The lie of the “fiscally neutral” tax cuts

Written By: - Date published: 3:50 pm, April 4th, 2012 - 45 comments
Categories: economy, john key, national, tax - Tags: ,

Back in 2009 National told us that their tax cuts for the rich were “fiscally neutral”. It didn’t sound likely, and some of us said so at the time. The excellent Keith Ng at Public Address ferreted out the details:

This is actually a tax cut. It will cost $1.085b in the next four years. The only reason they can say it’s ‘revenue positive’ by 2013/14 is by adding a line called ‘Adjustment for macroeconomic effects’. That is, they argue that tax cuts will spur economic growth, and therefore the economy will grow faster, and so it’ll be revenue positive by 2013/14.

It would be unfair to call this magic money, but at the very least, it’s entirely theoretical money. Not only can we not know whether it’s real or not now, but we won’t know whether it’s real or not in 2013/14.

In other words, the only way the Nats could claim to balance the books was to invent a fudge factor — an unknown and unknowable boost to “growth” — to cancel out the cost. But it’s not happening. It was clear in 2010 that it wasn’t happening, but the Nats kept making excuses. So here we are in 2012 and of course

Lower tax take hits govt finances

The government took in less revenue than expected from income tax, company tax and GST in the eight months ended February 29, widening its operating deficit more than forecast. …

Source deductions were $200 million below forecast “as the labour market and employment and wage growth have been weaker than expected,” the Treasury’s chief financial officer Fergus Walsh said. Corporate tax was $193 million below forecast “as business profitability was weaker that expected,” he said. Goods and services tax was $369 million below forecast, though much of this reflected above-forecast earthquake-related insurance refunds and excluding these, the tax take from GST was near to expectations, the Treasury said. …

Total tax revenue in the first eight months of the fiscal year was $35.35 billion, compared to a forecast in the PREFU of $36.18 billion.

National’s tax cuts were not and are not fiscally neutral, they are costing us in extra borrowing every year. But Key is still out there telling the lie:

Meanwhile, speaking on TV One’s Breakfast programme on Monday morning, Key defended the tax cuts made in the 2010 Budget, having been asked whether they were in fact neutral.

“They literally were neutral,” Key said.


45 comments on “The lie of the “fiscally neutral” tax cuts”

  1. Draco T Bastard 1

    But Key is still out there telling the lie:

    You didn’t really think anything else would happen did you? NACT have to make up excuses and tell lies so that their delusion doesn’t fall apart.

  2. ad 2

    Currently waiting for a devastating critique from the Labour Finance Spokesperson.

    Any time you’re ready Parker.

    • Kotahi Tane Huna 2.1

      Parker doesn’t need to say anything – especially not to satisfy your bludging sense of entitlement. The devastating critiques are coming think and fast from Bernard Hickey et al. Why have a dog and bark yourself?

      • Jimmy 2.1.1

        Because Bernard Hickey et al. won’t be aiming to form the next government.

        • ad

          And because it’s his job, simple as that.

          We are all entitled to expect that a guy who thinks he can take on this government in teh Finance portfolio, and stands in public office to do so, actually does.

          Expecting the media professionals to do that job, simply shows you are ignorant of the difference between a media commentator and a politician.

          • Rob

            I see, I can understand Kotahi Tane Huna confusion here. He feels that all Labour has to do is cruise through the next 2 .5 years , without saying or doing anything , because suddenly the great unwashed will recognise their huge mistake and vote labour back in again, because that’s where Labour deserve to be.

            However , the rest of us actually vote for peole that have some form of policy ,direction and are prepared to get off their arse and explan it to us.

            • Kotahi Tane Huna

              I have no doubt that Labour will make their own statements on the issues as they see fit, and I have no doubt that they will not follow any wingnut timetable in doing so. But from my perspective, I can see how full of shit this government is without being spoonfed.

              Rob, the policy direction that you have been duped into supporting has destroyed wealth every single time it has been implemented anywhere in the whole world. Unless you can cite one single example to the contrary, that is. So your assertion that you are a member of a group that “vote for peole (sic) that have some form of policy direction” is amusing, to be charitable.

              • Rob

                I am actually unsure of what policy direction you think I have been duped into supporting, so I cannot offer a contrary view. If you mean that I vote for policies , sure I do and lots of people do, that is why political parties of all nature rise and fall from election to election. People change their vote depending on who they think is offering them and what they care about the best outcome.

                Now, so what is amusing to you given your statement ” So your assertion that you are a member of a group that “vote for peole (sic) that have some form of policy direction” is amusing, to be charitable.”

                • Kotahi Tane Huna

                  @Rob: your support for asset sales, for example.

                  @Muzza: “different” as in “different” policies, “different” priorities, “different” demographics, “different” philosophies.

                  • Muzza

                    The people sure, the politicians, that’s another story altogether now isn’t it !

                    • Kotahi Tane Huna

                      I am reminded of Nandor Tanczos’ valedictory speech. “I came to Parliament thinking that the members were all a bunch of bastards, and I was wrong.”

              • Muzza

                Speaking of being duped, those who reckon the left is different from the right overall, duped !

      • Anthony Bull 2.1.2

        hahaha – the “devastating” critique of Bernard Hickey?

        The same guy who also predicted the housing market values crashing by 40% by 2010, and has suggested the way out of the recession is by printing hundreds of millions of dollars so that it devalues the property market?

        Do you take Bernard Hickey seriously?

    • David H 2.2

      I’m waiting for any devastating critique from ANYONE in the Labour Party. They are USELESS. They need a clean out All the Auntie Helen govt movers and shaker should have gone. But no they pulled strings and now we have a dead duck leading a dead duck party.

      • Colonial Viper 2.2.1

        Cunliffe is economic development spokesperson. This is not his department.

        • Balanced View

          My friend Viper! Funny comment, I’m guessing you are asserting that Cunliffe is the dead duck David H has referred to?

          • lprent

            I think that he was referring to the widespread perception that John Key isn’t enjoying being PM any more and that the recent events in National with those nasty wee backstabbing knives have been part of the jostling for the succession.

            Why would you think Cunnliffe is a dead duck?

        • Hami Shearlie

          I wish it was his department CV!

  3. The Baron 3

    So the simple answer is that the earthquake wiped out the fiscal neutrality. Not really a lie then is it, unless you consider the definition of “lying” to include “being unable to predict a massive earthquake”.

    Note the use of WERE in Key’s comments – prior to the earthquake, they WERE neutral. It’s called past tense. Note that it is you, R0B that has tried to make them present tense in your commentary (though I haven’t watched the video to check that, can’t from current location).

    If that present tense isn’t in that video, does that make you a liar then, R0B, for putting words in someone’s mouth to make up a basis for criticism?

    Regardless, I think a better argument is the “cancel the tax cuts because you can’t afford them any more thanks to the earthquake” – but that was last year’s meme, right?

    I guess you’ve decided its better to be shrill and hyperbolic rather than sensible with this year’s warbling. Maybe this doesn’t make you a liar per se, but it does encourage other, less than kind labels.

    • r0b 3.1

      That’s some of the most pathetic excusifying I’ve ever seen TB.

      The material quoted is about tax take, and only tax take (not other factors that affect the books, like commodities prices, or costs of the quake). Tax take is down on predictions across the whole economy (not just in Christchurch). Furthermore it was down in 2010 before the major quake in February 2011 (see the link in the original post). So the quake is a (small) factor in tax take especially post February 2011 – but no excuse for the broad deficit that we’re seeing.

      If you want to read some proper analysis of the economics of the quake – try this.

      I realise the strain of defending this awful government is proving difficult for you right wingers TB, but even so that response from you was truly desperate.

      • ad 3.1.1

        Totally with you Rob – that tax cut for the rich was one of the stupidest things I’ve ever seen, making the state so weak when it was time actually answer the call of a national crisis. And quarter after quarter we’ve seen that it made no positive impact on economic growth at all.

      • The Baron 3.1.2

        I think your missing my point in your hurry to scream LIAR, R0B.

        Is there anything in this video where Key claims that these tax cuts are still fiscally neutral now? Or does he simply restate his assertion that they were fiscally neutral when they were designed, and that the unforseeable economic impact of the earthquake ruined that design?

        If he doesn’t say that they are still fiscally neutral, then I am hardly being a defensive fanboi – I’m simply pointing out that it isn’t really lying if you failed to predict the economic impact of the Chch earthquake. I realise that that doesn’t make such a good hysterical headline for you to slap the Govt with like the good one-eyed loyalist you are, but it is simply more truthful.

        Get where I am coming from?

        • r0b

          Is there anything in this video where Key claims that these tax cuts are still fiscally neutral now?

          I’ll try to make it simple TB. The cuts were not fiscally neutral when they were introduced. They have not been fiscally neutral at any time in the past, they are not fiscally neutral now, they will not be fiscally neutral any time in the future, they cost money. All statements to the effect that would be, are, or were at any time “fiscally neutral” are lies.

          I think your missing my point in your hurry to scream LIAR, R0B.

          You’re the only one screaming TB.

        • lprent

          Nope. You are wrong.

          Keith Ng nailed it at the time. Bill and John lied at the time the budget was passed because it depended on a myth.

          Marginal taxcut’s don’t stimulate the economy and cause more tax revenues. They just reduce the taxtake

          They never have and they never will. That is a complete myth spun by people wanting to have a free lunch.

          If there are really really high tax rates, a repressed economy, and a BIG tax cut then you may get a economic stimulus.

          But NZ has some of the lowest total taxes in any country I deal with – once you look at total tax take at national, state, payroll, medicare, and local level and include other mandatory taxes. The economy is entirely free and open, therefore little taxcuts do nothing. This has been proven several times.

          So why did National and the treasury try it again, pushing their magic numbers into the budget to make it ‘neutral’?

          Well there are the idiots around who will believe almost anything becaus ethey are too stupid to read history. You as I remember it were one of them

      • Rob 3.1.3

        rOb , we were really forecasting a good solid growth in the South Island for our business. We had released new products, expanded distribution brought on a new sales manager to get the team huming, thinks were looking OK after the a torrid time since 08.

        Nek Minit . i think you get what happened next and then again , then again and again, till some people got killed and more housed got destroyed, the people started to leave.

        Pull your head in.

        • r0b

          rOb , we were really forecasting a good solid growth in the South Island for our business. We had released new products, expanded distribution brought on a new sales manager to get the team huming, thinks were looking OK after the a torrid time since 08.

          Very happy for your Rob. And all that was because of National’s tax cuts was it? No.

          Nek Minit . i think you get what happened next and then again ,

          Yeah, I was there, I’ll never forget what happened. And yes it will have had an effect on the economy. But it doesn’t explain the nation wide drop in tax take, which was happening in 2010 before the quake.

          Pull your head in.

          Open your eyes.

        • rosy

          Nek Minit? NACT didn’t have a plan to respond. There were huge calls for a levy to fund the Christchurch rebuild and this idea appeared to have a lot of public support. What happened? Nothing.

    • Kotahi Tane Huna 3.2

      “Regardless, I think a better argument is the “cancel the tax cuts because you can’t afford them any more thanks to the earthquake” – but that was last year’s meme, right?”

      It still applies, Baron – the government could easily boost the economy by returning tax to pre 2008 levels and spending some of those $$ – not on Follies like the RONS, but on simple basic things like adult education and better wages for nurses and teachers.

      Taxation never deterred anyone from making a profit. In the USA, for example:

      “Tax increases are followed by economic growth. Three of the four high-growth periods cited previously followed significant tax hikes. The fourth, the Truman-Eisenhower years, began with a top tax rate of 91 percent– it couldn’t get much higher.” Larry Beinhart.

    • Enough is Enough 3.3

      The tax take and economy were on the slide well before Christchurch began rocking so bzzzzz try again.

      The economics of the quake are interesting aren’t they. At the moment National blames the quake for their mismanagement of the economy.

      In two years time when the economy will be experencing some positive growth off the back of the Christchurch rebuild, National will claim that growth is down to their management of the economy.

      Don’t let the idiots have it both ways.

  4. tc 4

    Beatson uncovered this when he had blinglish on Stratos years ago in what was an interview that should be shown to all the kiddies in our MSM trying to be journalists as a lesson on how to interview a politician.

    Now the facts are in lets watch the MSM dismember them for the ongoing lies and complete failure to not only stimulate but cost us billions in the process……yeah right !

  5. jack 5

    They were never neutral. People are buying less, look at the treasury report. 1.2 billion short of forecast. Gst receipts are down.. Key said that the tax cuts were suppose to stimulate the economy and gst receipts would be up.. Key just wants to put New Zealand into more debt to sell off the assets. Ask Key if he knew about the Bretherens involved in the campaign of 2005… He said no, but fact shows he helped put the meetings together. Everything that comes out of his mouth is a lie.. and I voted for him in 2008.. I lean toward the right.. but Key is leaning towards GREED for himself and his mates.

    • shreddakj 5.1

      I too voted for Key in ’08 and now I think even the greens are too moderate. You are right though, Key does not have the best interests of NZ at heart.

  6. Blue 6

    Natonomics 101:

    1. Cut taxes. Say growth will make up for it.
    2. Insist that growth would have made up for it, if not for….
    3. Borrow money to pay bills. Hope no one notices that borrowing money incurs interest, and therefore costs the country more than it would if we just paid a reasonable amount of tax and paid our bills from that revenue.
    4. Sweat. Realise that most people don’t know and don’t care what is going on with boring stuff like politics and economics. They like tax cuts. Breathe sigh of relief.
    5. Fire a few public servants. Eat some chocolate. Stir up some concern about beneficiaries. Think about what to do next.

    • prism 6.1


    • seeker 6.2

      Too true Blue yet again, unfortunately, especially:

      “4. Sweat. Realise that most people don’t know and don’t care what is going on with boring stuff like politics and economics. They like tax cuts. Breathe sigh of relief.”

    • Jenny 6.3

      6. Move to Hawaii permanently.

  7. bad12 7

    ”Imagine how big the deficit in the Governments tax take would have been had National not raised GST”,unquote John Key,

    Slippery stands on the Parliaments floor and derisively laughs when questioned by the Greens Russell Norman on the size of the hole in the Governments tax take,

    Axchully Slippery we can imagine the size of the Governments revenue deficit in taxation if National had of not raised GST,around 1.9 billion dollars annually…

  8. Ed 8

    The link to Keith Ng ferreting out details detail doesn’t work. Should it be ?

  9. bad12 9

    The macro-economics of having given tax cuts to high income earners is well documented by various economists and university studies,

    The brief concise and precise prognosis says simply that up to 75% of such largesse when passed to high income earners will simply disappear from the economy what % of the given tax cuts disappear from the economy is simply dictated by the size of the cuts and how high up the income ladder the tax cuts reach,

    We could here get bogged down in percentages of this and degrees of that but the ECONOMIC RULE makes what we have said above a truism no matter which country indulges in such tax cutting,

    When tax cuts for high income earners are in essence ”paid for” by those on low and fixed incomes being taxed more,(GST rise), then the income loss to Government from the tax revenue stream is magnified,

    A simple macro-economic comparison with a income boost for the low and fixed income earner and the same tax cut in strict dollar equality when given to the high income earner says this,

    The low and fixed income earner with their windfall considering they ”need” some items of new clothing will head off to the Ware Whare and spend all or part of their higher income,

    The high income earner considering the same ”need” is very likely to be off to Sydney Australia to fulfill such wardrobe requirements,

    Thus part or all of the tax cut to the high earner is removed from the NZ economy,and in this our first example of how such income tax cuts to the high earner simply disappear from the NZ economy we have perhaps over-simplified,

    However,the list of ways such a windfall of income tax cuts for the high income earner find to leave the NZ economy is long and we have deliberately made the analogy simple so that if the Member from Dipton or His master Slippery stumble across it here they might have the inkling of a clue as to just what they have accomplished,

    The above of course only applies if you believe that the tragic out-come of the tax cuts,a 1 billion hole in the Governments revenue stream from taxation was an un-forseen accident…

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