The day of reckoning has passed.
For a long time National has been promising income tax cuts funded by cuts to wasteful spending.
But they have now released the policy on which they have clearly pinned their election chances.
Have they succeeded in appealing to people’s greed and overwhelming sufficiently their ability to reason? Will individual aspiration overwhelm what we should be doing for the common good?
Let’s divide the announcement into more manageable pieces of information.
Basically National is promising $14.6 billion of tax cuts over 5 years. To fund this they promise not to increase borrowing but instead will receive $6.3 billion in new tax initiatives and recoup $8.3 billion in savings and reprioritisations.
One of the new tax initiatives, the removal of commercial building depreciation, has already been announced by Labour and was going to be used to fund GST off fresh fruits and vegetables.
The other new proposals appear to be optimistic in the extreme.
The foreign buyer tax, imposing a 15% tax on foreigners buying residential properties worth over $2 million, would be so easily avoided I wonder why they are bothering.
To achieve this remarkable feat they will have to sell in the vicinity of 2,000 high value properties to rich overseas persons. Given that in 2018 before the foreign national ban was implemented there were a total of 4,000 sales to foreigners of houses of all value this assumes some heroic levels of sales occurring.
And already the problems are emerging. Who thinks it is a good idea to breach trade obligations with China?
The second initiative involves similar herculean assumptions about the money that can be raised by taxing overseas gambling. The Government’s estimate of what can be raised is a third of the figure that National has proposed.
The underlying assumptions appear to be complete and utter bonkers. And the proposal, geoblocking international casinos unless they pay a fee is likely to be met with the same rate of success that every other effort at geoblocking has ever achieved.
VPN anyone?
From Radio New Zealand:
The proposed online gambling tax would be set up by requiring online casino operators to register and report their earnings, with services that did not comply affected by IP geoblocking. It was expected to net about $179 million every year.
Edmonds on Thursday told reporters at Parliament offshore online gambling operations were already subject to GST after a change brought in by National in 2016, and far more gamblers would be needed to cover National’s expected costs.
“Based on the estimates I’ve seen we believe that New Zealanders lose $350m offshore due to online gambling, that’s based on the GST count that we’re getting,” she said.
Her colleague Kieran McAnulty said the $350m figure was backed up by figures produces by the TAB and Lotto as part of the review of the Gambling Act.
“The TAB has been producing figures to demonstrate why there needs to be regulation of online gambling, Lotto have done the same. If they believed there was four times the amount of people gambling overseas they’d say so because it would strengthen their case.
User pays is an easy but superficial proposal. The devil will be in the detail, for instance what happens to refugee applications.
And getting advice from Sky City suggests rather a large gamble.
And the removal of commercial building depreciation is something that Labour has already booked.
The bureaucratic savings that are proposed are also herculean. National has used the mantra of “back office staff”. Ask any teacher if staff assistance they receive is a nice to have and I am certain they will give you an earful.
Cuts to Labour programs that they are proposing are in some instances strange and in other instances cruel. Labour’s extension to early childhood education will be cancelled as will reductions to public transport charges. Work on fair pay agreements and industry transformation plans will also be halted. In calculating savings National has not taken into account the increased cost these cuts will result in.
It is National’s response to the climate dividend that is the most difficult to comprehend. National’s briefing paper says:
Under Labour, New Zealand’s emissions reduction goals are at risk because the Government keeps undermining the ETS to protect polluters from the costs of decarbonising their businesses, including by giving them generous government subsidies for emission reduction projects they should be doing anyway and by intervening to reduce the ETS price.
Labour’s fiddling with the ETS has become so bad that at various points it has collapsed the pollution price and landed the Government in court.
National is conscious of the impact an effective ETS will have on the cost of living for everyday New Zealanders. This is because while the ETS is levied on polluting businesses, over time polluters are likely to pass on their increasing costs by charging higher prices for petrol, electricity and other goods.
National believes that the best way to reduce that impact is to return ETS revenue back to New Zealanders by delivering a Climate Dividend. This will allow people to make their own choices about reducing emissions in their daily lives in ways that best suit them.
The problem is that National’s proposal will cost the country plenty. New Zealand will have to purchase carbon credits to cover any emissions over agreed levels. And the greater the deficit New Zealand has to fill in the greater the price.
The attack on the New Zealand deal is strange. As well as effectively removing 300,000 cars off the road the financials of the deal are outstanding. As stated by James Shaw:
The economics of this really stack up, especially compared to current carbon prices. The lifetime abatement cost is forecast at $16.20 per tonne. Current carbon prices are around $55 per tonne. In the long term this saves the Government and the country money.
Sure you could let the market rule and the carbon price soar, which appears to be the policy of National and Act. But in this case the price of steel would soar affecting consumers as well as NZ Steel. And the change would have occurred later, probably much later. And in the meantime huge amounts of CO2 would have been pumped into the atmosphere.
I have not attempted to detail the effects of mass cuts on the public service. National has obviously put very little analysis into this area. Clearly they do not care.
But the income from their proposed taxes appear to be based on herculean assumptions and the climate measures would undermine the slow but steady progress we have made as a country to meet our climate goals.
National’s response to the PREFU will be interesting. For now I believe that we can safely conclude they do not know what they are doing.
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