Special earthquake levy - why not Prime Minister? - Blog

Wed, 02 Mar 2011 10:20a.m.

Deputy Prime Minister Bill English

By Duncan Garner

Bill English's refusal to rule out cuts to the interest free student loans scheme to pay for the damage in Christchurch, means, politically, the gloves are off, the truce is over.

It was madness from English not to rule it out, because it's not going to happen according to my sources. So why on earth get the bad press and the negative reaction for something that's not going ahead?

What a message to send the 1100 student volunteers who this morning boarded 20 buses to travel to Burwood and Shirley to shovel tonnes of silt from properties and roads.

The Government's positioning on this couldn't have been more wrong. National hates the interest free student loan policy, it always has. But it helped Helen Clark win an election. And National promised to keep it. Now is not the time to play politics.

So one thing has become so very, very clear; the Government is going to use this earthquake to delay some infrastructure projects and cut spending further. In my view it was never going to fund the Auckland CBD rail loop - never.

I interviewed Transport Minister Steven Joyce on The Nation last year and both on and off camera he was in no mood to fund Len Brown's promise to Auckland. It most certainly won’t happen now. And Joyce has a ready made excuse. How tidy.

The cost to the Government of the rebuild will be $5 billion - probably more. Vital infrastructure, schools, sewage and roads need major rebuilding. Insurance of course will pick up some of the bill.

But English said yesterday the Government will take a two pronged approach.

It'll borrow more, and reprioritise spending. If you look at the books, it seems like as a country we can afford to borrow more. The Government's debt to GDP figures are expected to double to up to 30% over the next few years. That's reasonably low compared to other countries. But we are still borrowing $300 million a week.

There is another way to pay for the damage - a special tax on higher income earners. A short term tax is now the way to go. It means English doesn't have to scaremonger. Important transport projects can continue in other parts of the country - even if they are delayed a year or two.

The special tax should fall on those most able to pay. The Greens are suggesting those earning between $48,000 a year and $70,000 pay one percent more.

Those on over $70,000 would pay 2% more. It would bring in over $920 million a year. Have it for two years and it raises 2 billion dollars. That would most certainly help the rebuild.

Let's be honest - and I fall into this category, those on higher incomes have done well out of John Key's tax cuts. It's time to give some of it back to Christchurch. I would be happy to do it. I want to.

It doesn't mean the Government shouldn't reprioritise spending - it just means every little bit helps and we should all play and pay our part.

I know Key doesn't want to be seen as a Prime Minister that's putting up personal income tax. But this quake is a massive gamechanger. He can easily justify it - it would be for a finite period. And who is the mean spirited bugger that would oppose it? If $48,000 is too low as a starting point, make it $60,000. Tax those on over $100,000 three percent.

Christchurch needs a massive rebuild. The Government needs a special response. The initial welfare rescue package is a good start. But it's not the answer. It's a band aid for six weeks.

As Phil Goff pointed out yesterday the rebuild will take years, and it needs to be done slowly and in a considered manner.

The country's balance sheet is huge and can handle it without borrowing.

The economy was flat and in recession before this quake. Now more than ever the Government's revenue stream is seriously effected.

Welfare payments will go up. Unemployment numbers will be up. 788 people took the Government's job loss payment yesterday. 788 jobs lost in one day.

Corporate and PAYE tax revenue will be down. Economic growth will be very very low. The NZIER growth forecasts have been revised down from 2.3% growth to 0.3% for the next 12 months. Only half that downgrade is related to the quake. The other half is due to the flat and stagnant economy that we had before February 22.

We will be in a recession all year according to those figures.

So we all need to play our part. A special levy is one way. But cutting current entitlements, like interest free student loans - that the Government promised to keep two years ago - is naked opportunism from Bill English. It's poor form. It's bad politics. And John Key knows it.

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06 Mar 2011 10:20p.m.

AndrewF wrote:

Lot's of interesting comments in this thread! I already pay a disproportionate amount of tax so why should I pay more? Why would anyone want to penalise success? Surely the only motivation here is envy. But I digress..... Once again we have the incredibly stupid argument of using short-term funding (i.e. income taxes) to pay for capital projects. Capital projects need capital funding. If the Government want to tax the rich, then how about offering $2 billion of Government bonds to locals with a 10% interest rate? That would surely attract a lot of voluntary 'donations' from people who can't access products such as Government bonds. Available to locals only, no financial institutions or foreigners allowed, minimum investment $5000, 10% interest in perpetuity, or for say 20-50 years. The $2b ends up in the 'never never' category for the Government (of not having to pay it back) and they pay $200m in interest per annum. Then there is a second bond offer of another $3 billion to foreigners (Government guaranteed), this one pays say 5-7% (pick a number lower than 10%) in perpetuity and is NEVER repaid, unless the Government chooses to do so. That would suck about $3b out of Japanese housewives and Belgian doctors. There you go Bill and Duncan. Sorted!

06 Mar 2011 09:57p.m.

Jeff wrote:

@ Alex 3 March 8.21pm: I responded to you yesterday but it hasn't appeared so I will respond again. Clearly you have just discovered economics 101; philosophical arguments have no place in this discussion. Further those on high incomes very rarely earn their money by doing a mere 40 hours per week. On average it is closer to 60 hours - something you would know had you any experience instead of just textbook theories. So yes meritocracy does indeed apply which is why we in this income bracket of sick of those in lower income brackets expecting us to pay for their poor choices. It's very easy to live within your means. If you work 40 hours for an average wage well, it doesn't take a rock scientist to work out that you are unlikely to ever be able to afford to buy your own house let alone have children. Welfare is meant to be a safety net for those who experience hardship in circumstances beyond their control and those of us in the top income bracket have already more than paid for the this assistance for the past 10 years. CHCH meets this welfare criteria & the funds will be there to assist them - the $16billion is not a bill that has to be paid now - it will take many years, probably more than a decade for CHCH to be rebuilt so the funds will be needed on a gradual basis. So yes w4f needs to be dramatically restructured as there is no way I want to continue paying assistance for those earning more than $50k whether they have 1 kid or 10. If you can't afford to have 1 kid on $50k then you're a fool & need to seek budgeting advice. If you have had more since you started receiving w4f then you're a thief. @ George.com - I agree in that yep, not doubt we will all pay for it via our EQC levies which are bound to increase. @ Glenn - well said also.

06 Mar 2011 08:30p.m.

RobertM wrote:

Why not. In Britain I think Dave Cameron has raised varsity fees to $18,000 a year and cut police pay and numbers by a third. What on earth is the use of the pap taught in NZ universities in arts and social science. Any credible lecturer Vincent Orange, Bennett or Paul Buchanan was sent down the road long ago and today its just Waitangi, Womans Health and support for Palestine. Why fund it.
National is not a right centre party and neither is act. Their politics is of the Christian socialism or Catholic Democracy of Edward Frei disastorous regime in Chile between 64 and 70 which surrendered to the left and communists and everything (like English and Finnalyson) and paved the way for Allende's disastrous regime.

06 Mar 2011 01:02p.m.

Samuel wrote:

Ohhhhh, you got slammed by #Glenn!!! Yes the starting and end point for all aspects of Mr Garner's critique here and possibly his dinner was Bill English's ass in this instance.

06 Mar 2011 09:12a.m.

Simon wrote:

i dont get any allowances or benefits from anyone. I work hard as a dairy farmer and like the rewards of working. Mainly sleeping.
I beleive that if the goverment really wants to be productive in this time of need, why take away things that are helping people. Increase tax 200 -300 % on ciggarettes and alcohol. this way you sort many of NZs problems out at once.
binge drinking, familyies going without because of alcohol and drug abuse, the huge drain on our health services, and i am sure there are many more.

06 Mar 2011 06:13a.m.

Terence wrote:

The obvious thing to do is reverse the resent tax cuts except to the very low income bracket as this is not disposable income and will go on the necessities of life and get taxed further up the chain. If needed taxation should be increased so that we all bear the load. Business tax cuts should go ahead as this will help create jobs and in turn lead to a bigger tax take.

05 Mar 2011 05:21p.m.

Glenn wrote:

It amazes me that the media are the ones who came out with these ideas and just because Bill would not discount anything they make out that it is going to happen and all the sheep follow what the media pretend to be the facts and believe them.This guy donkey garner is one of the worst at it.It is like he has to bend the facts to create a news story.You are on a news program not a soap opera but you act like it is a reality show and you have to be the colour comments man just like WWF or boxing.Maybe the government needs to look at canning the likes of money to the arts and NZ on air as all you see is absolute tripe coming from those areas. All the best to the people of CHCH from Auckland

04 Mar 2011 01:20p.m.

Aliya wrote:

I totally agree with Mel & George. I receive Family tax credits and since i am living by each pay packet these tax credits are so helpful in at least paying for the petrol. Expenses are so high and we were given a tax cut only to hear that GST will be increased. I dont usually involve in politics but what National is doing is really making life harder for all the working people. I have made donations and am wearing red & black today and I do feel for people of CHCH. But I would like for National party to look at someother way they can recover this cost.

04 Mar 2011 12:29p.m.

Mel wrote:

I have to say that cutting working for families will put the already struggling families into a worse position.. many families use that to top up their weekly food bill, they have already risen tax on food, tax on petrol, tax on this and that, i call for the goverment to take a cut in their wages, dont buy the new CARS! put that money into the chch fund..
Cuttin funding for lower income families will be cutting their own throats.. i wont be voting National.. Bill English was a prat last time they let him into goverment and he;s showing his colours all over again!!!!!! BOO NATIONAL

03 Mar 2011 09:24p.m.

George.com wrote:

There are a few obvious ways to help fund the rebuild and a few obvious ways not to. First lets acknowledge that all of us who pay house insurance will contribute through the inevitable hike in our EQC levy - rich or poor - we will all contribute to that fund being re-established. Obvious ways not to pay for the rebuild - scrapping Working for Families. At a time when food and fuel prices are spiking, wageas are low and stagnating and unemployment is high, it is stupidity to even suggest removing one of the props which is helping families make ends meet. The simple and straight forward option is to introduce a levy on high income earners as has been done in Australia. A 1 or 2% levy on cinomes over 100k will raise a sufficient amount to contribute to the rebuild costs. The recent round of tax cuts was not “fiscally neutral”, as we are borrowing hundreds of millions a year to fund them, and was not a “tax switch” for a good portion of low income earners. The first reservoir of finance Key needs to dip into to fund the Christchurch rebuild is tax. Rescheduling some low priority infrastructure can also play a role. The low value Puhoi to Wellsford highway is one it has a BCR of somewhere between 0.4 to (a probably over optimistic) 0.8. If ever there was a waste of government money neo-liberals will have to admit this is it. Similar results can be achieved for $300 odd million and a bypass around Warkworth. Parts of the Waikato Expressway (0.5 BCR) can also be put on a long back burner as well. If after Christchurch is rebuilt there is a pressing need for these roading projects, they can be restarted then. Simple.