If National are so keen to cut taxes and so critical of the Government for not doing so earlier, why are they being so tight-lipped about how they would cut taxes and even the size of their cuts? Because the Budget has them trapped.
Labour plans to announce its tax cuts in the Budget, probably including cuts coming into effect on October 1, before the election. This puts National in a difficult position. They will be going into the election with a tax cut programme already budgeted into future government forecasts and some of those cuts already flowing into voters’ wallets. Any National tax programme that does not incorporate these existing Labour tax cuts will mean taking money away from some voters, which is politically untenable for a pony whose one trick is tax cuts. National will most likely have to accept whatever tax cut programme Labour presents, and certainly will not be able to promise to reverse the tax cuts coming into effect on October 1.
National will only be able to offer additional tax cuts on top of Labour’s. But how much additional money will National have to play with? Colin Espiner estimates National might have a total of $3-$3.5 billion compared to Labour’s $2-$2.5 billion. Given it can’t reverse Labour’s tax cuts, that leaves National with only $0.5-$1.5 billion to play with. That comes out at only $3-$10 a week per taxpayer – not exactly an earth-shaking tax cut plan. Moreover, the additional cuts National proposes will stand in direct contrast to the extra spending Labour offers. Voters will already have decent tax cuts in the bag, National will have to convince them they should vote for a small additional cut (which, in National tradition, will mostly go to the wealthy), rather than new spending on services. That will be a hard sell.
The other option will be for National to blow the budget by offering several billion in tax cuts additional to Labour’s, but to fund that they would have to cut services or run a deficit. Any large cuts would be strongly inflationary. That would blow away National’s new moderate stance and scare away voters. National will go with the second option. National can’t be seen to be Labour lite on tax cuts; it must retain this point of difference by offering much bigger cuts funded by attacking spending. We can see signs of this in Key’s promise to cap the core public service and more vague mumblings about public sector waste, but as we’ve seen such measures will free up very little money.
So, on tax cuts, National is trapped between a rock and a hard place. It will have to follow Labour’s lead and will only be able to offer a pittance on top, or go for broke and promise huge cuts, no matter what the economic and social cost. Facing a fourth term in opposition, which option do you think they’ll take?