NZ National Party promises tax cuts while the Labor Government invests in people and infrastructure

Sep 23, 2020

The Prime Minister Jacinda Ardern and her Government have consistently polled ahead of National and its leader Judith Collins. National’s promise of tax cuts could affect the numbers.

Until last week, Labour’s main risk in the election was complacency that could produce a low turnout on Election Day, Saturday October 17. That changed when National produced its major election draw card, its tax cut policy.

On 18 September, Collins and the National Finance Spokesman Paul Goldsmith announced their massive plan to cut taxes “to help get the economy ticking.”

Unfortunately for Goldsmith there was a NZ$4 billion hole in Goldsmith’s figures. He later apologised and said he hadn’t claimed to be perfect. Finance Minister Grant Robertson who first pointed out the error said it proved the inexperience and incompetence of the Opposition’s team.

As expected, figures out last week showed New Zealand had been in a deep recession but some economic indicators were more positive than predicted.

The numbers in the Pre-Election Economic and Fiscal Update (PREFU), the document which in effect opens the Government books, are gloomy. The economy was in recession, unemployment is high and rising and debt levels are high and getting higher.

However some of the PREFU projections were better than previously forecast. Unemployment was earlier predicted to reach 9.8 percent. Treasury now thinks it will peak at 7 percent in 2023 but take longer than expected to reach about 4.8 percent in 2027.

From all points of view the economic impact of Covid-19 is extreme, but the New Zealand projections for unemployment, GDP, borrowing and other indicators are better than in some other countries like Britain and the US.

New Zealand is hurt most by its high dependence on tourism and international education which have been hit hard by lockdowns and international border closures. On the other hand, the huge dairy company Fonterra last week reported a successful year and a return to paying dividends.

And as for the recession, the figures capture only the three months to June. Some economists say the recession is over already with the economy probably growing at one of the fastest rates in history as it rebounds from the lockdowns which will be eased further this week.

From the beginning Finance Minister Grant Robertson has said that it is the view of the governing Labour party that an effective health policy would produce the best economic outcome.

Without a strong suite of positive alternative policies National appeared to have no option but to resort to the short term sugar hit of a tax cut to seduce voters.

They said they expect taxpayers to benefit by an average $NZ50 a week each and they would then invest their 2-3 thousand NZ dollars a year to help grow the economy.

Ardern and her Finance Minister Grant Robertson said the tax cuts were irresponsible and unaffordable. Paying for them would require a raid on the Covid emergency fund that was needed to support people, jobs, businesses and the health system in the fight against Covid-19.

Robertson said it “beggars belief” that the National Party planned to gut the money set aside to protect New Zealanders and the squeeze on funds would be followed by years of underfunding of health, education and other critical services.

In countries where tax cuts have been implemented they have enriched the wealthy whose wealth then failed to trickle down as promised, while instead causing massive economic inequality.

The Nobel Prize winning economist Paul Krugman has written extensively on the failure of supply side economics to produce benefits for the US economy. He said the “doctrine keeps failing in practice. President George W. Bush’s tax cuts didn’t produce a boom; President Barack Obama’s tax hike didn’t cause a depression. Tax cuts in Kansas didn’t jump-start the state’s economy; tax hikes in California didn’t slow growth. And with the Trump tax cut, the doctrine has failed again.”

Recently he Tweeted “payroll tax cuts are the hydroxychloroquine of economic policy. They won’t do anything to solve the employment crisis but will have dangerous side effects. Yet Trump remains obsessed with them as a cure.”

The tax cut ploy is bound to have some appeal to voters who have suffered financially from the lockdowns.

Meanwhile Labour has continued to roll out its plans for supporting people and the economy through the crisis.

Newly minted policies include doubling the sick leave entitlement to ten days a year, increasing the minimum wage to $NZ20 an hour and extending living wage guarantees to public sector contractors.

Labour promotes investment in regions with a new $200 million strategic partnership fund.

The Government has already allocated $42 billion for capital projects such as new roads, schools, hospitals and shovel-ready projects across the country to help stimulate growth and create jobs, part of the “build back better” five point plan.

The New Zealand Government’s health policies have brought world leading success with one or two or even no daily cases. Spending valuable resources on tax cuts could blunt the effectiveness of the health measures and reduce the resources available for economic recovery.

The likelihood of National implementing its policies appear to be slim. The latest poll showed that in August Labour was at 48 percent, down about 5.5 percent since July but substantially ahead of National on 28.5 percent, up 2 percent.

It has yet to be seen whether National’s tax cuts will boost their support or whether their deficit is too large to overcome in the few weeks available before the election.

Max Hayton is a former political correspondent and Foreign Editor in New Zealand.

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