I like chart porn.
This is where I look at a collection of charts that help explain how the economy and government operates.
If I look long enough and hard enough I can get very excited.
But looking long enough and hard enough at these four charts from Treasury's Monthly Economic Indicators chart pack just made me exasperated and angry.
It showed how irresponsible John Key's government has become in the pursuit of pleasing its increasingly wealthy backers, who are the owners of property and the earners of high incomes.
It is clear now that John Key's government has effectively cut the income tax rate and paid for it by borrowing money overseas, in large part from China's sovereign wealth fund. It is ultimately an act of economic treason and generational selfishness where a govenrment has decided an already wealthy part of the population deserves higher incomes paid for by loading up foreign debt on future generations of taxpayers and voters.
It is an act of cynicism and short termism that deserves contempt.
The four charts show what has happened since 2008. They reveal the results of the cut in the income tax cut rate from 39 cents to 33 cents, which was in theory partly paid for by an increase in the GST rate from 12.5% to 15%. They also reveal a massive reversal in a decade-long trend of improvement in New Zealand's public debt position.
New Zealand's tax to GDP ratio has crashed from almost 34% in late 2008 to 29% in 2011.
At the same time, the 'source deductions to compensation of employees rate' has fallen from around 32% to around 24%.
This is a direct result of the cut in the top personal tax rate and a change in the way New Zealanders are spending. Many are saving more rather than spending their incomes.
That is a good thing in the long run, but it means the higher GST rate is not collecting the revenue expected under the 'tax switch'.
Instead, the government is borrowing money to make up the difference. At the same time, interest free student loans and Working For Families are deepening budget deficits (operating balance and OBEGAL).
That is being paid for with increased government borrowing to the tune of 15% of GDP.
A collapse in the corporate tax take is only partly responsible and is largely due to the recession rather than any change in government policy. It is now rebounding, but if anything the Tax to GDP ratio is worsening.
This is unsustainable without an immediate and extended surge to economic growth, which few expect.
Why are voters who will have to repay this debt in decades to come not revolting at this national act of selfishness and irresponsibility?
Have another look at these four charts to understand why the government's settings on tax, universal superannuation, the retirement, un-means tested healthcare, Working for Families and Interest free student loans are unsustainable.
This story first appeared in the Herald on Sunday
78 Comments
It worked pretty well back then because we entered into a monetary system that works on the premise of have it now pay for it later.
Guess what, later is now.
It is too late to put the genie back into the bottle. No amount of austerity or stimulas is going to save us from the inevitable endgame.
The best we can hope for is to continue going along the path of getting deeper and deeper into debt, just enough to prevent a credit contraction to take hold and not too much as to allow inflation to take off. All the while becoming increasingly precarious before we fall into either of the two scenarios, either way a reset will occur.
Then perhaps we can learn from our mistakes, not get into debt, live within our means, and start over.
If you look at the data you will see that the big move to borrow now for lifestyle happended since the neoclassical changes introduced by r douglas. And keeping on with that discredited economic theory ain't making it any better.
I also hope we learn from our mistakes and develop/use economic theory that reflects reality -- e.g. disequilibrium, finance matters, private sector provision is not automatically better than public sector, markets fail.
Agreed...somehow we need to get beyond the political rubbish of left and right and start getting things correct. The SOE model seems to be a very good one, no day to day pressures from share holders whos only concern is dividends today but at the same time some Govn oversight. Certianly I can see the possibilites are far worse...Enron for instance, absolutely criminal......or the Old Post Office/Telecom who simply held us back and over-charged, using their effective monopoly to price gouge NZers.
Im not sure RD was all bad......I think NZ needed a bloody good kick....however it may well have not been aimed too well...
;]
I also think we probably have enough good enough economic theories, what we lack I think is mature debate, and understanding and participation of the public.....far too many dont know and dont understand the train wreck that is Peak Oil or the debt tsanami heading our way......
regards
I am all for living within our means. Personally and as a country. However the problem is as I see it, it is impossible with the monetary system we work within.
The money we use In NZ (and around the world) originates ultimately from the principle portion of a loan. However the loan needs to be paid back with interest, problem is collectively there isn't enough money to pay back the interest portion as it wasn't created to begin with. So more new money equivalent to this interest portion needs to be loaned into existence in order for the system to continue in equilibrium. This requires ever accelerating (exponential) issuance of new loans. Of course this can not be sustained and there will be some point when confidence in the system will be lost and it will all fall over. We are approaching that moment.
So all this talk about which party, what economic theory, and what fiscal actions to take is all a waste of time within our current monetary system I recon.
Overlay the problems of peak oil, baby boomer retirement, recourse depletion pollution and we are set to go through some interesting times sometime soon!
I dont think you will like the riots and unrest caused by too many ppl no longer feeling they have "skin in the game" either. Sure the system needs work, WFF is just a mess....but to describe it a moral hazard without looking at the alternatives many of which seem way worse is potty.
The tax cuts that JK used to bribe his way to election victory seem to be going into properties in central auckland, not in the least productive....
Yeah right.........success in being able to over-charge for a service and then take no responsibility for the gamble when it implodes is not a success in terms of society or NZ....so I take it you mean the parasites / crony capitalists that pay no taxes etc....
regards
Bernard
I really wish the focus was not on the current govrenment which had signalled it's intentions just by being what it is as opposed to exercising any unannounced mandates..
And yet the punters, just like lemmings, voted for the very same outcomes. Or at least failed to actively vote against them.
It was well telegraphed and now, pay we must.
A Flat Tax is what we need - 15% flat tax on every income - with no loopholes, deduction claims whatever. 15% on everthing. Also 15% on every finacial transaction / purchase / whatever, every time $$$ changes hands.
Then there would be no need for Working for Families.
Student Loans could be bonded to 2 - 3 years service/work to an organisation in NZ - as well as a slowly rising interest rate over time from the 0%, then 1% in 2 years, then 2% in 4 years etc up to 7% max.
But if govt splurging waste were chopped...the flat tax need only be 14%!....chop away....oh no we can't have senior bureaucrats being paid less than $500,000 a year and the SOE fatcats have lifestyles to maintain...multi millions for them...to hell with those who moan about power accounts going up...think of the private yachts and golf and holidays for the extra special Kiwis.
Oh my god, lets have even more voodoo econmics.............LOL.....to start with "prosperity" is finished, sorry no longer available....
In booms time the tax rate should actually go up to cool the boom a bit and save for the bust such that when it comes we then drop the tax rate to 10% to soften it...counter cyclical.
regards
Wow the libertarians are like a rash.....all 1000 of them must be in here or something.....To start with a flat tax would hammer poorer ppl and quite simply achieves nothing.......second there is no guarantee it would provide incentives for ppl to run "productive" businesses....ie its not focused, simply all businesses would be treated the same way, good or bad, productive or not....
regards
Well, if the super-rich actually paid all their Tax, then 15% would be more than enough. At the moment the middle-class $45,000 to $90,000+ housholds pay most of the tax 'progressively'. The middle-low, low & welfare pay no effective tax due to claw-back of WFF & Accomm allowance. The Rich avois tax thru Trusts, clever accountants, "loss-making" sinkholes etc ...
Without penalising the rich or patronising the poor, we can easily take in enough money to quickly erase the national debt. (Dr Ben Carson, top Surgeon reently in NZ).
If a guy makes a billion $$$ a year we should be thankful he's putting in his 15%. If a guy can only earn $15000 a year it won't hurt him to pay 2250 tax - he feels good knowing he's made a contribution rather than been made a 'beneficiary' by the state....
Exactly Wolly, so should Jealousy be the motivator of our tax system?
Wages, salary & small business profit are the reward system we have to reflect effort, skills & delivery: - do we really help by nullifying the reward system by removing tax for lower earners & thumping high earners? I agree high earners should pay - but you could get them to pay more by enforcing a straight-forward system rather than complicated 'high rates' coupled with 'work-arounds/tax avoidance schemes'.
They wont pay more, enough tax evasion cases out there to show that they will do their utmost to pay zero.
What we need is some significant jail terms for the dodgers and their advisors...say start at 2 years for <$1million, 10 years for $10million dodged....and their accountant shares the same cell as well....
regards
Bernard, in world world are income tax rates and GST of 33 and 15% respectively 'obsencely' low? Maybe the socialist fantasy land that you want to live in.
What an economy needs in the long-run are low tax rates to encourage growth, not high ones. Funnily enough, most people don't like high tax rates, so they don't vote for them. Bernard is a typical socialist, he thinks people dont know whats best for themselves so he wants to take more of their money and spend it for them.
If savings are increasing because of the higher GST rate, this is surely a good thing long-term as well. The policy is encouraging savings and investment, which are a source of growth. National campaigned on low taxes back in 2008 and people liked it.
The reason the government is borrowing too much now is because of the GFC, which put more people on welfare and reduced tax take, and labour's past election bribes (wff and interest free student loans)
Low taxes and small government is what is needed
Johnson-9 you do know that NZ already has close to the lowest tax rates of the "developed" OECD nations don't you? Doesn't that and the growth problems we are experiencing right now show what a crock the claim that we need low taxes to encourage growth is?
The only reason for low taxes seems to be to make sure even more money is transferred to the 1%.
Surely what is needed is good infrastructure, using that word in the broadest sense inlcuding providing education, public health, culture, welfare support, and so forth. Oh and by the way there are lots of things that are better provided by governments instead of by private sector. A robust and well planned energy supply for example.
I don't think there are 'a lot of things' that governments can provide better than the private sector. Maybe education, law and order, and enforcing property rights. The idea that governments can provide many things better has been tried before and has resulted in utter collapse every time (any successful communist countries out there?)
And i'm not sure what you mean by 'transferring money to the 1%'. How is allowing people to keep more of what they have earned themselves so unjust? Low taxes provide strong incentives for people to get well educated and work hard to become successful.
The Govn provides healthcare at more than half the cost of private healthcare and ppl live longer.....pretty much condemns the idea that businesses are best...
There has never been a communist country, any that have gone in that direction have simply descended into totalitarian states.....but the same can be said for the USA....its pollies have sold themselves again and again.....
regards
Mix, yes.
im not so sure banking is bad, I think it provides a useful function but should be heavily regulated. I think the problems is the divorcng from reality that is the finance sector, its simply a parasite on production now. So iIn the past banks were and can be a very useful part of our economy, the trouble is they are simply out of control.
regards
OECD tax reports -- we pay lower tax.
Or go look at the Rob Salmond article on Pundit http://pundit.co.nz/content/low-tax-for-me-high-tax-for-thee -- the poor pay more tax in NZ, the wealthy pay less, compared with other countries.
Low tax rates do not work however, otherwise the USA wouldnt be the basket case it is......
Growth wont happen, that takes energy......we dont have more of that now....in fact we will have less per year...
The GFC was caused by the so called rich emptying everyone's pockets and buying politicians...but it isnt over yet...its set to get worse.
regards
A super tax on all involved in the property business sector would be one way to raise heaps and make most Kiwi smile knowing the govt is doing something rewarding. Say a flat 15% on all gross revenue...in advance of course. On top of the usual paye. Oh and let's reduce their capacity to deduct business costs to a maximum of 5% of the gross take.
No...I just think those screwing the property sector blind need to be done over including the parasitic banks, real estate agents, landlords and the media what harvests the property advertising too...
The retired on low incomes should be exempt from paye and get gst rebates.
Gotta be the largest load of BS ever dumped on the public Parky...."made by one person"....what a load....what are we to believe that Bollard alone sits in a cell a mile beneath the Reserve bank and speaks to nobody...receives no messages...just spits out a decision.....utter shite.
Oh and let's reduce their capacity to deduct business costs to a maximum of 5% of the gross take.
What a load of rubbish (should I be surprised).
Wolly clearly knows nothing about even simple business (I assume he means 5% maximum for all businesses).
Even my 10 year old knows that turnover doesn't equate to profit.
" paid for by loading up foreign debt on future generations of taxpayers and voters."
Government debt is never repaid, didn't you know? It is paid for right now, by workers and with savings ( which is compansation for work not yet spent (which is deflationary but immediately taken by borrowing, public and private both)). I thought you called for money printing, well here you have it; government deficits. Future generations will just be poorer and commons assets stripped. I believe I've used that word here too. Treason.
Comrade Hickey taxes are way to high in this country and with the likes of yourself
and Comrade G Morgan incouraging the further raping of the people of NZ in the form
of more taxes , just wait to the next election when Mr Shearer and the Greens take over
the reigns then you will get your wish. Bernard you should never ask for higher taxes.
A 20% flat tax Sould be the Max we should be paying. Over in America Warren
Buffet is singing the same tune but he will never tell you the truth about the corrupt way
he and his banker friends have feathered their nest by not paying taxes. Inflation is just
another form of taxation ,find out where the money really goes .
Baz
Americans dont live as long, yet pay over twice what we pay in GDP terms for healthcare.....so all that is happening is we have tax in NZ that is low, especially when you consider the necessary extra private "taxes" an American has to pay are considerable...
On top of that there is no CGT so the rich who dont earn via PAYE in effect pay virtually no tax.....sorry taht has to change.
If I have to vote labour for the first time on my life to accomplish that, I will.
regards
This should make you happy Bernard. A mea culpa from a Boomer predicting horrible things for Canada 's young..
http://www.theglobeandmail.com/news/national/boomers-generation-had-eve…
As a 'tail-end' baby boomer, I think my older brothers & sisters had it easier getting jobs, buying houses etc ... but I don't blame them or resent their economic success. Also I think my Gen Y/X kids have had opportunities earlier in life that I (& my gen) did not have - e.g. overseas school exchanges, rep sport national training opps, better career/training advice etc ... every generation has some advantages & some disadv.
Liked this comment: "earn a freakin' trade! Plumbers, electricians, stone masons, mechanics, welders...you name it! What you won't find are jobs for people with Masters Degrees in Sociology, Native Studies, Eco Eroticism and all the other bs degrees that you keep incurring debt to obtain. And I don't feel sorry for you. My parents did real work, and worked bloody hard for a long time. And mortgage rates were 20%, not 2.99%. So put your freakin' iPhone down, stop buying three gingerbread lattes a day, and do something useful with your lives. Complaining doesn't earn a living, unless you write for the Toronto Star."
Mmmm gingerbread lattes. Just kidd'n. You're right mortgage belt every generation has its advantages and disadvantages. Gen x's for all their whining, have had the luxury of choice. If you take an intergenerational approach to financial planning you can smooth the differences and make it work as a collective.
LOL.....while a little simplistic I do somewhat agree.....ie even when you move beyond trades professional engineers and scientists are often poorly paid....yet these ppl allow some of these silly degrees to exist.....
That however will all change...as we have less energy we will be less able to support such naff wastes of time, these are future carrot pullers...ie the unskilled in effect......
regards
Bernard,
Frankly, this article is populist crap that I am still in a state of utter disbelief that you actually had the gumption to put your own good name against it.
Tax cuts to put more productive money back into the country, grow the job base which in turn will grow wealth. That is the function of tax cuts. GST increase to tax consumption (it's still sounding quite fair to me) and a smaller government to reduce the 'overhead' of Government.
The other factor you miss is that this is a long term rebalancing of the economy which will have long term rewards for NZ.
Perhaps it is time to grow up and report the fact that NZ was in a terminal decline if Labour had carried on its merry way?
Its quite simple, no.... tax cuts, if this was the case the Reagan and Bush tax cuts for the rich would have made the USA better off and just look at it its a basket case.....
Govn itself is small, so the overhead is pretty lean, where the spending goes is health, education and Winz....
Maybe the libertarians and right whingers should realise that 30 odd years voodoo economics as led by Greenspan etc have not worked, in fact they have made thinsg worse....the evidence is plain to see. Otherwsie sure throw your toys out of the cot....1000 votes makes no odds.
regards
Completely agree with ITYS. I have read Bernards stuff for a while and it's always good for a laugh, but this article is a new low even for him and has made me comment. The world hasn't ended yet because of the Euro crisis as he used to proclaim daily, and his rants aginst the government have gotten more ridiculous as time goes on. Bernard may or may not realise this, but he is a laughing stock amongst economists who work in the real world.
If anyone finds themselves remotely believing what he says, think about where we would be right now if Labour were in power. They have opposed all of the governments spending cuts, and have called for Obama style spending to stimulate the economy. Sure they would have kept the top tax rate at 39%, but they wouldn't have raised GST, so extra revenue under them would be minimal.
We have borrowed a lot, no question, but things could be so much worse
I cant think of any such economists except the Libertarian type....and in that case its pure voodoo....so doesnt count.
How about thinking about how Greespan and the far right wing / crony / corrupt Govns in the USA have got us into this mess to start with......as opposed to NZ Labour who just did diddly because thats what the voter wanted....
regards
Steven,
This is not America. It has never been and will never become. We are not the world's reserve currency and all right wing governments are most certainly not the same. I think you should swallow your own medicine and leave your political bias aside for now. Also, if your definition of voodoo is 'putting some actions in place now for an expected result in the future' then I really really pity you.
Please, tell me, what would you have done? Increased top tax rate to >50%, seen capital fly out of the country in a hurry and then watched all of our provinces and then some relocate in even greater masses to Australia?
Umm, that term is the intellectual property of the well known 'left winger' George Bush Sr.
http://en.wikipedia.org/wiki/Reaganomics
While running against Reagan for the Presidential nomination in 1980, George H. W. Bush had derided Reaganomics as "voodoo economics".
In effect most western govn's have taken the same pages from neo-classical economics and produced variations of voodoo economics. Gordon Brown in the UK, he of "we'll never have another bust" over-spent in the boom times....that is mild compared to the US, I'll grant....but de-regulation is right up there.
No I dont take to politics so nothing significant to leave aside....
No my defination of voodoo is doing something illogical expecting a result you want and not getting it because there was no logic real basis for that decision apart from you would like it that way.....
Like say George Bush's tax cuts to make the economy grow faster.....uh no didnt work and in fact the ppl with the money spent it specualting on property....the last thing wanted.
Or John Key not understanding why our economy wasnt growing at 6% per annum because with the things his Govn had done it should be....(its the energy supply stupid).
To start with capital pays no CGT so the ppl effected since you talk about the top tax rate most are PAYE...ALso "high earners" does not necessarily equate to useful to NZ as a whole...if we continue with your over-simplified argument the high earners are lawyers and accountants, not great loss to OZ.
Apart from that the articles Ive read suggest that as long as the top rate is below 70% it plays no huge part.
its really simple, those who are in the top tax bracket by and large have disposable income, so in effect taxing them higher does not impact the essentials of their lives....so yes having a new top rate at 40% at least wouldnt have much effect...bear in mind those PAYE have to earn a living, so re-locating cosst in terms of actually moving and then working within the differences eg say different tax laws between here and OZ....
In terms of who's leaving, well I'd like to see just who is, IT specialists for sure can be tempted as the money is better and the work set skills are totally transferable between the two countries. Next, there seem to be quite a lot of ppl working in OZ mining, lorry drivers for instance....
Next young professionals, frankly many would leave for the bright lights anyway and they are not earning enough to worry about high tax brackets.
So whats left of the potential who would leave? what % are "parasites"? ie of marginal or not good to NZ I really wonder if it would be such a bad thing...
So, no bring in a CGT.....bring in a top tier tax bracket....Im quite happy to live with the consquences of that, because the voodoo economis hasnt worked.
regards
Steven. A very vague arguement that really implies nothing other than demonstrating your willingness to write rheems of meaningless rhetoric. Seeing as you are so keen to demonstrate your economist view I thought I'd share my thoughts as to where I see your views in the scheme of things. Ergo:
" A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Let's smash the can open with a rock." The chemist says, "Let's build a fire and heat the can first." The economist says, "Let's assume that we have a can-opener..."
Bernard, I appreciate that you've got copy to write, but frankly I'm tiring of this stuff - I do not consider the near 50% taxes I pay as too low, and articles like this frankly have make me less inclined to come to this site as often recently, and this one just adds to that.
I don't mind well thought out left leaning views (debate is always good) but this sort of unintellegent article makes me question the validity of anything you write
Good comment Grant A about paying 50% taxes . Bernards views are not always well
thought out this is a very bad view to take on taxes and the role of goverment. I would
add that the high taxes we pay is the cause of poverty and a welfare system that is choking
the life out of this country and to add the STATE EDUCATION SYSTEM . Bankers and polys
love the welfare system and the tax ripoffs be they left or right .
You see if someone has their foot on your throat it doesnt matter if its the left or right.
Baz
The problem is not "low" tax rates, it is high government spending. This supposedly right-wing government has not made any meaningful cuts to any of the wasteful policies put in place as election bribes by the previous government.
Meanwhile, John Key puts his hands over his ears and says "na na na na, I can't hear you" when the topic of the rapidly escalating cost of New Zealand Superannuation, the country's single biggest welfare expense, is brought up.
NZ Super costs more than the DPB, the unemployment benefit, the sickness benefit and accommodation supplement all put together, and it goes to chief executives as well as people who are genuinely on the bones of their backsides.
Cutting a few "back office" jobs in a few departments is probably a good idea if it actually saves money but it won't make any meaningful dent in the giant government deficit.
LOL. Spending more then we earn, consuming more then we produce, promising more then we have. The country has been run by greedy, power hungry idiots for as long as I can remember. That will never change. The actual productive base of the economy, is not growing, and is expected to support an exponentially increasing unproductive sector. The house of cards will crash eventually. Then we will see who is worth what.
This will have to go down as the most irresponsible and worst governments we’ve have, especially from a government books point of view.
People that think they are doing a good job are deluded by the successful looking key, he may have been successfully personally, and still is, but in terms of what he is doing to this country he is about as far from successful as it gets.
At least the National government of the late 70’s -80’s got something out of the think big debts they ran up.
All these guys are doing is making property investors and rich people happy, and running up massive debts to do it.
They are a joke of government, they are a non government.
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MicrosoftInternetExplorer4
It is undisputed that the NZ government( national ) has been borrowing at an impressive rate since coming to power 2008. The Charts are clear.
At the present rate of borrowing the Government Debt will be 80% of GDP in 8 yrs or so ( On a good days assessment - http://www.interest.co.nz/news/49581/imf-warns-nz-net-debt-gdp-will-top-100-5-years )
The USA is the default world currency and since 2002 the USD has depreciated by more than 40% and the effects of QE 1 and QUE 2 have yet to filter ( Bang ) through.
Under this situation ( all things being equal ) to remain competitive trading countries must devalue their currency at appropriate times. This process is normal and historically consistent, its just been at a rather accelerating rate in recent years.
Great Britain and EU have been devaluing to keep pace with the USA.
It works fine to borrow heaps of money if some years latter one pays back with devalued currency, in the case of USA its more than a 40% reduction of debt.
When NZ debt level reaches unsustainable levels, 80% is a nice figure, expanding the monetary base ( printing money ) makes good sense. Similarly borrowing plenty of money up to then also makes very good sense under these rules.
So there is the future more or less whatever your viewpoint is.
It is just a mater of where one is positioned politically and financially.
If you have not seen “ Inside Job” Google and watch at no cost.
One of many view points, but its simple over complexity.
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