During the debate over the economic stimulus package in the US earlier this year, Moody’s produced a model that shows which stimulus options result in the most increase in GDP per dollar of government spending/tax reduction.
I’ve highlighted the three options that are relevant to NZ (the Bush tax cuts are remarkably similar to the National plan – minor changes for low incomes, large open-ended cuts for the wealthy):
The results are clear and they make sense. If you want to stimulate the economy, giving more money to those who already have lots won’t do the trick. Instead, boost the incomes for low-income people and they will spend that money in their communities, stimulating growth and invest in infrastructure, which not only improves the framework for growth but provides jobs, raising incomes, which in turn creates more demand and more jobs.
If the National/ACT Government is serious about stimulating growth, they won’t cut the top tax rate. Instead, they will put that money in infrastructure and benefits.