A budget reflection - and "Slippery as a Snake!"

There has been a heavy focus in public debate recently, stoked by the opposition, on this somewhat fanciful notion that government should lose tax cuts every time there is some reversal in the growth of people's living standards.

Let's remind ourselves of some facts. The first is that household real incomes - after inflation - are up by a quarter over 1999 levels.

The second is that nobody can promise endless growth: a capitalist economy (probably any economy) has cycles. Sometimes times are good, sometimes times are tight. That is how life is and anyone who pretends otherwise is a fantasist.

The third is that governments have limited fiscal options. They can spend money on government programmes or they can cut taxes, with a mind to the macroeconomic impact of these on inflation, interest rates, economic growth.

So what disappoints me is the focus on this somewhat insane idea that tax cuts by themselves could ever somehow be used to fully compensate people for temporary, short-term slips in living standards when the economy is going through tough times. It isn't possible. What the government's just demonstrated is that it costs $3.8bn a year to give very limited boosts to household incomes. To give the average wage earner $55 or $70 a week - which would cost probably another $4 billion a year ($12bn over a parliamentary term) on top of the existing tax cuts - is simply not affordable. Full Stop. And even if one did take that approach, what are the chances of undoing that tax cut when times improve? Precisely, Zero.

Which is where it becomes clearer what National's agenda is. The ideological aim of the National Party is to shrink the state. What better way than to cut taxes when times are good, and to "compensate" people through further tax cuts when times are tough?  It adds up to perpetual revenue cuts which will end with a debt blowout, or more likely, spending cuts to match. That's not a conspiracy: it's pure logic.

It's an interesting commentary on the quality of our media that people who make such assertions are not more often challenged. The video below shows some pressure being put on Key about it, but there has to be more on this. I do like Campbell noting that Key is appearing to be as slippery as a snake on the matter.

Tax cuts, like the ones just given, can help reduce pressure on households. But it is simply a fact of life that when times are tough, times are tough, and nobody can hide the public from that or wrap people in cotton wool to make it all better. Anyone who claims to do so should be treated as the idiot - or opportunist - that they are.

Comments

[SPC]

I am sure you are not extending your argument to the point of it being a rebuttal of Keynesian economic theory.

And besides, the long term changes to food and fuel and power prices etc - are not temporary, they are permanent. Thus they required an income support response.

Sure the government's ability to offer help in this rainy day may be a one off, that cannot be repeated. But the whole point of the government's restraint and now generosity is to do what it can. It has managed the economic cycle quite well.

Unions will of course note that continuing with a $1pa increase in the minimum wage (of the past 3 years) will add a further $120 to the before tax income of workers over the next three years. It puts the gains from tax cuts into perspective does it not?

The wage rises are a little under 10% about the level that the management class awards itself each year.

PS

Public Service unions should campaign for government committing itself to increasing wages in steps towards the Oz wage levels.

[Clint Heine]

And yet when we were having record high surpluses only a year or two ago we DID have the capacity for tax cuts.

Why is it suddenly on an election year when your party is getting spanked that the money has all disappeared. We know $1.5billion has been spent on trains. Even my wife who was bought up under communism cannot believe a "western capitalist" country would spend that on nationalising trains.

I really hoped Labour would bow out with some dignity, it seems not.

[Fabt3]

The real question to ask is why Clarke and Cullen saying we are needing relief now yet are only going to lower the tax rate on 1 October.
Now means now not later.