Last week, Treasury issued a press statement saying it had commissioned research on the impact of governments’ fiscal stimulus packages, now published in the influential publication the Economic Journal. One article, “Tax policy for economic stimulus and growth”, had this to say:
The tax change that shows the most promise in terms of both increased growth and
economic recovery is the reduction of income taxes (including social security contributions)
of those on low incomes. This would stimulate demand, increase work incentives and reduce income inequality.
The papers were commissioned by New Zealand Treasury’s chief economist Norman Gemmell who confirmed the above finding in his introductory paper. It didn’t get a mention in Treasury’s press statement, however it does support Labour’s plan for tax cuts at the bottom rather than National’s tax cuts at the top. Regarding that, the paper had this to say:
In some cases, such as the reduction of corporate taxes and the top rate of personal
income tax, it is unlikely that these growth-enhancing changes will help the recovery
from the current crisis.
That would seem to be the case in New Zealand at the moment.
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