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.