OnPoint by Keith Ng


Spoonfuls of sugar

Hell has frozen over: Cullen has sold a macroeconomic jab in the arm as a political lollipop.

It's not really about your retirement. It's about the more pressing issues that the New Zealand economy faces in the medium-term. It's about getting a grip on the current account deficit, it's about reducing inflationary pressures; ultimately, it's about making damn sure that you have less money in your pocket. That's the terribly unsexy version, anyway.

In the short-term, it's about reducing your disposable income. This will reduce demand on imports and reduce inflationary pressures, which will take the edge off the Kiwi dollar.

In the medium-term, it's about building up capital. Having more money available for investment in New Zealand will reduce our dependence on overseas investment, which will reduce the amount of profit going overseas (i.e. reduce our current account deficit).

In the long-term, there's the aging population and the comparatively smaller workforce, etc., and we'll need to dip into this fund in the future.

Of course, it's not as if these are unrelated issues. It all comes back to the fact that New Zealanders don't save enough, and all the problems we currently face are derived from the debt-financed non-productive consumption spree. (Which includes, of course, your houses; your cursed, cursed houses.)

It's a pretty drastic measure - getting people to not spend their money by giving them nearly twice as much as return - but I guess the problem and the expected returns warrant it. Besides, the Government contribution to this has an added bonus, in that it allows a part of the surplus to "used up" without it adding to inflationary pressures.

Here, of course, we get to the perpetual whine that the Government should return its surplus in the form of tax cuts. Conveniently, for all the reasons that saving is good, tax cuts are bad.

In the short-term, they'll increased import demands and inflationary pressures, which will drive up the dollar and interest rates, which will in turn drive up the dollar again.

In the medium-term, they'll reduce the capital available in New Zealand, exacerbate the current account deficit and make New Zealand more vulnerable to international financial shocks.

In the long-term, it'll mean that the Government is in a poorer position to deal with the aging population.

Of course, this is assuming that most of the tax cuts will be spent, not saved. For those who wish to challenge this assumption on the Public Address System, I just have to ask: How many people who receive tax cuts will put it into their savings, and how much of it will they put?

But back to the surplus, it's pretty straightforward. To reduce inflation, the interest rate and the exchange rate (which are all directly connected), the government needs to take more money out of the economy than it puts in (i.e. run a contractionary fiscal policy). Taking more money than its putting back would imply that it has money left over. AKA: Surplus. Reducing the surplus, either by increasing government spending or having tax cuts, will put more money back into the economy and increase the inflationary pressures.

Please, leave the goddamn surplus alone. It's not just idle money. We need it.


One point on which I agree with Key is that it does suck for employers. They get a 3% tax cut, but then gets whacked with what amounts to a 4% payroll tax, but gets it tax-free (which is a 30% credit) and with an additional fixed subsidy. They'll come out ahead after all this, but it's hardly generous, and it's a bit insulting after they thought they were going to get a real tax cut.

And then there's no reason why businesses should be carrying the burden for enticing taxpayers to save for their retirement in the first place, so, double-suck for them.

(Pet peeve aimed at National comms: You can't "squander" a surplus, and you can't "waste" a surplus, because if you did, it wouldn't be there, and it wouldn't be a fucking surplus. The whole point of a surplus is that they still have it.)


On another front, the Government is backing my loathing of houses (well, the insane property market, at any rate) by specifically targeting property speculators for auditing. At some point, they're just going to have to shoot them.


Kudos to Mr Farrar, for his reportage from the Budget lock-up. Speedy and informative, he deserves a pat on the back.

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