Hooton on Jacinda’s easy ride

When Matthew Hooton  points out that no prime minister in living memory has ever had an easier time than Jacinda, he is not just referring to the fawning media – although he does admit that they form an impressive cheerleading group at times. Not only has she had an easy ride with the MSM, which has treated her like a fairy princess since the beginning, but she was also handed an economy that was strong and stable, with good growth forecasts for the next few years. quote:

In its first year, the Government has had the luxury of allocating a big chunk of the strong fiscal outlook it inherited and the extra tax from reversing National’s income threshold adjustments.

No new Prime Minister has had an easier ride than Jacinda Ardern.

John Key was elected in the midst of the global financial crisis, Helen Clark in the wake of the Asian economic crisis, Jim Bolger during a domestic fiscal crisis, David Lange during a New Zealand currency crisis and Robert Muldoon after the 1973 oil shock. end quote.

It is almost impossible to keep electoral promises when the ground is shifting under you, as happened to John Key in 2008. The GFC was actually happening during his election campaign. In a situation like that, there is not much choice but to carry on regardless, but knowing that everything you say will be thrown back at you from the other side of the house before too long. quote:

The problems besieging Ardern’s Government are entirely the result of Labour’s own economic naivety and political incompetence, and she and Finance Minister Grant Robertson are singularly unprepared to confront the difficult choices ahead.

According to the New Zealand Institute of Economic Research (NZIER), the downgrades in growth and revenue forecasts mean the Government can no longer meet its Budget Responsibility Rules (BRRs) to reduce debt to 20 per cent of GDP by 2021-22.

The NZIER also points to emerging risks of even softer growth and politically driven public sector pay rises for teachers and police. end quote.

The government tied its own hands with this one. Wanting to look as fiscally responsible as the National government, they committed to reduce debt to 20% of GDP by 2021. One year into their first term and the wheels are falling off this promise – a promise they were never obliged to make. But once they admit they will not be able to do it, they are going to look shifty and incompetent. Just one more nail in the coffin for a failing coalition. quote:

This gives Ardern and Robertson four broad options, none of them palatable.

The first is to abandon the BRRs but, against all reason, Ardern and Robertson have been adamant they won’t do that, so that any u-turn would destroy their remaining economic credibility.

Ardern and Robertson are cheating their own rules by having Crown entities load up with debt, but their ability to borrow is limited. end quote.

Off-balance sheet transactions. Enron was guilty of that, and we all know how that ended. quote:

The second option is increasing tax, but Ardern and Robertson have also ruled that out this side of the election, except for measures like the new regional fuel tax which is driving up petrol prices to records. end quote.

A totally unpalatable option, that cries of ‘nine years of neglect’ won’t fix. Although I wouldn’t rule out them introducing a new top tax rate, as Helen Clark did in 1999. quote:

The third option is to cut already announced future spending but that would be difficult politically and ill-advised economically in the face of declining growth. end quote.

Remember Steven Joyce’s $11.7 billion dollar hole? A National government would cut spending at this point. This government probably won’t. quote.

The fourth option is to simply hope the Government gets lucky with growth turning out higher than forecast. This may be Ardern and Robertson’s best strategy under the circumstances they have created for themselves. end quote.

So in a year, we have gone from a government that was fiscally responsible and managed the economy brilliantly, (to the envy of much of the developed world), to a government that has to fly on a wing and a prayer? Their best option is to hope it all turns out okay? Really? quote:

It [The Tax Working Group] is also believed to have advised that any CGT must be on everything, except the family home, and include even capital gains on KiwiSaver accounts.

No doubt the TWG would have included the family home had Ardern and Robertson not forbidden it from doing so. 

The problem is that any CGT that taxed capital gains on KiwiSaver and other retirement savings, but not those on owner-occupied houses, would be economically vandalous, reversing decades of efforts to get New Zealanders to invest in equities rather than property. end quote.

If there are too many exemptions, the tax will not produce enough revenue to be worthwhile. Chances are, that will happen anyway. quote:

If this is beyond Ardern and Robertson’s comprehension, it is fully understood by Winston Peters and Jones. On this and other issues, they have no intention of going down with Ardern and Robertson.

The survival of NZ First for another 25 years is far more important to them than the survival of this one Government for three. end quote.

That sounds as if Matthew Hooton thinks that NZ First will throw this government under a bus sooner or later. The way things are going, apart from death and taxes, nothing looks more certain.

 


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Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

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