Written By: - Date published: 8:40 am, October 8th, 2008 - 83 comments
Categories: election 2008, labour, national, tax -
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After building a political career that has consisted of little more than calling for tax cuts and attacking those that were delivered, John Key will finally present his party’s tax cut package today. Already, they have had to reduce its size but they will still make it the central part of their mystical economic platform that is meant to stop emigration, lift us out of recession, prevent junior doctors’ strikes, and make our whites whiter. The supposed transformative powers of larger tax cuts underpins and defines National’s ‘time for a change’ message. So, they better deliver something that can make a difference
As a guide to what to expect, let’s take one element of National’s promises- reducing emigration via tax cuts. I find it hard to believe that anyone’s decision to emigrate to Australia or not is tipped by less than $2000. So, say, National could reduce emigration significantly by offering tax cuts, I think it’s fair to say that would need to offer more than $40 a week to most Kiwis above Labour’s tax cuts (which National dismissed as the block of cheese tax cuts). If they don’t pony up, their wailing that Kiwis are emigrating because of Labour’s tax policies will be revealed as completely hollow. As will their promise of transformative tax cuts.
Before the announcement, it is opportune to look again at the distribution of income as well who benefits and how much from the Government’s cuts:
[Update: Just saw this in the Herald: "The $50 reduction [for a worker on the average fulltime wage] won’t be reached until until April 2011, and will include the tax cuts Labour introduced on October 1.” Now, Labour’s cuts have already delivered $16 increasing to $32 by 2011 for the average worker. So, National will be offering just $6 a week than Labour each year to 2011. $6? All this over $6?]
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At least you could tell me why it’s invalid Tim. Bush believes in Tax cuts, just like National. That’s why he delivered them.
Never mind other things Bush has done. I’m interested in this tax cut belief business.
PB, for the simple reason that Bush instituted large tax cuts in tandem with uncontrolled spending. The US federal budget has been in deficit for all but 4 of the last 40 years.
National inherited many years of budget deficits and increasing government debt in 1990. They dramatically reduced public debt during their time in office–so much so that Helen Clark criticised National for reducing debt so quickly. While reducing debt, they managed to lower tax. They demonstrated that with prudent fiscal management, you can reduce debt and lower taxes, if you make them a priority, even at a time of modest economic growth.
This Labour government has reduced debt, and increased social spending, at a time of strong economic growth. Those have been Labour’s priorities. Cutting tax hasn’t been a priority.
National is now saying that its priorities will be cutting tax, keeping debt at a stable level, and reducing tax. It is probable that National won’t increase social spending at the same rate that Labour has over the last nine years. The much more valid comparison is with Australia, which has maintained similar fiscal priorities over the last decade.
If economic growth improves, it is likely that National will lower debt and reduce taxes further.
All I have said is that cutting tax hasn’t been a fiscal priority for this Labour Government over the last nine years, and there aren’t any signs of any real enthusiasm for making it a priority. That’s what makes me believe that when it comes to the crunch, and the options are on the table, National will choose to lower tax while Labour will choose not to do so.
Tim, thanks.
You’re right about US deficits over the last 40 years. What surpluses they ran were by governments that didn’t ‘believe in tax cuts’.
National in the 90′s slashed social spending and deepened recessions so much that NZ missed out on what other nations called the Clinton Boom.
More later.
“You most certainly can have ongoing tax cuts without increasing debt, and by maintaining social services spending, if there is increased growth in the economy.”
Well those tax cuts would account for inflation, for sure, but growth has and always will be cyclical – cutting taxes to spend part of a surplus will result in a deficit eventually.
Look, what I said in my previous para wasn’t meant to be contoversial in any way. National believes in tax cuts, and that is because they’d like to sell all assets and privatise everything they could. Less government, personal choice – that’s what those fancy lines really mean. If you don’t agree, then you’re supporting the wrong party or know less about them that I.
“ …Labour…have prioritised social spending over cutting tax.”
That’s if you ignore reducing debt to very low levels (which is looking better and better in hindsight), WfF which was, in reality, a targeted tax cut and kiwisaver.
I do agree with you in general about cutting tax – National is more likely to do so, and do so no matter what the cost. At present, National is more likely to plough ahead and cut tax because it is popular, but a very very bad idea. Labour would be more likely to have the guts to do what’s right (sorry, Rodney) and pull the pin.
Given National’s 9-year plan to reduce the debate down to the level of “Do you want more money?” as opposed to presenting a rationale behind tax cuts, we’re unlikely to see Labour back down either, unfortunately.
And FTR, observations are either true or false. Only arguments can be invalid. You assumed I was making some argument that I was not making. You castigate others for doing that.
I merely made an observation that made you uncomfortable, that you havn’t yet denied the truth of.
Namely, that Bush cut taxes because he believes in tax cuts.
PB
An interesting article on the Clinton boom.
http://www.iht.com/articles/2000/02/18/think.2.t_2.php
“Of course such assertions — like so many in economics — can be influenced by politics. People to the right of center are more likely to date the expansion to Mr. Reagan’s time and attribute it to his policies. Those on the left are most reluctant to accept that.”
Sounds vaguely familiar somehow.
Matthew said:
Oh, come on MP. Labour aren’t victims here, any more than National are the victims of the Labour Party spending many years shrieking about social service cuts, or as you’ve done here, claim that National is hell-bent on selling state assets.
National also reduced debt by very significant degrees during the 1990s, which also appears to have been a very good idea in hindsight. National managed to do this during only modest economic growth, and with the Asian economic crisis. Labour hasn’t had to face any tough economic policy choices until now.
I think it is fair to say that there is reasonable public consensus on some broad economic issues: long-term, high public debt is undesirable; the state should maintain its core public services; the state should own its existing core state assets.
At the margins of these assumptions are whether existing social services should be extended or remain constant; whether short-term debt increases should be extended to fund necessary infrastructure and/or smooth fiscal conditions over the medium term; and whether tax reductions are a priority ahead of extending social services.
In my view it really is only at those margins that National and Labour are having the debate. As much as both political parties like to demonise each other to score political capital, they aren’t challenging the underlying assumptions about the mix of social services provided by the State.
In my view it really is only at those margins that National and Labour are having the debate.
Largely true, but the devil is in the details. Labour’s tax cuts favour low earners, National’s favour high earners. Labour’s employment policies are better for workers, National’s for employers. These differences in emphasis have a huge impact on the lives of the majority of ordinary working people.
Well it’s interesting that Tim is now downplaying the differences between N and L. The difference I am interested in is the one that I heard English talking about yesterday, and that others have mentioned and alluded to here. This ‘believing in tax cuts’ thing.
I apologise if this sounds like the dreaded semantics, but semantics is simply the study of meaning, and I’m still interested in why people choose to phrase tax policy this way.
I’m going to quote Tim here a lot so all the quotes are from him.
Here’s what grabbed my interest, because I also heard the phrasing from English, which makes me think it’s not accidental, but is actually conveying some semantic content:
So there’s the phrase, interestingly tax cuts here are also correctly described as a tool, but tax raising is not. We are not told to what end this tool should be put.
So I asked what ‘believing in tax cuts’ means, and he replied thus:
You just don’t geddit PB – you gotta believe! or it just ain’t right…
Sorry about the messed up formatting, the second TE quote should only be 2 para’s’
Drop kick me Supply side jeebus, through the Laffer curve of life.
Merely FYI Matthew.
UB, DPB, IB and SB are all taxed. However…
“If you get a benefit other than New Zealand Superannuation or Veteran’s Pension, and you don’t have dependent children, the amount you get paid (the net amount) doesn’t change on 1 October.”
http://www.workandincome.govt.nz/about-work-and-income/news/2008/october-2008-changes.html