Friday, May 23, 2008

Taxing times

One thing about this year’s elections in New Zealand is certain: Tax cuts will be an election issue. Forget all the important problems facing the country, the debate will be over who will cut taxes the most.

Yesterday Finance Minister Michael Cullen delivered his eighth budget and it included tax cuts that were higher than expected. Nevertheless, the right wing parties were quick to condemn them. The Opposition, the National Party, has made taxes cuts its central issue for the past five years or so.

Not so fast: Poll after poll shows that average Kiwis want money invested in the core areas of health and education. As times become harder, people look at tax cuts and think a little more money in their pocket each week would be nice. How to solve the dilemma?

The tax cuts announced by the Labour-led government are, as promised, aimed squarely at average New Zealanders, with the biggest percentage going to lower income workers. But when National talks tax cuts, they aim for upper income earners. That’s been National’s history for decades.

Labour has announced a budget that continues strategic investment in the country—its people included—and offers manageable tax cuts, too. They’re able to do so because their sound management of the economy has allowed investment in social services, the buying back of state assets sold off by the neoconservatives in the 1980s and 1990s and the prefunding of retirement funds for Baby Boomers. As a result, New Zealand has among the developed world’s lowest unemployment rates.

How would a National-led government fund its tax cuts? We can only guess, because their pledge is still an empty promise with no specifics, but their history suggests their cuts would be aimed at the rich and would be funded by a combination of “privatisation”, cuts to social services (even if by stealth) and chronic under-investment.

National is committed to selling off state owned assets, as they have in the past. However, they’ve also pledged not to do it in a first term. To get around that problem with state-owned companies, they’d increase dramatically shares sold to the public, thereby diluting the people’s shareholding—effectively selling off the asset without selling it off. They’ve already announced plans to have school buildings privately owned and rented back at market rates and to raise doctors’ fees so that average Kiwis will pay more for basic healthcare and schools will have less money to teach children. Politically they may not be able to get away with cutting health and education budgets, but by holding spending levels it amounts to the same thing—a cut by stealth. And they wouldn’t invest in public housing or other social infrastructure.

We know what National would do because that’s what they’ve done before, and many of the crowd that allowed New Zealand to decline in the 1990s are still in the National Party Caucus, still wielding power.

We also know what Labour will do because we’ve seen it over the past nine years: Invest in the people of New Zealand, make the country a better place than it was in the 1990s and position it for even greater things in the years ahead. Given a choice between the sound, steady policies of Labour and the empty stealth policies of the National Party, I know what I’d choose: I’m sticking with Labour.


d said...

In the tax world, the cuts were far lower than expected.

Personally, I think the cuts are fine, and definitely help those who make less. Of course, those who make less are not satisfied with the cuts. I don't think anything would make them happy, though, except not paying tax at all!

I've said it before, and I'll say it again: NZ is not a huge country (unlike Australia). Taxes are needed to keep it going.

Arthur Schenck said...

I think you're right. New Zealand is a country with a set of common social expectations, that the central government will take care of education and healthcare, for example, and most polls show that people would actually rather money was increased on those two rather than having taxes cut, and that's regardless of party. Personally, I think some tax reform is a good idea, like indexing tax brackets. But I'm nervous about those, like the National Party, calling for massive tax cuts without saying what services they'll cut to pay for them.