The tax cut bandwagon

Written By: - Date published: 5:58 am, April 14th, 2009 - 29 comments
Categories: tax - Tags:

For the last two election campaigns we had to put up with National, aided and abetted by many commentators, dominating the agenda with its incessant calls for tax cuts. Last year they promised “meaningful cuts”, “North of $50”, a promise repeated even in the face of the emerging economic crisis.

As previously discussed here those cuts are unlikely to materialise. Most of the NZ public will forgive National this broken promise, because people are wise enough to value some things more than tax cuts:

Taxpayers do not want further tax cuts if they mean more government borrowing, a new survey shows. The survey comes as social welfare campaigners say tax cuts failed to help those most in need.

The New Zealand Business Council for Sustainable Development survey found that while most people wanted tax cuts planned for 2010 and 2011, they did not want them if it meant further borrowing.

The first round of tax cuts were introduced last week and were worth between $10 and $18 extra a week to most people. Christchurch City Missioner Michael Gorman said the tax cuts missed many poor people.

“I think there is a whole sector of society that the tax cuts have missed and they are mostly the people that come to the mission,” he said. People earning less than $14,000 a year were worse off because of the higher Accident Compensation Corporation levy, he said.

Households with incomes between $100,000 and $150,000 a year were the least keen on new tax cuts, with 70 per cent opposed.

So we aren’t desperate for tax cuts after all? Is that pretty surprising news do you think? Well no, not really. We the people said something similar in 2007:

Asked if surpluses should fund tax cuts or be invested in public services like health and education, only 25 per cent said they wanted tax cuts, against 58 per cent who wanted the money invested..

And in 2008:

Ms Fitzsimmons said the Budget “ignored 61 percent of New Zealanders who last month said they would rather not have tax cuts if it meant cuts to social spending like health, benefits and education.”

I am sure that survey after survey will confirm our common sense on this matter. So how did tax cuts get to be the defining issue of the last 2 election campaigns again?

29 comments on “The tax cut bandwagon”

  1. TBA 1

    “So how did tax cuts get to be the defining issue of the last 2 election campaigns again?”

    Seriously if you guys can’t work that out, then the Left are stuffed. Personally I would start reflecting on the best economic years since World War 2 (as we were repeatedly told), the “Chewing Gum Tax Refund” and the “Canceled Chewing Gum Tax Refund”.

    These things pissed off a lot of people and like any issue where you have large numbers of unhappy voters it becomes political capital.

    • lprent 1.1

      Just because you are mindless, doesn’t mean that everyone else is. There was no significant room for taxcuts if there was to be a recession. Michael Cullen paid off most of our debt, prepaid a chunk of our future debt, and finally and reluctantly allowed taxcuts.

      Reason for the reluctance – recession is inevitable. When that happens the costs of government go up. The costs of the tax-cuts go straight into debt and the repayment of debt. Things like unemployment benefits and the reduction in tax takes cost.

      That is what we have been living with for the last 30 years and where about a third of the government revenue has been going for that time. To pay for debt mountain that started 35 years ago has been enormously expensive, because even at low rates of interest the compounding gets enormous.

      To date I’ve never seen any credible evidence that cutting tax arbitrarily increases productivity or investment. I’ve seen a lot of evidence that cutting taxes in the good times inevitably leads to raising taxes in the bad times because the government starts in bad fiscal shape. Raising taxes in a recession is a bad idea.

      Morons like yourself are so far stuck into the here and now that you don’t think of the future. So you want taxcuts now regardless of the burden of debt and increased taxes that you will pass to your kids.

      • greatape 1.1.1

        I know its easy to attack the ideas and opinions that you disagree with Lprent however TBA has simply spoken the truth. He didn’t argue the right/wrongs of the decision but simply voiced a commonly held feeling by a large group of New Zealanders, in response to a question raised by the author about how the issue became an election issue.

        As for your comment “There was no significant room for taxcuts if there was to be a recession” Lprent are you seriously suggesting that back in 2005 when the Chewing Gum Tax was announce that the world was expecting a recession?

        • lprent 1.1.1.1

          I get irritated with the fiscal idiots who can’t read a balance sheet and prefer to believe what they’d wish was true – like TBA. Then rant on about something that they clearly have little or no understanding of.

          After the 2005 election, it took a further two years to drop the government debt to a ‘normal’ level. That is where the debt is like an business overdraft, it is used to handle the difference in timing between incoming and outgoing streams.

          We also started from about 2001 (?) putting money away for the future liabilities of the superannuation system that show up in the accounts with an aging population – ie more superannuiants. We are probably about a third of the way to covering that major liability. You use the good times to cover forward liabilities so that when they hit, you don’t have to skyrocket the tax rates. You sure as hell aren’t going to do it in a recession.

          There wasn’t any money available for taxcuts in 2005, 2006, 2007, or for the foreseeable future. Tax cuts were a bribe that Brash & Key were trying to put into place because they thought it would be electorally useful in pandering to people who can’t read a financial statement. Both were aware of the real situation, but chose to selectively quote from the equivalent of a profit and loss statement rather than the balance sheet. In other words they were lying to the NZ public when they said that there was room for taxcuts.

          These points will become clear when you look at the May 27th budget. Bill has a hell of a task balancing the NACT’s irresponsible promises of taxcuts with the expenditure of government coping with a recessional economy. However if you look at the forward liabilities, it will become clear that he will be unable to do anything for them, and they will increase as a result of the debt that will be accumulated in the next years. The nett effect is that you can look forward to tax increases within the decade.

          My point is that neither you or TBA have the faintest idea about what I’m talking about. You are too damn lazy to find out, as is apparent in your respective comments. You prefer to rely on slogans rather than actually reading the numbers. You are fiscal idiots, and that will remain my opinion until you say something that indicates that you have any idea about which you speak.

          • greatape 1.1.1.1.1

            Hold on Lprent, have I said that I thought tax cuts were a good idea? No I didn’t that, nor do I believe that they were.

            I personally felt that any spare revenue that was gained through taxes would have been better off being reinvesting in “New Zealand” through either additional funding for essential services like health/education/policing etc.

            However I do acknowledge that there was an strong desire for Tax cuts to have been made in which case I would have liked to have seen them made at the bottom end of the salary scale vs the top.

            Normally Lprent I enjoy reading most of your stuff as you seem to be a pretty switch on sort of a guy, however it seems today you have woken up on the wrong side of the bed and have interpreted what has been said quite different to what is actually there in black in white and instead gone on the attack with terms like mindless, morons and idiots. Hopefully tomorrow will be better.

            Regards.

          • George Darroch 1.1.1.1.2

            I’m with TBA and greatape here. I think the issue was a political one – this was a stick with which the opposition could whack the Government with, and was relatively successful because of a receptive media. “Chewing gum budget” wasn’t the black budget, but it certainly wasn’t perceived as a golden one for many among the middle classes either.

            I think that the problem was that the Labour Government was unable to articulate successfully why this spending was better than tax cuts. I do think they failed to address the charge properly and take it head on, but I’m not sure they would have been successful had they tried.

            One thing I learned in sales a few years ago was that you spend the first part of your time creating a need in the (potential) customer, and then the rest in showing how you can fill that need. In this case, the desire for tax cuts was pretty clearly created (or made manifest, if you think it was already there), and National effectively demonstrated that they would fill that need. The solution is of course to create a conflicting need, and make people uncertain about whether they should go with the first. In this case, a reason why the spending was necessary needed to demonstrated in a way that resonated.

            People will be upset if their tax cuts are canceled, but I think they’ll forgive the Government due to the recession. They’ll be upset if tax cuts go ahead and spending cuts start to hurt, as that was never advertised.

        • ripp0 1.1.1.2

          really turned on folks were – expecting a recession scenario back in 05..

          we might merely consider the unusual requirement of attendent private banking entities to bend Bankruptcy legislation further their way.. to know this.. go see the Reform Amendment thereto..

    • ripp0 1.2

      TBA and greatape,

      allow me come from a Basel II (accounting) position.. to say that higher taxes (total take) holds direct relation to growth.. greater growth or a long period of fairly steady growth from incomes’ expenditures = more tax paid..

      So.. taxcuts are made.. and recession hits along with very likely high debt in the taxpayer population.. low growth.. no growth results.. viz anticipated stay on growth not realised..

      my point: taxtake is concomitant on growth.. thus taxtake = indirect growth value..

      how would you care to explain how less taxtake equates growth/value/whatever..?

  2. Peter Johns - bigoted troll in jerkoff mode 2

    Most of the public do not want increases in benefits if it means extra govt borrowing either. This survey was a croc from another numpty left wing collection of wallys. Real loaded question.

  3. I’m now paying more not less PAYE. Fuck you John!

    • Rich 3.1

      You’re obviously not rich enough. Did you seriously think National tax cuts would be for anyone other than the wealthy?

  4. randal 4

    mass production needs mass consumption and fair distribution of the produced wealth.
    obviously key and the tories don’t care about the producers of wealth in this country.
    only about themselves

  5. Stephen 5

    Bill has a hell of a task balancing the NACT’s irresponsible promises of taxcuts with the expenditure of government coping with a recessional economy. However if you look at the forward liabilities, it will become clear that he will be unable to do anything for them, and they will increase as a result of the debt that will be accumulated in the next years. The nett effect is that you can look forward to tax increases within the decade.

    I may be wrong, but that whole paragraph seems to imply you now believe that the government isn’t going to ‘slash and burn’ government services at all?

    edit: when I say ‘you now believe’ I assume you thought Key was going to slash and sell everything, since you’re posting on The Standard and all.

  6. Jasper 6

    interesting this tax cuts business

    A lot of the people I spoke to before the election were going for National because they quite simply offered them more money. These people were of the great unwashed variety, both politically and economically illiterate, single and earning $30K a year. They’re also very dependent upon cell phones for communication, so are missed by the pollsters (not)

    Many of these people are my friends who refused to listen to my pleas, and still went ahead and voted NACT in the mistaken belief (perpetrated by the “north of $50” quote pushed by Granny and DimPost) they would receive more money in the hand come April 1.

    Now the first wave are getting their first pay packets. The tax cut they DID get in October last year has been taken away from them. It’s no use crying foul as it was printed in black and white, but I would assume that tiger is in the same boat (though being more politically aware, you would have known)

    My pick is come June, Nationals polls are going to slump which provides perfect fodder for Labour to come back with a told you so, and start preaching how they will reinstate tax cuts for the <$40K workers once in power in 2011….

    it’s nice to dream.

  7. Peter Johns - bigoted troll in jerkoff mode 7

    Jasper – under Labour we would have had more taxes imposed (local fuel taxes, ETS based taxes) and the April ones would have been cancelled last December. Labour were rather coy about the December mini budget when pressed before the election, don’t you think?

    I don’t know many/if any people who voted based on the tax changes, this is small fry really, sure it was part of the decision. People voted Labour out bc they were corrupt (Peters), the EFA (attempt to silence free speech), Greens being in power with Labour were more important with floating voters. Last election it was essentially a choice between National or Labour/Greens, not National or Labour.

    Like the Labour Party you are in denial to the real reasons they were not voted in.

    Keep dreaming though.

    • Ag 7.1

      Like the Labour Party you are in denial to the real reasons they were not voted in.

      They weren’t voted in because they were a three term government, and the usual desire for “a change” kicked in. It has very little to do with policy. It was the same in 2005, but Don Brash threw that election away.

      It has very little to do with tax cuts and everything to do with irrational political behaviour. Once people have decided that the time of a government is up, they will look for excuses to get rid of it. It’s a recurring feature of democracies.

    • Quoth the Raven 7.2

      National’s already pencilled in fuel tax rises for October. The bulk of people pay more under National fuel taxes, road user charges, car registration, and the rich they get a tax cut. National just takes care of its own.

      • George Darroch 7.2.1

        Don’t forget that everybody in NZ, from the kid down the road to currency traders worth millions, pays a 12.5% flat tax on whatever they spend. This flat tax is something that Labour and everyone right of them agree on.

        Of course, if you’re worth more you often get your company to buy things for you and you avoid the tax.

    • Spectator 7.3

      “the April ones would have been cancelled last December.”

      Citation needed.

      It would perhaps be an interesting exercise for someone to program a tax cut calculator showing earners how much their tax cuts under National would have compared with the tax cuts Labour would have implemented.

  8. Stephen 8

    Households with incomes between $100,000 and $150,000 a year were the least keen on new tax cuts, with 70 per cent opposed.

    So we aren’t desperate for tax cuts after all? Is that pretty surprising news do you think?

    So it’d be worth the government setting up a fund for people to return their tax cuts…wouldn’t it?

  9. Stephen 9

    Cut some, leave the rest in the first term and run up the debt.

    Yeah, seems pretty obvious that they’ll be ‘cutting some’ (they’re doing that now), but seems even more obvious that they’ll be cutting more later, they’re right(ish) wing for god’s sake. Moeny from asset sales could be partially used to pay down debt/pay for infrastructure, who knows?

  10. Pascal's bookie 10

    So it’d be worth the government setting up a fund for people to return their tax cuts wouldn’t it?

    Probably not, people being what they are. It would make about as much difference as the government asking the people that wanted tax cuts to refrain from using the government funded services that they are entitled to. But I guess you know that.

    Touching on this apparent conundrum, your next comment about asset sales and cutting spending is pretty much the ‘starve the beast’ strategy which was put forward in a limited way by Reagan, but more actively/explicitly by Grover Norquist in the States.

    The (apparent) paradox is that citizens like government services but don’t like paying taxes. I say apparent because it isn’t really a paradox at all. It’s just a hierarchy of preferences, most citizens actually are prepared to pay the taxes as long as they get the services, as noted in this poll.

    That’s a problem for those citizens (generally speaking, right wingers) that hate the taxes more than they like the services, because running on cutting government spending gets them into opposition. It being a minority view and all.

    So the right wingers were in a bit of a box. They want to cut taxes, because they hates them, but can’t politically cut the spending needed to do so. They like to think of themselves as fiscally conservative, hating lots of debt and that sort of thing, (because government debt is just more tax, deferred).

    That’s some catch that catch 22.

    The solution they came up with was to promise that services wouldn’t be cut, even though taxes would be. Free money! The trick is to move from the “service cuts party” to the “tax cuts party”. Meanwhile the nasty Lefties get shifted from being the Father Christmas party to the nasty Taxy McTaxtax team.

    Always promise tax cuts, the bigger the better. The solution to any problem is tax cuts, because the cause of most problems is the stifling level of current taxation that is sucking away at our productive bodily fluids. I’m sure you’re familiar with the rhetoric.

    The debt that would build up, (because there isn’t actually enough wastage in the public sector to pay for meaningful tax cuts), would mean that Something Would Have To Be Done.

    The idea such as it was, is that there would come a point that services would have to be cut. That if you have cut taxes enough, then the shock of how much more tax you would need to pay in order to afford the services you want, would be enough to make service cuts the politically viable option.

    As this poll shows though, people actually like government services. Even enough to pay the taxes. Sure, if you offer the tax cuts they’ll take them, but when you get around to the cutting spending part, back you go into opposition and the taxes get put up again.

    Even in the States, where they let the books get into an appalling mess, the people don’t want the services to be cut.

    When you think about it, the starve the beast strategy is just artificially lowering the price (taxes) of government services in the short term. What will that to to demand for government services? What you predict would happen to govt debt (which is just deferred taxes)?

    To me at least, it seems that the strategy is doomed to failure and probably only serves to raise taxes over the long term when we take debt servicing costs into account. If the right wants to cut taxes in the long term, they need to convince people that they don’t really want government services.

    Pretending the people don’t really want the services that much, or that they have been tricked into wanting them, or that tax cuts will pay for themselves is just dishonest, costly, and, well, a fraud excecuted on our children who will be left to pick up the tab.

    But your mileage probably varies, and it’s that what makes for politics.

    • RedLogix 10.1

      PB,

      Usually I admire your work, but that was an outstanding post. You’ve captured precisely the dark heart of the fraud that they have spent decades selling to us. Sadly I think many people bought it; but all us, and most especially our children, will pay be paying for it.

      What most pisses me off, is that we had the chance to do so much better.

  11. Stephen 11

    Thanks for the detailed reply. I’m not going to reply on the same scale though. I just don’t have that much to say.

    That’s a problem for those citizens (generally speaking, right wingers) that hate the taxes more than they like the services, because running on cutting government spending gets them into opposition. It being a minority view and all.

    I don’t think it’s a minority view that there are some things the government should just not bother with (one favoured example being the Families Commission), or that government can do things in a more effective way. One reason to vote government in/out being that they’re doing a bad job managing public money, which is hardly impossible. I don’t think it’s so much that right wingers hate tax (some do, some don’t), but I would hate taxes too if I thought the money they generated was being squandered.

    As this poll shows though, people actually like government services. Even enough to pay the taxes

    I think this simply reflects a certain orthodoxy that is present in NZ, or probably most countries that have a very long history of a large ‘welfare state’. They don’t know anything else, and being ‘educated’ about other possiblities requires a lot of effort on their part – I think a stongly similar parallel is the teaching of capitalist economics in schools. In the same vein, I think a er, ‘country’ like Hong Kong may be highly resistant to higher taxes.

    If the right wants to cut taxes in the long term, they need to convince people that they don’t really want government services.

    As above…

  12. James 12

    You don’t need to borrow to give taxcuts…you cut Government spending on the mass bullshit that gets our money now….racing,the arts,sport,TVNZ,Kiwibank,anything begining with “Childrens’Womens” etc…all things that are either the business of the private sector to fund or no business of the stae to be involved eith in the first place.

    Cutting taxes is easy if you stop State spending…

    • Pascal's bookie 12.1

      Go right ahead, see where that gets you at election time.

      I’m glad you agree that that is the honest order in which to do it though. Cut the spending first, then adjust the tax rates.

    • ripp0 12.2

      James,

      following your rushed comment I couldna help but conclude you to be the very first supply-sider..

      Y’know the litany of a public buck is a private buck mispent so well..

      Proof.. well that’s something else.. like a liquor rating agency 🙂

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