They have to be kidding. Some kind of early April 1st prank – right? Yeah that must be it:
Income tax cut tipped as best bet
Treasury and IRD say drop would boost economic welfare – increasing incentives to work, save and invest.
Finance Minister Bill English has asked officials what tax reforms could materially lift the economy’s performance.
The fruits of their cogitations and modelling were made public, with an appropriate lack of fanfare, last week. Radical they are not. But they give us an insight into the thinking on tax policy at the Treasury and Inland Revenue.
They conclude that cutting personal income tax would be the most effective in boosting economic welfare. It would increase incentives both to work and to save and invest.
Blah blah blah. No, they aren’t joking, the really expect us to buy this nonsense all over again. Because of course we’ve heard the arguments before, they’re the same ones the Nats made the when they cut income taxes (as a 2008 election bribe). They were crap arguments then and they are crap arguments now. John Key promised us the tax cuts would have us “roaring out of recession”. They didn’t. We were promised an “aggressive recovery”. It isn’t. What really happened was that the tentative recovery that started in 2009 (before National’s first budget) stalled and stagnated. We teetered on the edge of a double dip recession, and got a couple of credit agency downgrades for our trouble.
Here’s right-wing journo Fran O’Sullivan’s 2010 assessment of the last round of tax cuts:
But all the elaborate dancing on the head of the proverbial pin does not disguise the raw reality that English’s billion-dollar bet that his Budget tax-go-round would turbo-charge New Zealand’s economic growth has (so far) proved to be a fizzer.
And here’s economist Bernard Hickey’s:
The government would point out it’s too early to judge the tax package … But the early signs aren’t good. It’s worth asking again: what was it all for? We have a higher budget deficit, higher debt, weaker growth, a weaker current account deficit and higher unemployment. But a certain section of New Zealand is now much richer in both income and wealth through a tax cut and higher property prices.
There is only so much money in the economy. Tax cuts don’t increase revenue. Tax cuts don’t cause growth. They don’t magically create “stimulus”, they just move the control of a certain amount of money from government directed spending to private directed spending (and the former can be much better directed to grow the economy than the latter). Government income falls. In our case the Nats had to borrow billions to pay for them. The tax cuts are at the heart of our budget crisis. So the Nats respond with stupid austerity politics that is damaging and holding back the economy.
The evidence on all this was clear in 2008, and it’s even clearer now. And yet the ideological loonies advising the government want us to go even further down this path. Surely even the Nats have too much sense to listen this time.