Taxing times

Written By: - Date published: 2:30 pm, August 7th, 2009 - 7 comments
Categories: tax - Tags:

In my opinion Pundit is one of the treasures of the NZ news/blog space. The posts are frequently excellent, in a world where quality journalism is increasingly rare. A recent piece by one of the founders, Tim Watkin, is a case in point. After a brief topical hook:

It’s been fascinating to find out that I’m paying off Bill English’s mortgage as well as my own. So much for the party of individual responsibility. But while everyone is fussing about where the finance minister lives, they’re ignoring his words.

Tim gets down to business:

The New Zealand Herald ran a remarkable down page story yesterday that has gone largely uncommented. At the National party conference over the weekend the finance minister told Audrey Young that New Zealand has to get out of the tax cut “mode” it’s been in for the past five years. Of course it was the National Opposition, with able support from ACT, that put us in tax cut mode, but putting that aside, here’s what else he said to reporters: “There is no possibility of just cutting taxes. The Government is short of revenue. The only question is whether there is a different mix of tax.”

Much of the rest of the article explores what “a different mix” might mean. Increasing GST is one possibility that fits with National’s agenda:

It’s a solution that moves the tax burden from the rich (those in the top tax bracket) to the poor (because we all consume). And that’s no solution at all.

Hear hear! Look out for signs of National testing the waters on that noxious proposal. Now to head off on a tangent that interests me about National and taxes – the topic of National’s cancelled tax cuts:

On one hand you could accuse the government of rank hypocrisy. It spent years hammering Labour on the need for tax cuts, mocking them for their chewing gum attempts at tax reform, and as soon as they get the chance, they rule out tax cuts. On the other, you can praise this government for not being blind ideologues, following policy in to the valley of debt. Previous National governments would have stood on principle and cut anyway, so the emerging pragmatism of this administration should be welcomed.

I think Tim missed a trick there. If National actually believe what they say then cutting taxes wasn’t just ideology, it was also the most pragmatic thing they could do. Tax cuts are supposed to “grow the economy”, they were explicitly a part of National’s response to the economic crisis. National told us this time and again both before and after the election. So why cancel tax cuts? Why drop the tool that was supposed to rescue us from the recession? I’ve covered this topic before, and the only conclusion that I can draw is that National never actually believed these claims at all. It was all just an empty election bribe.

Hmmmm. Well, anyway, go read Tim’s piece over at Pundit. (I am in no way connected with Pundit).
— r0b

7 comments on “Taxing times ”

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  1. JustRight 1
    7 August 2009 at 2:42 pm

    Tax cuts are supposed to “grow the economy’, they were explicitly a part of National’s response to the economic crisis. National told us this time and again both before and after the election. So why cancel tax cuts? Why drop the tool that was supposed to rescue us from the recession?

    Here is the logic: Cutting taxes now would have meant:
    (1) that the Government gets a credit downgrade which flows into the real economy as increased interest rates
    (2) Cost of existing Government borrowing increases due to increased interest rates

    So would this have grown the economy? Would this have had the desired effect? The answer has to be No at this present time. Any tax cut would have been consumed by increased interest costs.

    I think it is responsible and pragmatic given the environment. Saying it is an empty election bribe is simply rubbish.

  2. jarbury 2
    7 August 2009 at 2:52 pm

    It certainly did make for an interesting read.

    Btw, when are you going to become a full-time author for The Standard r0b? You seem to make enough Guest Posts 😉

  3. BLiP 3
    7 August 2009 at 3:12 pm

    John Key – December 2008

    Personal taxes will be further reduced from 1 April 2010 and from 1 April 2011.  As a result, by 1 April 2011 around 80% of New Zealand taxpayers will end up paying no more than 20c in tax for every additional dollar that they earn.

    This programme of tax reduction is a central part of the economic plan of my Government, because it believes in encouraging New Zealanders to get ahead under their own steam, and it views personal tax reductions as an essential step in ensuring that can happen.

    Okay Johnny, given that the “central part . . . and . . . essential step” of your recovery plan is kaput, what now? You said in your closing address to the Jobs Summit that there were enough ideas “to reach to the sun and and half way back”. And what have we seen so far:

    Cycle track – FAIL

    Nine day fortnight – FAIL

    ASB billion dollar fund to help business – FAIL

    Home insulation – Stolen from the Greens and now in a shambles.

    What now is the “central and essential” aspect to your overal strategy?

  4. Pascal's bookie 4
    7 August 2009 at 8:47 pm

    “There is no possibility of just cutting taxes. The Government is short of revenue. The only question is whether there is a different mix of tax.’,/i>

    Much of the rest of the article explores what “a different mix’ might mean. Increasing GST is one possibility that fits with National’s agenda:

    It’s a solution that moves the tax burden from the rich (those in the top tax bracket) to the poor (because we all consume). And that’s no solution at all.

    So the problem is no longer that the government is collecting too much money, it’s just that the wealthiest of us don’t have enough money. Right. But it’s not class warfare when the right wing does it.

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