This post is plagiarized unashamedly from a series of tweets by Clint Smith.
In very limited space he set out why National’s tax cut policies are absurd and how the media is doing us a disservice by not asking the hard questions like what will be cut and how the promised tax cuts will be paid for. Following is an abridged and slightly tweaked version of Clint’s tweets.
Journos are getting fed up with National’s refusal to say what they would cut to both fund their tax package & suck demand out of the economy to dampen inflation.
Either National doesn’t know (a major credibility issue) or they’re refusing to say. Maybe we can answer for them.
I hope he is right about the media. I have seen some evidence of this but I am surprised there has not been more push back by them.
When we did this in Labour in Opposition, we kept track of our spending and tax cut promises against the money available to spend in future Budgets.
Anything in excess of that available money would need more debt or more tax to balance the sums.
(and, yes, our promises were costed – the media would have eaten us alive if they weren’t – and that made us more disciplined because we couldn’t just promise all things to all people like we see National doing)
This is utter rational. Labour’s policies have always been subject to the most intense scrutiny. Believe me. The example from 2014 of Labour’s Best Start policy still rankles.
The Media should be asking National how it is going to afford the cuts.
So – how much would National have to play with if it came to office in 2023? Budgets 2024 and onwards have $3b each of ‘new operating allowance’ (money in the Budget but not allocated to anything – the famous $6b in Budget 2022) that’s cumulative, so $12b in 27/28 year
That’s heaps, right? Well, not so fast. The first thing that needs to come out of that pool of money is funding increases to keep up with population, demographic & inflation cost pressures on health & education. Just to maintain service levels – they need $3b yr, cumulative.
The gradual run down of Health by National during Key’s reign is a classic example, as inflation and an increasing and ageing population increased demand that was not met. By the end of its reign the signs of how badly the system was run down were evident.
In other words, National cannot fund any of its policies out of the new operating allowance, Health & education need it all. Unless they’re going to cut health and education services, they [will] have to cut things to balance the books against their tax cuts and spending promises.
How much would they need to cut? Incredibly, National hasn’t costed their tax package, haven’t said how much spending needs to come down on top of that, or specified their promised increases to defence & Pharmac funding … but we can estimate all that.
I guess recent events involving Steven Joyce’s and Paul Goldsmith’s inability to use a spreadsheet have rocked National’s desire to delve into the details. But if ever there was a policy to cost it would be a tax cut.
National says indexation would cost $1.7b/yr. That increases with wages. By Budget 2024, the cost would be $2.2b & grow at 10% a year thereafter. Removing the top tax rate would cost $0.8b also rising at 10% a year. Restoring landlord tax cuts would cost $.85b a year
So, National’s tax package would start at $3.7b a year in their first year, 2024/25, rising to $5b/yr in 27/28
National has also said they want to gradually increase defence spending from its current 0.7% of GDP to 2% & boost Pharmac. That’s $1.7b in 24/25, $7.8b in 27/28
And they have dug themselves into a hole with their Government spending rhetoric.
… National says spending is too high & causing inflation. So, they need cuts over and above those needed to offset tax cuts and additional spending to suck demand out of the economy. How much do they need to cut to make a difference to inflation? There isn’t an answer.
The US Federal Reserve looked at the impact of govt spending on inflation & found “almost no effect of government spending on inflation”. Even rightwing darling Milton Friedman said there is no evidence. National would have to do some cuts though – let’s call it $1b cumulative.
All up, National’s commitments start at $10b yr in 2024/25 & rise to $28b in 2027/28 but new operating allowances are only $3byr in 2024/25, accumulating to $12b in 2027/28.
National’s fiscal hole is $7.5b in its 1st yr, rising to $16.6b after 4 yrs. Hmm. What could they cut?
The spending National has complained about gets us nowhere near. RNZ-TVNZ merger is a one-off that will already be spent. Same with the Te Huia capex. Fishing boat cameras are $15m a year.
The govt will spend $134b in 24/25. Off the bat – $100b is super, benefits, WFF, heath & education. Interest is $4.9b. Presumably, they wouldn’t cut the $5.9b for law & order, $1b for primary industry $4.2b for transport & or $3b for defence. That’s $119b already.
Housing is $2.6b. $1.5b is free ETS allocations. $1.1b is KiwiSaver, $1.9b Cullen Fund, $1b foreign aid, $1.3b sports, arts, culture; DoC etc $1.4b, $2b is support for businesses. Cut the bureaucrats? *already falling* post COVID & will be down 10% to $2.4b in 24/25
So. Luxon wants to cut decarbonization subsidies for families & businesses: $0.5b per yr. Cutting the Cullen Fund: $1.9b that first year, but only $1.5b in 27/28. Cancel fees free: $0.5b per yr
Drastic moves & Luxon still has a $4.5b hole in 24/25, ballooning to $14.1b in 27/28
Luxon’s not going to get those sums by cutting public service jobs – cutting public service by 20% gets only $500m. Cut Kiwisaver? $1.1b.
Still $3b to find just in the first Budget. You’re not going to get there nipping and tucking other small programmes.
Cutting climate policies, the Cullen Fund, KiwiSaver, Fees Free & 10K public servants isn’t enough. National would have to look to the big bucks – super, welfare, health & education.
What would it be? Means testing super? Benefit cuts? Health & education funding freeze?
A Budget is incredibly complex but the maths is simple – if National wants billions of tax cuts, billions on defence & billions less demand in the economy it needs to find billions in cuts to pay for all those things.
If National is serious about the policies they have outlined so far – and we should believe them when they say they want to cut spending – then those cuts are going to have to come from super, welfare, WFF, health & education.
No wonder they don’t want to talk about it.
Clint Smith has laid out how unrealistic National’s rhetoric is. We cannot have a tax cut and maintain current service levels.
It is not surprising that National did not release an alternative budget, unlike their feeder party which laid out for all to see the carnage the right may cause if it is given the treasury benches. But you get the feeling that they have pushed the rhetoric without having any idea of how to actually achieve what they are promising.
Hopefully the media will start asking Luxon and Willis the real questions. What is National going to cut to deliver its right wing nirvana of tax cuts and smaller Government?
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