Cullen's legacy of no tax cuts

One of the great parliamentarians retired this week, with Michael Cullen delivering his valedictory speech. All sides acknowledge he was a great parliamentarian, but was he a great Minister of Finance?

Before we answer the question, let us acknowledge his skills as a Member of Parliament. Few MPs dominate the House. Muldoon and Lange did. Rowling didn’t. Even Bolger and Shipley didn’t, and neither did Palmer or Moore.

Since the demise of the two giants – Muldoon and Lange, the three MPs who were the Masters of the House were Michael Cullen, Richard Prebble and even I have to admit it – Winston Peters. Most MPs would not trifle with the Speaker – well Speakers would not trifle with these MPs.

So Cullen departs, leaving just Phil Goff as the sole survivor of the class of 1981, and only some trainee giants in the House – Darren Hughes, Gerry Brownlee, Rodney Hide and possibly John Key.

Turning to his legacy as Minister of Finance, it is more mixed. Up until a year ago, some talked him up as entering the record books as one of the greatest ever Ministers of Finance – a huge extension to the welfare state, continuous economic growth, reduction in debt, and even maybe some tax cuts. Also some real legacy items such as the Cullen Fund and KiwiSaver that would be with us, longer after Dr Cullen himself.

Even though the author disagrees with many of Labour’s economic policies as inefficient, untargeted, and providing the wrong incentives (such as interest free student loans), I acknowledge for Labour supporters who do like such policies, Dr Cullen delivered a record number of them. So I don’t judge him down for pursuing policies of Labour, not National. He was a Labour Minister of Finance – make no mistake.

But his attitude to tax cuts is what stops him from ever entering the rolls of the great Finance Ministers in the views of most of the public. His opposition to personal tax cuts was so strong, that it played a major part in Labour’s third term unpopularity and losing the election. His 2008 tax cuts were seen as insincere, a booby trap for National and likely to be cancelled after the election (which inevitably would have happened if Labour had won).

Providing tax cuts when you have non stop economic growth, should not be constrained to National Governments only. I certainly expect Labour and National to differ on the size and shape of tax cuts, but not on whether you have them or not. And the public has the same view.

Dr Cullen enjoyed eight years of economic growth and some modest inflation (pushes wages earners into higher tax brackets). This massively boosted the tax take from around $30 billion in 1999 to close to $60 billion in 2008. When you have such huge increases in tax, there are basically three things you can do with it:

1. Increase spending
2. Reduce tax rates (or increase thresholds)
3. Pay off debt

Most people are open to a rational debate about how the Crown should allocate its increased income between the three options. Economic dries like the author might advocate 50% on tax reductions, 30% on increased spending and 20% on debt reduction. A left winger might advocate 50% on increased spending, 30% on debt reduction and 20% on tax reductions. These are both reasonable options.

But Dr Cullen’s great failing is that for eight years he split between spending and debt only. He effectively gave 0% to tax reductions. This was the ideological equivalent of a National Minister of Finance who gave 0% to increased spending. Could you imagine a Government that did not increase spending once in eight years? As preposterous as one that never reduced personal tax rates once in eight years.

So his total opposition to tax cuts was the first reason why Dr Cullen goes down as a good, but not great Finance Minister with the public.

The Second was canvassed last week – his “booby trapped” 2008 Budget that threw away caution and set the scene for the fiscal disaster inherited by the National Government. Dr Cullen can not be blamed for the credit crisis, but he can be blamed for not leaving a surplus.

The third chink in Dr Cullen’s armour is the fact that his long record of economic growth was spoilt in his final year in office. NZ went into recession a year before most countries, in advance of the credit crisis. Now personally I don’t think you can generally blame a Minister of Finance for when a country goes into recession. Droughts tend to have more to do with it. But as Finance Ministers get to enjoy the credit for the good years, they do get their sheen tarnished by the bad years.

Who knows what would have happened if Dr Cullen had delivered small sustainable tax cuts as the surpluses got huge? It may have won Labour a fourth term, and Dr Cullen could have entered the political record books as one of New Zealand’s most successful prosperity Finance Ministers. Alas for Dr Cullen, and for taxpayers, we will never know.

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13 Comments & Questions

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Speakers may not have trifled with Winston, but he had absolutely no understanding of speakers' rulings or standing orders; he was a mess at asking questions and full of meaningless babble whenever he tried to state a point of order. He may belong in the list of seminal MPs, but he was no parliamentarian (in the narrow sense of the word).

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The guy was a disgrace who has left a legacy it'll take years to recover from. Good riddance he's gone.
And he wasn't "clever" in parliament - he was just a smart-a...e smary p...k - wish Tau H had of dealt to him after Mallard.

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The failure to give tax cuts pails into insignificance compared to the demolition of NZ economy. I don't understand the the praise being heaped on this economic destruction machine. Remember we were in recession long before the rest of the world. The advice given to both Cullen and Clark regarding the Finance Industry by John Key was ignored by this economic genius. Grow a leg media and tell the truth!

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well now national will be following on with the legacy of no tax cuts . dont worry though these people running things now are the Torys so keep and eye out for indirect taxation to increase and they will invent more in the guise of user pays . the national party the truth is they are the party og higer taxation not labour , its called user pays.

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'a Good but not Great Finance Minister' Like Hell!

NZ did well in spite of Cullen not because of him

Look at Government spending in the last ten years, look at our OECD ranking in the last ten years, look at the bloating of the public service(both by number and by average salary) in the last ten years

The 'good' finance minister was the man who left it to Cullen in 1999 - he was the one who created the opportunity for Cullen to make a mess of. And no doubt English will just get it right then the electorate will let another lameduck labourite wreck it again.

And as for him being a great parliamentarian - he was a foul tempered foul mouthed little brute that's what he was. Muldoon at his best would have sliced him into little pieces (as he would Lange - Rob - at his best as I say - would have thrived dealing with the pompous blather of both of them)

Good riddance to bad rubbish

And as for Darren Hughes - he's got a long way to go to be a great parliamentarian. At the moment all he is good for from what I can see is to sit behind Goff with a stupid look on his face. You could hardly call the others (Brownlee Hide or Key) dominating forces in the house either (though Key as you say may get there).

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You are certainly right about his lack of tax cuts, but let's not forget that the oily little sh*t increased the top tax rate to 39% shortly after coming into power causing all sorts of distortions from a tax perspective. The socialists' “tax and spend” approach to economic management over the last 9 years has left us in a parlous state to deal with this long-winded recession.

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You are certainly right about his lack of tax cuts, but let's not forget that the oily little sh*t increased the top tax rate to 39% shortly after coming into power causing all sorts of distortions from a tax perspective. The socialists' “tax and spend” approach to economic management over the last 9 years has left us in a parlous state to deal with this long-winded recession.

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I only see that wee creep as a loser who is the scourge of shareholders who owned AIA share .To me he is guilty of the crime of envy and was never good enough to have a real job .To NZ business he was a weapon of mass destruction.

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The suggestion that New Zealand went into recession before most others is thematically false. Most New Zealand manufacturers for instance were well aware of the global recession years in advance - as they saw their suppliers and competitors, particularly in the USA, Japan, and Europe, struggle.

I had a lot to disagree with Labour government policy - the refusal to cut taxes was the absolute correct decision - cutting taxes at the high end of the economic cycle is one of the stupidest things a government or ecnonomic planner can do.

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Your previous commentators are far more on target on this issue than David Farrar is. Strangely, Farrar is far too generous in his assessment of one of the nastiest MPs (possibly ever) in parliament who helped destroy any hope of our regaining a far better placing among OECD countries. Cullen was a disaster as finance minister, helping to lay waste the country; to throw hundred of millions of dollars at what are now in effect spurious treaty claims (a bedded-in practice the equally disastrous Chris Finlayson is apparently keen to continue; to bloat our welfare burden; and to make it far harder for ordinary NZers to afford to live on one wage only - and to afford a mortgage and family.
Moreover Key's shocking golden handshake promotion of this unpleasant , arrogant and damaging minister to the board of a CEO gives us no reason to respect the PM's judgment and behaviour, either. A poor situation all round. No wonder the country is fed up with the corruption of the political process.
.

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you are far too kind in your assessment of this nasty little man
together with clark he deliberately set out to destroy the NZ economy to make it difficult for National
the only good [?] thing he did that he did was to alienate the voters so completely that these proponents of the politics of envy got thrown out of office,unfortunately too late
but at least we are now rid of them and can start the long rebuilding process
as for his performance in the house he was nothing more than a nasty,sneering.negative little man
NZ is well rid of them both!

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Everyone has had a piece of Cullen or almost,and rightly so .Ibelieve that his then Revenue Minister Peter Dunne helped him to form some of the most punitive tax rules on overseas investors and to now Dunne appears to have escaped critism WHY?Perhaps he really is more sneaky than Cullen ,or is he the original chameleon ,the one that got away,appears so.

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Well Paul seems to me you must have been asleep as the tax take doubled in 9 years under Cullen and Dunne,with little relief to the workforce and shareholders.

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