National bets on taxes

Sam Sachdeva is Newsroom’s political editor and covers foreign affairs, trade, defense and security.

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Commentary

National’s surprise tax cut announcement has given the party an explosion of relevance, although how politics will feel to voters is far from clear, writes Sam Sachdeva

For much of the election campaign interrupted by Covid to date, the National Party has sleepwalked toward defeat.

The party’s plethora of roadside announcements had done little to inspire excitement, while national leader Judith Collins’ press conferences and public events have had a somewhat soporific air, no matter how much fun she declares she is having. .

Friday’s surprise announcement of $ 4.7 billion in (temporary) tax cuts may be as clichéd a right-wing policy as the endless variety of highways, but by offering what is, for better or worse, a bold proposal, the party has at least been successful. in dictating the topic of political conversation for a day or two.

As always, good policy is not necessarily good policy, and there is reason to suspect that tax cuts would not be as successful in stimulating the economy as National claims.

According to Treasury figures, only 27 percent of kiwis earn more than $ 60,000 a year, and 73 percent earn $ 60,000 or less.

However, it is the former who would receive the highest benefit as a percentage of their income, despite being more likely to save the extra money instead of spending it, while those in the latter category would not do as well despite being more likely to use money in a stimulating way.

Pressed on whether it would have been more prudent to simply raise the lower tax threshold and focus on those with the lowest incomes, National finance spokesman Paul Goldsmith said National had chosen to strike the right balance, but as with Labor’s own fiscal policyIt appears that electoral considerations rather than best practices have tipped the balance.

The decision to fund the tax cuts through the Covid-19 Response and Recovery Fund is also moot, as it would leave nearly $ 5 billion less in reserve if another major outbreak occurred and required reactivation of the wage subsidy scheme or other. business support.

Collins and Goldsmith cheerfully declared that the party would simply waste less than Labor, but cutting appropriations that much would require not just cutting waste, but very little in terms of new budget initiatives or spending on cost pressures.

Then there’s the rest of National’s fiscal plan, including the less shocking news that the party had scrapped its plan to cut the Crown’s central debt to 30 percent of GDP in a decade or so.

Instead, it will end up in a higher number (just under 35 percent) over a longer period of time (2033/34).

The initial debt plan seemed implausible even before PREFU was released, and Treasury forecasts made it clear that cutting debt so much, so fast, was not sustainable.

But the decision most likely to spark an ongoing debate among political parties is National’s decision to cut operating allocations to help pay off debt.

While the Labor government had planned $ 2.4 billion in cumulative annual operating appropriations through 2033/34, totaling $ 211.3 billion, National would cut that to $ 1.5 billion for the 2021 budget and $ 1.8 billion for the years. following, which means it would have $ 51.4 billion less to spend on new initiatives and future cost pressures.

Collins and Goldsmith cheerfully declared that the party would simply waste less than Labor, but cutting appropriations that much would require not just cutting waste, but very little in terms of new budget initiatives or spending on cost pressures.

‘Tax hole’, take two?

Labor and the Greens raised the specter of cuts in public services as a result of National’s plans, and they are unlikely to relent.

There is, superficially at least, a similarity to Labor’s own tax plan in 2017 that spawned loud and largely discredited claims of an $ 11.7 billion “tax hole” from the national government.

Then as now, the opposition party can reasonably claim that the numbers in its plan add up. The more important question is whether the assumptions behind the document will be confirmed in the real world.

The arguments between the left and the right on the merits of public spending and tax relief are well-worn, but the big question is how the electorate will respond to National’s plan.

Surveys of New Zealanders’ attitudes towards taxes appear scarce on the ground, and while promises of tax cuts have been a staple in the election year, the public has also seemed eager to spend on public services.

National’s policy may be something of a retread, but it’s also a gamble, and clearly one that the party feels is worth the risk.