fougere extensively, but neglects to mention that his firm was the one that conducted the research. Oops. I was going to link to Phoneyx Research, but now I'm concerned that some people will actually *want* to commission this kind of shit. Can I suggest that, if you want a rigged survey, that you just make it up? It'll have just as much credibility, but it'll be a lot cheaper.

But, to be fair, there was one useful piece of information in there (no, seriously, there was) - the Maori Party respondents were relatively liberal, perhaps indicating that their support base is younger/more educated/more urban than previously thought. Yep, that's quite possibly the only piece of worthwhile information to come from that survey.

I feel a bit bad about bashing the SST after Helen Bain was nice enough to devote a few column inches to my leaders' debate coverage in the sidebar on her blog story, and after Simon Pound was really scathing towards her in his Agenda spot yesterday (and nice towards me). But this whole "Great Morality Debate" thing is really low. It's worthless as research, atrociously dishonest as their major election project, and the coverage they're giving to it is damaging to the public discourse.

On top of that, the whole idea of a survey on morality designed to sway the polity is repugnant to start off with. If 80% of New Zealanders think that homosexuality is bad, should we therefore ban it?

Morality is not statistical.

[Ouu, my article on the Asian vote is finally out in this week's Listener. Go buy a copy and check it out! (More on the issue next week.)

Also coming soon: Dr Michael Cullen! Watch this space...]

Up the Worm Without a Paddle

Leleleleleleead, lilililiisten, lilililisten to lead by lililiistening. And leading. By listening.

Ladies and gentlemen - these are the leleleleaders of our country.

I like suspense, but I'm just going to say it - I think Labour's going to win this election. No, not just because Don Brash started his speech by blurting out the buzzwords that his people told him to blurt out, and no, not because it got worse after that. No, the most striking aspect of the debate was the failure of Peters and Hide to get any traction with their respective messages of "country going down the drain" and "country wants change", and that Anderton had his biggest spike when he delivered the feel-good message of New Zealand being a successful country - and doing better than Australia.

The overwhelming mood of the crowd was positive, and this does not bode well for the opposition. It's that simple.

I had a great time at the debate, which I got to through a series of coincidences. TV1's Agenda flew me up today for an interview for their show on Saturday (it's for the media segment, on the successes of student media, on this Saturday at 8:30am and 11:55pm. And it has me in it.), and on the way up, I was on the same plane as Fran from the Greens, who got me in touch with Roger from TV3, who got me into the debate.

I ended up in the green room, where all the TV3 bigshots and the media minders were, just watching the same TV as everyone else - but it was worth it, just to see the look of G-rated ecstasy on Dunne's minders' faces when that worm kept rising, its veins swelling with the middleness of middle New Zealand.

Good thing that they were all there, then - it just wouldn't have been the same without Peter Dunne to fluff the worm.


Observation and thoughts (most of which are mine):

* ACT: Namechecking Michael Campbell didn't do Hide any favours; undecided voters, it seems, don't agree that change is needed; tax cuts provided an instant response, though interestingly, the numbers didn't make a difference (perhaps it's too difficult to quickly digest?); Hide looked like had a bit too much P going into the debate, but chilled out later on.

* Greens: Did not mention GE; nobody cared about the rivers; albatross-saving is not a vote winner; pollution tax (as a gradual replacement for income tax) was surprisingly well received - I suspect that people thought it sounded like a tax cut, but didn't realise that it, well, wasn't.

* Labour: Consistently talking about consistency. Well, at least that makes her consistent, and her worm rating showed it - it was consistent, too. Tze Ming says that this is meta-mimetic, which is all the analysis we have between the two of us. Tze Ming also notes that she had good hair.

* Maori: It was painful to watch - all the right buzzwords (families, children, etc., and in English, too!) were used, but flopped dismally, even when the exact same lines worked magic for Dunne - Dunne's people say it's about the credibility that Dunne has; seemed scared of the crowd, and, I suppose, that was justified by its hostility; maybe *she* should have mentioned Michael Campbell.

* National: "Oh my god - twilight golf and pet homeopathy" has been flogged to a pulp - it's time to let it go; people liked funny Brash, for a moment; then people laughed *at* him for his "just a few farms comment"; closing speech, the worm made upward progress, but dipped the second he said "vote National Party". Oh dear.

* NZ First: Lacklustre performance by Peters, who uncharacteristically let himself be bitchslapped around by Campbell; his negative message of New Zealand being overrun (by who? Oh, you know, *people*.) didn't work; it was interesting that neither covert or overt racism did much for the worm, and even "gender-bending" didn't provoke a response - whatever happened to Winston "Love-Him-or-Hate-Him" Peters?; and boy, did it all go downhill after "paddling". "Paddling" is not a buzzword. Which focus group did you get that one from, Winston? NAMBLA?

* Progressives: Positive messages of growth, success and stuff-Australia worked well, and saved Anderton's ass after a dull opener of "pragmatic", "incremental gains", and basically 'we're better than nothing'; amazed, however, at how effective his bullet-point closing "speech" actually was, perhaps nobody expects a vision out of this man anymore - but they do see him as someone who gets things done.

* United Future: Undecided voters trust an undecided politician - hell, undecided voters *are* his constituency. I finally understand the utter bewilderment of pundits in 2002. I don't know what he's doing, but he sounds good doing it. Actually, no he doesn't. Fuck, I don't get it.

--

The whole exercise was an incredibily rich and valuable resource for the pundits and spin-doctors. And it was great fun, even after Tze Ming, in the absence of a worm controller, punched me to express her disapproval during Peters' speech.

Still - a bit of context: These are all undecided voters, and as numerous as they are, they are equally volatile, so let's not take this too seriously. The key thing to watch is voter contentment - if people think that the country is heading in the right direction, if people are happy with their lives, Brash and co. will have an uphill battle to convince us that New Zealand is worse than Australia, and that our lives, in fact, suck.