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Nats need better excuses on billion dollar tax cut borrowing

Written By: - Date published: 8:38 am, April 11th, 2012 - 12 comments
Categories: budget2012, debt / deficit, spin, tax, transport - Tags:

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).

12 comments on “Nats need better excuses on billion dollar tax cut borrowing ”

  1. a confusing column ,but correct. nationals disasterous tax balls-up hasnt worked for a few different reasons. giving the wealthy tax cuts hasnt stimulated the economy, trickle down has never worked, anywhere. the wealthy either take more overseas holidays or hide the extra in their trust funds. putting up the gst has led to an explosion in cash transactions, inland revenue have just announced that they are having to try to chase the extra unpaid gst from cash-type businesses, good luck, and more and more people are using the interenet to buy in from overseas. no gst payable if you are not greedy. now, because of nationals foolish and disasterous experiments(?) with OUR economy, they are having to flick off half of OUR energy generators.

  2. Lanthanide 2

    And this sort of reporting should be in the MSM.

    • aerobubble 2.1

      Look National introduced a new tax band split the 12.5 band to 10.5 and 17.5, remember that raised the tax on those who used to pay 12.5 on most of their income and now pay 17.5.

      So let’s be sure about what National are about. Rob the poor to pay the rich (to cover the losses the rich have run up because of poor tax regime that fuels ‘capital farming’).

      NZ is rich, commodity prices are high, the world needs food for now until forever, there is no crisis in our economy that hasn’t been created by the tax system being repurposed to shift wealth to the already rich.

      We have a culture of poor management, who have it far too easy, and the way the poor get ahead is either be born into wealth, or marry into it, or ship out for overseas, or innovate (and make sure not to tell anyone with too much power in the NZ elite who will want their pay day – because its their right to earn money off NZ – as always happens to cults that believe they are the choosen because they came out on top).

      • Chris 2.1.1

        Aerobubble your first sentence is not right at all.


        Those were the changes they changed the whole of the 12.5% band to 10.% they didn’t split it. They were correct in the sense that everyone got income tax cuts – the people who pay more tax got a bigger drop .

        • bad12

          Wrong, everyone may have received some form of minor tax cut in terms of income, however, those with the least income when the rise in GST is factored in simply received nothing,

          From that point of zero movement either up or down those with the least income having No discretion in terms of dodging either GST or price increases began to pay more of the former as prices increased,

          Every time the cost of an item on a super-market shelf increases those reliant upon the least income in effect pay more and more of that income in GST…

          • Chris

            So how was I wrong when my statement was:

            ‘They were correct in the sense that everyone got income tax cuts’ – GST is a consumption tax not an income tax.

            I never said people on lower incomes were better off from the tax cuts.

            • bad12

              Yes exactly, You never said people on low incomes were better off from tax cuts, You also never said that people on low and fixed incomes would as price rises also raise the amount of GST paid become progressively worse off…

  3. bad12 3

    We are of course assuming here that National have made some form of ”mistake” when it calculated the 2010 tax package,

    No-one seems to have given National the dubious ”credit” of having acted with intent ”knowing” full well what size the hole in the Governments revenue from taxation would be after the implementation whilst the economy was in the middle of the worst negative effects of a financial crisis that in dollar terms equalled that of the crash of 1929,

    There is a stream of thought that National simply acted with deliberation knowing full well the 1 billion dollar negative effect the tax changes would have upon its revenue, and, simply deciding to borrow this amount among the borrowing made to a certain extent,(in strict orthodox economic terms), necessary by the effects of the Global Financial Crisis,

    Sounds a bit ”conspiracy theory” doesn’t it???,but, we always have to keep in mind that after National comes Labour or in terms of modern politics after National comes a leftish coalition,and, We can see at 2014 where National having rewarded its core support with 6 years of unneccessary and unwarranted tax cuts then having sold off parts of the assets owned by us all along with a further part of the Governments ability to gain revenue will in effect drop the whole ”economic mess” into the hands of the next Leftish Government carrying such a debt loading that such a Government is ”kneecapped” into having to spend its first term in office digging the economy out of the mire thus inhibiting such a Government from inplementing its own programs,

    A 1 billion dollar hole in the Governments revenue from taxation currently and in to the future being filled by borrowing so as to give themselves and their ”Have plenty” mates an un-needed tax cut,

    Deliberation on this National governments part or simply an accident of un-forseen circumstances, thats the real question here, We say it all was dreamed up and accomplished by and with deliberation…

    • Lanthanide 3.1

      “We are of course assuming here that National have made some form of ”mistake” when it calculated the 2010 tax package,”

      I don’t read the post as written in that way at all. In fact it talks about National’s spin: a clear indication that the author knows National is deliberately clouding the issue to hide the real effects of their tax cut policy.

  4. bad12 4

    We are sure that anyone interested can understand our point vis a vis the 1 billion dollar hole in the present Governments income from taxation where We discuss it as one of a ”known” at the planning stage as opposed to a later ”discovered” mistake that the Government has to ”spin” its way out of…

  5. tc 5

    You don’t need any excuses when you can lie your arse off, bully the MSM and generally give the bird to democracy whilst selling out NZ and giving your mates and backers the profits and jobs whilst leaving the risk for future govts to deal with.

    Key, Joyce, blinglish and the hollowmen are pissing themselves at just how easy this has become, term 2 is where the real damage will be done, not that term1 was harmless.

  6. What the National Party is really trying to say, is that they really do not know – or care – about what the effects of their fiscal policy is. As someone on here said the other day, they are Tories who think they are born to rule and can’t handle the criticism.

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