For a long, long time National and the Right have tried to convince us that all we really need is tax cuts. You can understand why: their other policies are deeply unpopular, cutting taxes is a roundabout way of cutting public services, which they hate, and tax cuts deliver the most to their wealthy base.
Now, the ‘great tax switch’ has happened. We’ve been promised that this will make a step change for the economy. Will it? No.
1) Don’t expect more cash at the end of the day. Unless you’re in the wealthiest few percent (and, let’s face it, not many of you are) then your income tax cut will be eaten up by the GST rises, ACC levy rises, and the need to privately purchase services that were provided publicly before National’s cuts.
Let’s think about it: the money for these tax cuts didn’t come out of thin air. It comes from GST and borrowing. Every dollar spent on the tax cuts is one that can’t be spent on underfunded public services. It’s a zero-sum game: what you get in income tax cuts, you lose somewhere else.
2) Don’t expect higher growth/more jobs. It’s strange that National are claiming that the tax swap will boost growth. Absolutely no evidence has been provided to suggest this is true. And why would it be true? At the end of the day, most taxpayers are getting a 2-odd% increase in their take home pay and paying for that with a 2.2% increase in the cost of their purchases. Marginal stuff.
The only people who will get a serious difference out of this are the Bill Englishes, John Keys, and Paul Reynoldses of this world who will get hundreds of dollars a week. That’s funded by borrowing and don’t expect them to spend it all to boost the economy. Trickle down has never really existed.
3) There is no real evidence that the tax switch will encourage people to work more or spend more money. The tax changes haven’t created more work, so why would employment go up? At best lower income tax might make people willing to work for lower gross wages, lowering labour costs. Marginal stuff again, and not how we build a high wage economy.
As Fabregas4 said in a guest post contribution: “My personal payroll expert (Mrs Fabregas4) tells me that come the tax cuts I’ll be getting an extra $182 per fortnight. I already earn over $105k per annum. I don’t need it, don’t particularly want it, would rather it was used for teachers, doctors and other good things. Have I invented Tax Cut remorse!
No you can’t have it – any of you – not directly anyway – but if you are poor kid in Africa you might just get it (not helping our economy at all I realise).”
4) Don’t expect the wage gap with Australia to close. NZIER has shown that tax cuts will do nothing to close the wage gap with Australia. Quite simply, tax cuts cannot make up for wage rises. Even if we eliminated income tax altogether the wage gap would still exist (and we would have to be buying all the things we used to get as public services out of pocket).
If we want to close the wage gap, we need to boost wages. And National has opposed every single wage rise under its watch.
So, this is it. This is National’s big magic trick. What a fizzer.
The question, now that the government has mismanaged the books so badly they have had to borrow just for these tax cuts, is what National will present to us at the election. It’ll have to be something pretty fancy to distract us from its privatisation agenda. I’m guessing it’ll be more tax cuts, paid for with more borrowed money.