IMF advises NZ Government to raise taxes

The Stuff website is carrying an NZPA story entitled 'Govt told to curb spending' http://www.stuff.co.nz/national/politics/2294570/Govt-told-to-curb-spending 

 

"Low priority spending should be cut, but the required adjustment (to save the Crown accounts from deteriorating significantly) is so large that the Government would have to consider raising revenue - taxes to bring debt levels down," the IMF is quoted as saying.

 

The reason why the Crown is required to run structual surpluses in New Zealand was highlighted yet again today when Statistics NZ issued the balance of payments for the last three months of last year (this tells us NZ's current account balance with the world by aggregating the balances of merchandise trade, services trade and international investment income between NZ and the world). 

 

NZ Inc. (driven by the household and business sectors) lived on the credit card to the equivalent of just under 9 percent of GDP in the year to December 31.http://www.stats.govt.nz/products-and-services/media-releases/balance-of-payments-intl-investment-position/balance-of-payments-and-iip-dec08qtr-mr.htm

 

International investors require the Government to keep its own books in surplus to offset the risk associated with lending to New Zealanders arising from the open credit card practices of our households and businesses.

 

We've been living on the credit card, running annual current account deficits in each and every year since 1973. The running deficits are cumulative - adding to our total net overseas financial liabilities as a nation - so that by 31 December 2008 New Zealand's overseas liabilities exceeded its overseas assets by $167.7 billion (92.9 percent of GDP) versus 87.1 percent of GDP a year earlier.

 

The last time international ratings agencies downgraded our Sovereign Credit rating was in 1998 when the last National government was cutting income taxes and facing the Asian financial market crisis.

 

What is very clear is that everything has changed in the global economy and financial system since October of last year.

 

Kiwis will forgive the National-led government if it decides to can the 2010 and 2011 round of income tax cuts. In fact, Kiwis will support the Government's moves to cut low-priority government spending, and they'll even support tax rises, if they are kept in the loop and spoken to honestly by the Prime Minister who enjoys high popularity and leads a government enjoying a prolonged "honeymoon".

 

With expensive population ageing and global climate change challenges facing our small trading nation in the decades ahead, real strong leadership is what the country needs and which, hopefully, National will deliver.