Wednesday, May 5, 2010

B-Day 2010 (NZ Budget-Day)

New Zealand is coming up to the annual government budget on the 20th of May. It's where the government plans to put its money into. English has said the government would be cutting "low quality" spending. A pretty vague thing to say that could be used later to to describe anything that gets axed. They'd also be raising GST to 15%. This contrasts with what the Bill English said in 2008 about raising GST: "We won’t be doing that … it’s not our policy”

Last budget National did a u-turn on taxcuts, which they said would be essential in boosting the economy. It's interesting reading this from Brian Easton in 2009 and knowing what National decided to do in the last budget. He explained that in order for taxcuts to happen: "A 10% government expenses cut will almost certainly have to heavily target the big ticket items of education, health and welfare." This is pretty much what has happened. Except of course for no tax cuts. Not for the poor and middle class anyway.

It's been signaled that there will be tax cuts in this budget: "Prime Minister John Key pledged to give across-the-board tax cuts in his statement to Parliament yesterday on his plans for the year. There would be upfront increases in social welfare benefits, superannuation and working for family payments to compensate for the GST rise."

Can this country afford taxcuts to do what it's doing now? Healthwise, Educationwise and Welfarewise? Not to mention all the other wises out there such as Justicewise, Conservationwise and Defencewise.

These taxcuts will largely benefit wealthy people. As the Sunday Star Times shares with us: "The Sunday Star-Times understands the government has settled on lowering the tax rate for those earning between $14,000 to $48,000 – which represents the bulk of wage earners – from 21% to 19%. The May budget is also expected to lower the tax rate for those earning up to $14,000 from 12.5% to 10%.The Star-Times also understands the government will, in one hit, lower the top rate for those earning more than $70,000 from 38% to 33%, rather than doing it gradually."

Almost all benefit goes to the rich. We will lose out as a society. This tax cut discriminates against the poor whose tax is reduced by 2% compared to the 5% of the wealthy. While it could be argued the wealthier pay more in tax, they are more capable in handling it compared to poor. Also the wealthier generally achieve their wealth because of the poorer and their wealth has often been boosted by their ethnicity, sex and their own family's socio-economic status. As for New Zealand's middle-class, any hope of extra change is offset by GST. While it's good to reduce consumption, not everybody can. Especially for those in poverty who have to deal with the challenges of being poor. This means generally being less healthy, and being able to afford less nutritious food like fruit, meat or vegetables. It also means discrimination from people viewing living on the beneft as a "dream", like feeding your family on baked beans and sausages is a dream. GST will affect these families the most who cannot easily cut consumption, especially as food prices continue to change.

The poors tax contribution is miniscule compared to the rich, they are the ones affected more by poverty and that poverty discriminates against minorities. We know unemployment is a factor in the causes of crime and the government thinks the solution is to lock criminals up and throw away the key. There's no guarantee that higher growth = higher employment. While New Zealands economy may grow, there's only so many jobs to go around. For businesses jobs cost money. If you can get somebody more qualified to do more for the same amount of money they will do it. Considering the governments record on job cutting, there probably wont be many jobs for the unemployed to enter into. Especially if they've got a criminal record. And as Marty G at The Standard points out, this government hasn't exactly been keen on supporting New Zealand businesses.

Little will be done with these taxcuts to reduce the amount of inequality causing problems in our society. Nearly 14 years ago the social policy journal reported that unemployment was highest for people under 20 and over 55, males, Māori and Pacific Islanders. They reported the cause was partly due to a lack of education, qualification and lack of employment in rural areas. Unfortunately these facts are still relevant to New Zealand today.

Social Service Caritas Aotearoa New Zealand(2008, p. 14) explain that: "The level of inequality is uneven across New Zealand society... Inequality is also reflected in ethnicity – outcomes are poorer for Maori and Pacific Islanders than for Pakeha and Asian New Zealanders" These taxcuts will also do little to reduce child poverty. As the Child Poverty Action Group(p. 5) explain: "While work is very important for reducing poverty and increasing overall wellbeing, a “work first” policy is not sufficient to eliminate child poverty. Parental or child illness and disability, physical and social isolation including poor access to services, fewer employment opportunities and lack of support may all act to preclude parents from paid work.”

So while National would like to increase Working for Families, they haven't specified how much and the poorer children will be left out. While a Whanau Ora co-ordinator/provider who can work cross-culturally sounds nice, it will probably take away from what we already have. It's likely Peter will be robbed to pay Paul. Except the thief will say it was to stop Paul's "low quality" spending as Bill English likes to put it. "Ministers have agreed that Whanau Ora will be financially neutral - funded by reprioritising existing funding in votes Health, Social Development and Maori Affairs. Those details will be set out in the budget." Reprioritising is a vague word and doesn't give much understanding of what will be a priority. These Whanau Ora co-ordinators may want to co-ordinate with other agencies, but their may not be much left of them to co-ordinate with.

Brian Easton has some thoughts on this upcoming budget. He feels raising taxes is probably the most ethical thing we can do right now: "We have very high overseas debt, which we are not addressing, and the ongoing fiscal deficit is making it worse. If nothing is done, our credit rating will be downgraded and interest rates will rise[...] Even so, to avoid a credit downgrading we are also going to have to cut government spending. I don’t know what, and I don’t know when. But I do know that even if it is phased in, it will create difficulties for ordinary New Zealanders – which is why I favour raising taxes as part of the adjustment.

He has also shared insight from Peter Lindert into what raising taxes can do: "In his book Growing Public: Social Spending and Economic Growth Since the Eighteenth Century, Peter Lindert points out that European countries have much more efficient tax gathering systems. They are able to raise higher taxes to fund a more comprehensive welfare state than the US. On the basis of the evidence, he concludes that their “net social costs of transfers, and the taxes that finance them, are essentially zero. They do not bring the GDP costs that much of the Anglo-American literature has imagined.” He goes on: “High budget democracies show more care in choosing the design of taxes and transfers so as to avoid compromising growth … Broad universalism in taxes and entitlements fosters growth better than the low-budget countries’ preferences for strict means testing and complicated tax compromises.”

This country has problems with its health, education and welfare sector caused by cost cutting and other factors. It looks like this coming budget will probably worsen these. If our tax system was made more progressive one like Britain, Australia or Canada's it would likely help fix our problems.

"The welfare state, warts and all, is one of the more noble achievements of those people we call New Zealanders. A failure to develop that achievement would represent a failure of the nation... The Welfare State has been a community response to historical change. To go against this historical thrust would be to abandon New Zealand as a community." - Brian Easton, 1979, p. 177 in "Social Policy and the Welfare State in New Zealand"

Revised 6/5/10, 1:40 PM

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