Behind the spin: Bill English edition

Today Bill English, or more accurately his office, sent out a press release which says,

"After-tax wages continue to rise faster than prices, Finance Minister Bill English says.

The real after-tax average wage increased 2.5 per cent in the year to March 2011, after accounting for all consumer price increases including food prices and the one-off rise in GST last October."

Now if you look at Statistics NZ's information release for the March 2011 Labour cost index,  which details how much wages have grown, it says that for the year to March 2011 the before tax wages grew 1.9%.

I do not have the information to back up English's claim of 2.5% but let's take it as true. The after tax increase to 2.5% will be due to the October tax cuts.

English says that this increase is rising faster than prices. This is false. Let's look at two sets of stats, the food price index and the consumer price index.

The food price index information release says that in the year to March 2011 food prices have risen 5.5%. Shocking, I know. Due to the increase in GST in October there is an extra increase of about 2.3% on top of what it would have been without it.

Now the consumer price index, which is what Bill English is referring to in his press release. This is where the changes in cost to consumer goods is measured. In the year to March 2011 the CPI has risen 4.5%. Hmmmm, what do we have here? A lie from Mr English.

So how can Bill English justify this claim he made? Here's where the spin is, after tax wages have grown 2.5%, this is true. CPI has increased 4.5% in the year to March 2011, however in the quarter to March 2011 the CPI has only increased 0.8%.

That's the spin, he doesn't explicitly state it but from looking at the figures the only way I can see his claims line up is to say that he is comparing the yearly wage growth to the quarterly CPI.

So there you have it, another politician twisting the facts to suit.

I call him Gamblor, and it's time to snatch NZ back from his neon claws!!!

So it is budget day eve, tomorrow we will see exactly what it is this Government has in store for our economic future.

By all accounts we are going to see English present us with a budget that has many plans which will n0t take effect until after the election. It looks like John Key has said to Bill, "Hey Bill, do you think New Zealand likes me? I want to know but I'm afraid to ask. I know, you could write New Zealand a note and ask if he/she likes me." If New Zealand votes Key back in, we like the budget, if he doesn't get voted in Labour may reverse the budget.

So, what are we going to see tomorrow? Cuts, cuts, cuts is the short answer. For the first time in a very long time we will see a zero budget (no increase in spending), yet at the same time Key has promised us increases to health, education, justice and infrastructure. In order to keep spending the same over all yet increase it in certain areas they have to make big cuts.

Where are the cuts going to come from? Kiwisaver, student loans, working for families and "government departments" are where Key has said there will be cuts but beyond that we have no specifics.

Within the "Government departments" the chief executives are being left up to their own devices as to how they meet their targets. The most likely outcome is the slashing of backroom staff. What we keep hearing from Key and co. is that our Government departments are too big and inefficient, we must put more emphasis on the front line staff. In some cases this may be true though I have seen little evidence of it. In reality, the place where memorable, emotive five word catch phrases don't work, it is the back room staff who do the necessary work so that the front line staff can do theirs.

This Government is currently borrowing over $300 million per week and they plan to get us back in the black by cutting services and leaving it up to the private sector. Hang on a minute, wasn't it the private sector and de-regulation that got us into this mess?

So with Key and English placing their bets, how will it end? Red or black?

That's future NZ's problem

It seems the government is taking the route that all students know too well, it's a week out from an assignment being due and it's nagging at the back of your head but there's a Simpsons marathon on, what do you do? Quite simple really, write yourself a mental note saying: "I'm going to watch The Simpsons, that assignment's a problem for future me." Then when it's the night before due date and it's not done all you can do is say, "damn it past me, why didn't you handle that when you had the chance, now I've got to stay up all night doing this."

I'm referring of course to borrowing for the re-build of Christchurch. Bill English has ruled out a temporary levy for those earning over $48,000p.a. in favour of borrowing an estimated $10billion over the next two years.

First of all lets look at the reasons they should borrow and then we will come to the reasons they should not borrow.

At the moment there are actually some very good reasons to borrow the money. Because of the recession interest rates are very low which means that we can get a big influx of cashish now and use it to boost our economy, this will mean when we pay it back we will not have a huge interest bill and the boost it has caused will (hopefully) be a long term one if the funds are used correctly, for example investment in not only rebuilding of Christchurch's necessities but also investment in forward thinking infrastructure like clean energy innovation.

What I see as the main reason for borrowing over a levy is that when Standard and Poor's put us on notice last year it was because of our large private debt more than our public debt. Our private debt does rival that of PIGS (Portugal, Ireland, Greece and Spain), but our public debt is well below theirs.

If we were to implement a levy it would leave less money in the hands of the private sector to pay down debt.

Now to the reasons for a levy.

Last year's tax cuts did not promote investment in infrastructure, they instead enabled people to pay down private debt or invest offshore as this was a smart move with the US currency hovering around the 75 - 80 cent mark.

If we were to cut those tax cuts in half for those earning over $48,000p.a. we have $1billion per year more to invest in NZ, this grows the private sector and prevents us from having more foreign debt on our shoulders.

Those earning over $48,000 have the ability to shoulder more of the burden, they live in a country were it is possible to get ahead and as they have achieved good standard of living and have the means to help out they should.

In times of crisis we must pull together and those who can help out should do so.

Is borrowing for the future really how we want to deal with this situation?

The skeptic in me sees a few more reasons for borrowing as well, this Government has always had the plan of cutting public services, and by spending the last two and a bit years harping on about our debt problem, they have realised that debt may very well be a viable way to pay for the earthquake recovery and tell the NZ public that this is the best option but in doing this we have to make cuts.

I also think that the Government realises that last years tax cuts did not work but if they were to implement a levy it be like saying this very thing to the public.

Borrowing the money in some ways makes more sense but I am still erring on the side of a levy because I would like the public to see that NZ can do things on its own and a tax rise is not the end of the world and in fact it can be a good thing.

Over the last 30 or so years NZ has been force fed the mantra of "Government should be smaller, lower taxes are good and the market can fix everything." A levy may well be just the thing to show the public this is not exactly true.

Check out the Herald's point of view on the matter.

Spending Cuts Loom

This week on Radio NZ's panel spoke to Dr Ganesh Nana from BERL (Business and Economic Research Limited) he spoke about the looming state sector cuts saying,

"The easiest and simplest way to get the Government's books back into any sense of balance is to get economic growth out there and that's what's sorely missing...I havn't got any evidence that we've got an unproductive public service. I'm just waiting for the facts of how much the minister is suggesting we can cut out of the public sector whilst still retaining a growth scenario and the quality of services. In 1990 we did go down the road of cutting public spending at the depth of the recession and we elongated that recession significantly and I would argue that one of the causes of our productivity problems we have now is those sorts of cuts that do impact the economy over the long term."

There you have it, an economic expert who is critical of the public sector cuts. We are still waiting for the facts, so far all we really no is Mr English is planning on at least cutting back (if not eliminating altogether) the services he deems to be "nice to have" and will be retaining (if not cutting as well) those he deems as necessary.

I'm desperately looking forward to this years budget, you can always count on budget day under National for a good ol' pace around the house saying "What do they think they're doing, am I the only one who thinks this is bullshit?"

Last year we saw tax cuts for the rich and a decrease in new spending, it looks like this year we are going to see a continuation of those tax cuts (and possibly more of them if Peter Dunne's income splitting bill goes through which it looks likely to) and severe cuts in services.

If we had any wastage in public spending I would gladly say "Yep, that money is not being used effectively, let's fix that situation." but as Dr Nana said above there really is no evidence to say that our public sector is inefficient.

All that can happen in the situation following budget day is that it's going to be harder for those who really need these services, the rapidly disappearing middle class will be pushed further back.

When the gap between rich and poor reaches breaking point a rebellion will happen.