As the Nats try to spin us into accepting another zero budget, focus is turning to two big holes that their policy decisions have created. The first is the billion dollar a year plus spend on the low to negative value Roads of National (Party) Significance. The second is the billion dollar a year plus cost of the 2010 tax changes. That’s over $2 billion a year that could be spent elsewhere, avoiding spending cuts without more borrowing.
I’ll return to the RoN(P)S in another post. Let’s look at the Nats’ spin on the 2010 tax cuts.
The Nats are pushing three, contradictory, lines on the fiscal impact of their tax changes (first from English in the House last week, now repeated by Brat Pack scion Farrar).
The first is that you have to credit them with a billion dollars for cancelling Labour’s tax cuts that hadn’t come into effect when National came to office to offset against their tax cuts – just like if you inherit a house and decide to spend $20,000 on a pool but not spend $10,000 on the roof like grandma was going to, you can say you only spent $10,000. Oh wait, that’s nuts you say? Yeah, it is nuts.
The second Nat line is that you can only look at the net effect of all their tax changes together which they claim is positive when you count the cancelled Labour tax cuts and the increased tax on savings last year (your employer’s contribution to your Kiwisaver used to be tax-free, now it’s taxed like the rest of your income). But that’s kind of like saying that smoking isn’t bad for you if you live an otherwise healthy life – your net health might not be too bad, but you’re still worse off than if you didn’t smoke. Likewise, the billion dollar a year cost of the 2010 tax cuts is due to a standalone decision of the government – if they hadn’t decided to borrow a billion a year for tax cuts for the rich, they would be borrowing a billion a year less – doesn’t matter what tax changes they’ve made in other years, the fact is: no 2010 tax package, a billion dollars a year less debt.
The final argument concedes you can look at tax packages (and even, shock, elements of tax packages) in isolation and that the 2010 tax package is costing money but, we don’t know how much. They get to this point by saying that the first year cost of the 2010 tax package was meant to be $486m and the blow-out to a billion dollars that Russel Norman is talking about could be due to economic factors instead of the tax cuts themselves. Well, the first point is that your tax changes should be all-weather, not just designed for fair weather, and the second is that Norman’s billion dollar blowout figure comes from Treasury’s own table and that table explicitly separates out economic effects on the tax take from the effects of tax changes (you get the net billion dollar cost by adding the cost of the tax cuts to the revenue from the GST hike).