Tax cuts don’t cause growth. I hate to say I told you so, but they don’t. And slowly, some of the right wing commentators are starting to wake up. Here’s Fran O’Sullivan:
Prime Minister John Key yesterday displayed all the characteristics of a man deeply afflicted with political Tourette’s syndrome as he tried to convince Parliament how much better off New Zealand was when it comes to exploding Government debt levels compared with Portugal, Ireland, Iceland, Greece and Spain and emerging Pigs like the US and the UK. …
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.
Even before Treasury’s “show and predict” exercise – aka the half-yearly economic and fiscal update or hyefu – it was obvious that many Kiwis were using their tax cuts to pay down personal debt rather than helping spur economic activity by consuming, and, that the self-employed and corporates were not contributing as much as expected to tax revenues. Just how much became apparent yesterday with the $1.4 billion drop in forecast tax revenue for this financial year.
The overall upshot is the Government’s cash deficit has blown out from $13.3 billion to $15.6 billion this year taking into account the unexpected expenditure and the drop in forecast tax revenue. …
The Government will increase its borrowing level from $250 million to $350 million a week. …
The Government’s response has been to order another review of expenditure. But it says it will not touch the so-called “broadly neutral” tax cuts even though they are not having the desired economic effects.
Under the circumstances, Bill English should no longer be able to get away with the outright lie that the tax swindle is “broadly neutral”.
Under the circumstances, it is ludicrous of the Nats to keep pushing, or any commentator to ever believe again, the outright lie that tax cuts “cause growth” (further excellent examples and resources here).
The Nats have got one and only one economic policy. Tax cuts. They don’t work. Now what?
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