- Date published:
12:00 pm, April 29th, 2008 - 4 comments
Categories: election 2008, inoculation, national, slippery, tax - Tags: bill english, borrowing, election 2008, GDP, inoculation, intergenerational debt, national, Parliament, slippery, tax, tax cuts
Some may have noted an odd series of questions in Parliament and press releases from Bill English around government borrowing over the last month. The questions purposely conflated the idea of maintaining current debt levels with increasing debt. We noted this at the time and Tane correctly picked the strategy: First, sow confusion about debt amongst observers (ie the press gallery) on the issue of government borrowing. Then, announce you will increase government borrowing but keep your language couched in confusing and harmless sounding economic language.
That’s what Key did on Saturday in the Dompost: ‘we are not fixated on the 20 per cent debt to GDP target. Bill English will spell out what he thinks is the right level. But I don’t think there is a strong economic case that 15 per cent is so much better than 25 per cent.
Oh, it’s just a few percent move of some government thing, doesn’t sound too bad, eh? But consider that increasing gross government debt from its current level of 18% of GDP to 25% of GDP really means that we borrow an extra $10-$15 billion. Every year, we would be paying out up to a billion dollars in interest on that borrowing, and that huge injection of borrowed money into the economy would be massively inflationary. So, why does National want to do it? To get the money for some catchy programmes (like the fibre plan, which is $1.5 billion of borrowing) and to fund tax cuts.
Now, National will say that it is not borrowing for tax cuts, it is borrowing for investment. That’s just more muddying of the waters to confuse people. If National increases borrowing, it will not have to use tax dollars for investment and, so, will be able to afford larger tax cuts. No increased borrowing, smaller tax cuts; increased borrowing, larger tax cuts. Therefore, the borrowing most certainly would pay for tax cuts.
Key says he is happy to increase ‘intergenerational debt’. Think about that. National will give you a bigger tax cut now, and your children will to left to pick up the tab.