Wednesday, 8 October 2008

tax cuts

whew, i didn't mean to take such a long break, but as graham reid says in a post about not posting:

My point is that after a couple of weeks not passing my opinion into the world it became harder and harder to catch up with the fast-passing game, and increasingly unnecessary.

well, i do have the excuse that i was busy with eid celebrations, then spent much of the weekend in auckland and attending events in hamilton. have since been struck down with a bout of unwellness, possibly related to feeling a little rundown after ramadan.

but here i am again, and wondering where to start. since tax cuts are the topic du jour, let me say a few words about that. i can't do pretty graphs like they've done at the standard, nor the cool comparative tables at no right turn. and everyone with an opinion has a press release out on the subject, although i did find this one from the manufacturers and exporters association quite interesting:

“The funding for the cuts has come from the wrong places. New Zealand was once at the bottom of the OECD in terms policy support for R&D spending, this change will put us back in last place. At a time when other countries such as Australia are about to increase their support for innovation New Zealand firms will once again be at a competitive disadvantage in this respect.”

“Investment in the tradeable sector requires a long-term commitment so removing these incentives will hurt firms that have already priced in the tax credit. This sort of backtrack demonstrates a lack of understanding of the tradeable sector and causes Government distrust. The comment that, “evidence of real increases in R&D is harder to find” is daft given that the R&D credit applies for the first time in the 2008 income year. We have already sunk the setup costs, abolishing the credit now is extremely wasteful and confusing.”

“Reducing the value of Kiwisaver also appears a short-term move at a time where our reliance on offshore credit has exposed our economy to the foreign financial crisis. Kiwisaver has come too late to avert this financial crisis, but increased levels of saving will reduce our susceptibility to future problems. The removal of the tax credit for the employers contribution to Kiwisaver puts yet more pressure on firms,” says Mr. Walley.

the funny part of this press release is that mr walley (?!) forgot to tell us how he thinks the tax cuts should be funded. maybe he didn't want to raise the spectre of more borrowing, given the current economic climate and the increased cost of credit. but the money has to come from somewhere after all, and what's the point of (very validly) criticising national's existing proposals without suggesting an alternative source of funding. the fact is that the national party tax cut proposals are a waste of time, and won't get the money to where it's needed most.

there was something else that really annoyed me today. it was the vision of dr don brash on tv, telling us how very well placed the nz economy was to face the current financial crisis. it's something he's been saying for quite some weeks now, and it is of course the truth. it is the result of some very sound economic management on the part of dr cullen, but dr brash doesn't go quite that far- he was a national party leader after all.

but what really annoys me is how he totally fails to mention that had he become PM, and had he put in place the tax cut package he was proposing during the 2005 campaign, then the nz economy would not be so well-placed. in fact we would have been significantly more in debt, we would have had significantly higher interest rates, and all that would have occurred well before this latest collapse of the world markets had even begun. there are many expletives that have been filling my mind, with the words hypocritical and two-faced featuring heavily in between. i just can't believe how dr brash can make his current remarks with a straight face and without a twinge of conscience. to think, we were saved from him by only about 1% of the party vote.

and while i'm at it, i'm sure i heard someone from the greens also criticise national's plan to cut the employer's contribution to kiwisaver. this would be the same party that was opposed to the cullen fund and kiwisaver, and would rather have had the first $5,000 of income being tax free? how quickly they forget. and they forget also that their policy would have had exactly the same problems as national's 2005 tax cut package ie expensive so requiring high levels of government debt, and inflationary so causing higher interest rates. the additional government contribution to kiwisaver was the best decision for that time, but will anyone actually come out and say so? well, lucky you have me!

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