Election bribery to be expected
It is the classic left-right divide. The left, by definition, favours more government services; the right, lower taxes. Any individual with common sense knows that, in general, there is an inverse relationship between the two. Finance Minister Dr Michael Cullen’s recent tax cut announcements will inevitably, then, be subject to sceptism and—if NZ Herald reader views are anything to go by—will probably be assumed to be nothing more than an election year bribe.
The jump to the conclusion, though, is astounding. Many seem to “know” that National is bound to deliver tax cuts and Labour will most certainly not. With both parties driving toward the centre, though, it is difficult to apply the left-right stereotype. Conditions may have changed in the past three or six years, so that cuts are warranted now when they weren’t then. The tight fiscal policy effectively required by the Public Finance Act may have achieved its purpose, or alternative funding options may be more appropriate for Labour’s next projects. National has yet to announce anything substantial about its tax cuts policy, other than “we’ll do it”, but a similar restraint from assumption must be exercised.
Cullen’s recent announcement must have been broadly predictable. It would have been political suicide not to at least hint at tax cuts. In the same way, it will be political suicide if National overdoes theirs, cutting government services as a result. Both parties will have to persuade centrist voters that they have the right balance in mind.
To be fair, Labour’s “four tests” for tax cuts do seem a tall ask. Individually, they might not seem unreasonable, except perhaps to the strongly right-aligned: a refusal to borrow, to cut services, to increase inflation or to reduce social equality. Combined, though, they form an insurmountable barrier. National’s suspicion that they will serve as “excuses to deny tax cuts” seems fair.
Although fiscal operating surpluses might make the services criterion an easy task, high consumption spending and the consequential high inflation and interest rates make the inflation test alone an almost certain escape route. Reserve Bank Governor Dr Alan Bollard has already hinted that tax cuts are likely to keep interest rates high. Whereas Labour has effectively said it just won’t do it, National will have to show how its cuts won’t make inflation worse than it already is.
The promise of tax cuts at this time is basic politics. The reality is that citizens are greedy, and many simply don’t understand the link between taxes, government services and inflation, let alone the inflationary effect of their consumption spending habits. These are the people both parties are trying to attract, so Labour has jumped the gun on National in order to nullify the advantage National has often had of being first to make the big speech. Election bribery, people say. Labour’s promise (including the excuses) might or might not be genuine—but what else did you expect?
- NZ Herald: Cullen: Tax cuts but strict conditions (+ video)
- National Party: Cullen pours cold water on tax cuts this year