Dolla Dolla Bill, Y’all

Written By: - Date published: 5:17 pm, March 11th, 2008 - 14 comments
Categories: economy, election 2008, national, slippery, tax - Tags: , , , ,

Days after saying ‘we’ve always said, we aren’t that worried about, um, whether the Crown needs to borrow a bit of money [for a] programme of tax cuts’ Bill English has accused Michael Cullen of ‘um, ah, borrowing for tax cuts’.

What English’s researchers have discovered is that the amount of Government Bonds on issue is forecasted to increase $2.41 billion from this year to next. He wants you to think this is to pay for tax cuts (he knows it’s not). The truth is significantly more boring.

When Labour came to Government in 1999, gross Government debt was 35% of GDP, it set a target of reducing it to 25%, then 20% of GDP. It is currently 18.5%. The Government wants to keep debt to GDP broadly stable, which is good for the financial system, giving the necessary liquidity to the New Zealand currency and money markets. So, as the economy grows, it gradually increases its nominal debt as well. Here are the projections from the same table (page 57 of link) Bill’s researchers found (figures in millions):

govtdebt.JPG

So, debt levels are going to fall a bit and nominal debt will remain pretty much the same. Could this mean debt is going to be used to pay for tax cuts? No. The cost of a tax cut is not a one-off, you would have to increase borrowing each year to pay for tax cuts with borrowing. Key wanted us to do that when he was finance spokesman but these projections do not show that kind of reckless behaviour.

The Government is keeping debt at roughly the same levels and has ruled out increasing borrowing to fund tax cuts, a responsible and moderate position. Compare that to Nationals’ position on debt. First problem: it depends what day it is and whether you’re speaking to Bill or Mr Slippery here’s a selection of their various policies:

  • Key: ‘we’re sort of comfortable with a notional debt-to-GDP of around about 25 percent, so that’s gross debt’ (always a man with firm positions)
  • English: 25% gross debt ‘has never been one of our policies.’
  • English: ‘we aren’t that worried about whether the Crown needs to borrow a bit of money [for] tax cuts’
  • English: ‘borrowing for tax cuts is wrong’
  • English: ‘National will release a comprehensive fiscal policy later’

Let’s make a dangerous assumption and say Key has National’s policy correct: they want debt at 25% of GDP. In other words, National wants to borrow about $10 billion, which will cost at least $700 million a year in interest, and would be hugely inflationary. An expensive, unnecessary, and unwise policy. Another one they’ll try to slip their way out of, no doubt.

14 comments on “Dolla Dolla Bill, Y’all ”

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  1. ghostwhowalks 1
    11 March 2008 at 7:16 pm

    Remember from the last national government the financial trickery they used wehn they moved the disability sector ( IHC, Crippled Children etc) from the Social Welfare vote to the health vote.
    In one foul swoop they claimed the health budget had risen by approx $1.3 billion.
    I expect the tricks that Shar-key will employ if he had the control of the purse strings will increase markedly.
    Only one problem is that he cant keep his story straight.

  2. burt 2
    11 March 2008 at 9:50 pm

    Steve Pierson

    So if National had planned to increase borrowing while pushing ahead with tax cuts no matter what they would be bad, but when Labour do it it’s good. Tax revenue is also below forecast at the moment, perhaps workers leaving for Aussie is starting to bite. Looks like the 4 way tax cut test is gonna be toast come budget 2008, either that or we are waiting till after the election so Cullen can cancel the tax cuts once Labour get their elusive 4th term.

    They don’t need a fifth term, most will all be retiring during their elusive 4th term anyway. Expect some big compromises on previously hard held ‘high ground’ this election.

  3. Robinsod 3
    11 March 2008 at 9:53 pm

    Burt you dullard – read the post. The government’s plan is to reduce nominal debt. I know I’ve taken the piss out of you for this before but I do think you may have a reading/comprehension problem.

  4. burt 4
    11 March 2008 at 10:02 pm

    Robinsod

    Keep up young fella. I was talking about the “Read my lips – there will be tax cuts” fiasco.

    How the F can Cullen guarantee his four way test against an uncertain economy when he couldn’t deliver tax cuts against a more stable and productive times? It’s election year, that’s how.

    The fact that the economy might not deliver the debt repayments as forecast to allow the gross reduction in debt is apparently irrelevant in an election year. How foolish of me to forget.

    Steve

    Can you please disclose the source (and date of) the projections you have published.

  5. AncientGeek 5
    11 March 2008 at 10:42 pm

    The two points about tax cuts that matter as far as I’m concerned are:-

    1. That they don’t raise government debt. I’m tired of paying for my parents (via muldoon) debt – there is no way I would wish that on my kids, nieces, nephews, and assorted jonior generations.

    2. That the tax cut focus go on to the tax brackets that have had the least adjustment the longest (ie the lowest ones). The 39% bracket (where I pay most of my tax in) should be last under those conditions.

    3. That they are set in a sustainable program tracked to starting to mark tax brackets to inflation (and reduce fiscal drag). That reduces the political effect giving gifts away. Of course in the case of national – that would leave them with nothing to talk about given their absence of any other designable policy,

  6. AncientGeek 6
    11 March 2008 at 10:44 pm

    Ok – 3 points – it is this bottle of merlot….

    I probably need to have a session with BB…….. kerikeri here i come..

    I don’t believe it…
    captcha: hang statistics

  7. Rexel 7
    11 March 2008 at 11:35 pm

    How dumb are they

    National are just retarded economically. All just stupid farmers and failed business men. What succesful person would ever advocate to increase debt when it is not needed.

    This is Key at his idiotic besttrying to stich the country up for his benefit. What a chump

  8. Steve Pierson 8
    12 March 2008 at 9:24 am

    Burt, page 57 of the HYEFU Dec 07. Like I say it’s the same data Bill uses to allege debt is going to be used to fund tax cuts.

  9. roger nome 9
    12 March 2008 at 1:05 pm

    Burt:

    “Tax revenue is also below forecast at the moment, perhaps workers leaving for Aussie is starting to bite.”

    No, that’s due to the credit crunch.

    “So if National had planned to increase borrowing while pushing ahead with tax cuts no matter what they would be bad, but when Labour do it it’s good.”

    National’s tax cut program is likely to be much more expensive than Labour’s. It’s also likely that they’d be less progressive (it will increase income inequality). So it’s about degrees, not absolutes.

  10. Steve Pierson 10
    12 March 2008 at 1:09 pm

    burt. labour isn’t borrowing for tax cuts, National says (sometimes) that they would.

  11. SweeetD 11
    12 March 2008 at 2:55 pm

    Rexel

    re:What succesful person would ever advocate to increase debt when it is not needed.

    If you can get a return on the debt greater than what is costs you to carry the debt, then it seems like a pretty good investment.

  12. Robinsod 12
    12 March 2008 at 3:00 pm

    If you can get a return on the debt greater than what is costs you to carry the debt, then it seems like a pretty good investment.

    If it were for productive sector expansion maybe but for personal tax cuts???

  13. SweeetD 13
    12 March 2008 at 3:29 pm

    Robinsod

    I think this is all getting back to Key and what would he borrow for. Unlike Cullen, not everything needs to be paid for in cash, there are somethings that can be paid for by debt, as they would give a higher return over the peroid than the cost of the debt.

    So, maybe Key is saying we can borrow for more long term investments, and fund tax cuts out surplus cash take. I think that is what he (Key) is trying to say. Yes, borrowing for tax cuts makes no sense.

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