David Farrar has had a go at David Clark for supposedly blaming (or crediting, Farrar can’t make up his mind) National for the revenue loss resulting from Labour’s 2008 tax cuts after Clark said that National’s tax cuts have sucked 2.5% of GDP out of the Crown’s revenue, widening the deficit by $5b a year. Either Farrar can’t read or he’s desperately spinning.
One obvious change relative to figures reported in our previous BIM (2008) is that New Zealand’s tax revenue as a percentage of GDP has fallen significantly in recent years from 35.1 to 31.0 percent of GDP since 2007.2 This is considerably larger than the fall experienced by OECD nations on average; the OECD-average fell 1.5 percentage points from 35.4 percent to 33.9 percent.
Some of the decline will be attributable to the global financial crisis. But there have also been significant tax reforms enacted since 2008 that will also be reflected in this reduced tax to GDP ratio. We estimate that about 2.5 percentage points of this decline is attributable to policy changes with the remainder attributable to the global financial crisis.
IRD is gently pointing out that New Zealand is pretty unique in the developed world in that our government, our National government, went on a three year tax cutting binge during the global financial crisis and its ongoing aftermath.
Did Labour cut tax too? Yes. Company tax went down to 30% on April 1 2008 and everyone got a tax cut on October 1 2008. But it was National’s choice to keep those cuts – they cancelled the rest of Labour’s package and substituted their own larger one – they could have reset tax levels to pre-April 2008.
But, instead, they went on a bender and the cost of that bender, according to the IRD is $5 billion a year in extra debt.
It’s high time the Right faced up to the cost of their tax cut fixation.
Actually, they already know all about the cost. They want tax cuts to carve a huge hole in the government’s books, which they can then (with much-feigned regret and a dose of hard-nosed pragmatism) fill by slashing important public services.
The Nats didn’t get to a position where they’re borrowing an extra $5 billion by accident. This is a strategy – a strategic deficit that enriches National’s wealthy backers even more with tax cuts while strangling the public services that National ideologically opposes.
If only they had the guts to come out and say it.