GST up, income tax down: Both happened remember

Blah blah blah government is to blame for increasing GST and hurting families struggling to put food on the table.  This is coming out constantly.  It is a load of crud.

GST went up, and income taxes were cut by an amount that implied that pretty much EVERYONE had greater real disposable income following both changes (benefits and super were adjusted as well remember).  So don’t pull this line.

And also, all this talk about prices rising rapidly … well the CPI rose 0.8% in the quarter, almost all the result of a spike in petrol prices (on unrest in the Middle East and North Africa) and a spike in food prices (on the back of droughts and floods overseas).  Prices across a whole range on retail products actually fell during the quarter – such as clothing and footwear.

Also, lets not forget that both parties arbitrarily want the exchange rate lower – remember that a lower exchange rate increases the price of imported goods.  This is something that will make it harder for families to put food on the table and make it more difficult for mum and dad to pay for a new school uniform for the kids.  The high exchange rate (due to high food prices, when we sell a lot of food overseas) helps to take some of the gains from high export prices and pass them on to other households in society – don’t forget this, as politicians and exporters seem determined to hide this fact from the public.

If we genuinely think incomes are too low for the poorest households, increase the benefit/minimum income provided by government as a transfer to these households.  Stop this political bullsh*t that misinforms people regarding the true impact of other, completely unrelated, policy changes.

Note:  My apologises for the lack of updates from us at the moment – things are extremely busy.  There are a few posts I HAVE to write – hopefully I can write them over Easter and get them up afterwards.

  • 1. The play is best strategy by Labour, who know that the sensible reply can be batted back by saying “but most of the tax cuts went to the rich” (even though sufficient cuts went to lower parts of the distribution to fully offset GST’s effects).

    2. It fits into the preferred media narrative about GST being regressive.

    3. The ones who really should be pilloried are the “economists” quoted in press taking this line who do know better but who want to make political points for Labour. Rosenberg from the CTU is prime offender here.

  • @Eric Crampton

    1) Agreed regarding it being a politically sensible move from Labour. This doesn’t change the fact I hate politics and the associated misinformation.

    2) The whole media narrative thing makes it sounds too sensible – I prefer to say it fits into “media laziness”. They want to sell an idea that is really easy to write down – so they do this. Doing a bit more work and actually describing what is going on would be honest, but both involves effort and risks reducing the shock value of the story if it isn’t written properly. So they just role with the lazy line.

    3) I agree. I’m also pretty pissy with the media here as well though.

  • @Matt Nolan
    I don’t really know why you get grumpy about this stuff. It’s rare that anybody tries to merely inform another person: usually they’re trying to persuade them of something. That doesn’t usually require one to be transparent and honest about the assumptions made and the framework used. It’s much more effective to appeal to someone’s priors and that’s what the newspapers and politicians try to do. How can you possibly be angry at people for acting as rational, utility-maximising agents?

  • @rauparaha

    I agree that I have no problem with agents acting rationally. However, economists, the media, and politicians are all groups with specific institutional power – and I hold them to a higher standard with regards to information due to this.

    As a result, it makes me grumpy.

  • Miguel Sanchez

    Agreed. I’m particularly tired of the focus – and it’s more by the media than the pollies – on how much more cheese has gone up, how much more vegetables have gone up, how much more petrol has gone up, etc – as if these things somehow outweigh the 4.5% rise in the CPI rather than being part of it.

  • Dismal Soyanz

    @Miguel Sanchez

    Certainly the media trumpet things as if it were the end of the world but the pollies display an invective-hurl-at-the-radio-inducing disingenuity when asked to comment.

    On reflection, it’s something that will likely be with us until such time as we have a media that either has the smarts in-house or has sufficient smarts to go ask a half-decent economist to explain it all first. Unfortunately pulling in the punters often translates into a race to the bottom.

  • Dismal Soyanz

    @Matt Nolan

    As a result, it makes me grumpy.

    What with this being an election year, you must be one cheery bugger 🙂

  • Chris B

    Nice rant 🙂
    But i’m quite interested in the point you made about the exchange rate. It seams to me that there is a tacit assumption that what’s good for the farmers is good for the country as a whole. But we’re not living in the 1950’s any more, and more and more, the interests of the Urban population is at odds with the Farming sector. This has been seen recently a number of times in the news, from the price of milk to the coverage of the rainy weather over the Christmas holidays.
    So i’d be interested (time permitting, of course) to hear an economist’s view of how much flow on there is from agricultural exports (as opposed to, say, tourism “exports”) on to the economy as a whole, and how this flow on influences urban workers.

  • @Miguel Sanchez

    @Dismal Soyanz

    Good points guys.

    @Dismal Soyanz

    Very much, I swear I’m going to have a headache for the rest of the year.

    @Chris B

    Hi Chris,

    I am very much in your camp insofar as I don’t agree with just stating “what is good for farmers is good for us”. In the short term there are undeniable distributional consequences from such a lift in food prices – after all, people who aren’t making the food are food importers 😉

    However, the change in the exchange rate does help to ease the burden on households in New Zealand – and that is a useful thing. Furthermore, in the long-run resources move about based on the changes in “relative prices” in the economy … as a result, it is likely that the majority of households in New Zealand will end up better off.

    Facing such a shock, I am also of the view that we don’t want people to fall into the cracks – rising food prices do crimp household income and will have an impact on the poorest households. However, my impression was that part of the role of a security net from government was to ensure that the worst off citizen did enjoy a certain standard of living – as long as such a net exists, then we don’t have to worry about this impact.

    Given the uncertainty around the net distributional consequences around the economy – allowing the exchange rate to do the heavy lifting for distributing income from the boost in export prices is the safest way to go.

  • Miguel Sanchez

    Chris B :So i’d be interested (time permitting, of course) to hear an economist’s view of how much flow on there is from agricultural exports (as opposed to, say, tourism “exports”) on to the economy as a whole, and how this flow on influences urban workers.

    That’s kind of the problem – in the last decade at least, most of the direct influence on urban workers has not come from farmers at all, but from international capital markets. No wonder us townies are so ungrateful. :p