Editor,

Since my original message to you I have done a little more research and therefore added to my original message.

It is with some interest that I read Prime Minister Key's announcement of aid contributions for Tonga.

The first aspect I find amusing is the absence of any recognition, in the announcement, that this is money being collected from citizens of New Zealand in taxes and therefore is coming from the people of New Zealand for the people of Tonga. Instead he gives the impression that this money is the result of his/government's generosity.

The second interesting aspect is that the announcement gives the impression that $12 million this year, $16 million next year, and $18 million the following is easy money for NZ. He said nothing about the fact that giving this money to Tonga must mean that some services to the citizens of New Zealand must be curtailed by the same amount. Little wonder that the people of Tonga must think that foreign aid is like monopoly money and large amounts are readily available from the printing presses at any time.

The last and most interesting aspect is that, in fact, the amount of NZ annual aid to Tonga is less than the total tax revenue of NZ$14.5 million that the NZ government would have collected in income tax from income derived in NZ on the NZ$70 million of exports to Tonga in 2007.

In 2005 NZ Inland Revenue Tax Collections were equal to 33% of NZ Gross Domestic Product (Total value of all NZ goods and services transactions). If I subtract out GST which is not applicable on export transactions (12.5%) then we are left with 20.5% average income tax collected. This means that, on the average, if someone purchased NZ$70 million of goods (Tonga) from New Zealand, then all the companies and wage earners involved in the provision of these goods would pay income tax of $14.5 million to IRD.

Therefore what PM Key probably should have said in his announcement is that he thanks the people of Tonga for "donating" $14.5 million to the NZ government and that the NZ Government, as a token of appreciation, is refunding $12 million back to the people of Tonga.

If one wishes to look a little more closely at the NZ$2.5 million that Tongans "donated" to the NZ government and divides that by 30,000 adult Tongans living in Tonga, one establishes that each adult Tongan donated TOP$100 or every family TOP$200 net to the NZ Government last year. That's about what most Tongan families spend on school fees every year!

Our Prime Minster might wish to consider making a visit to NZ soon to announce the level of foreign aid to be given by Tonga to NZ over the next few years.

By comparison, Australia exported about NZ$23 million of goods to Tonga in 2007 and therefore collected equivalent of NZ$4.7 million/AUD$3.6 million in taxes while their assistance package to Tonga was AUD$22 million or net AUD$18.4 million/NZD$23 million from Australia to Tonga

I leave it up to the reader to now decide who is actually giving money to whom. From my point of view, official statements notwithstanding, it doesn't seem to be NZ to Tonga.

Best regards,

Peter Goldstern

goldsternp [at] alum [dot] mit [dot] edu