Key pro­vides Obama with respite

Kapi-Mana News - - OPINION -

Safe to say, United States Pres­i­dent Barack Obama will have viewed his White House meet­ing with Prime Min­is­ter John Key as an oa­sis of tran­quil­lity.

To the Amer­i­cans we are friendly faces – one of the few na­tions fight­ing the Tal­iban who are not bail­ing from their com­mit­ments in Afghanistan as quickly as hu­manly pos­si­ble.

Typ­i­cal, re­ally. New Zealand ap­pears to pride it­self in ask­ing lit­tle in re­turn for be­ing a de­pend­able sup­port for the Amer­i­can gov­ern­ment, and for its ma­jor cor­po­rates.

In turn, they seem to feel grate­ful about our will­ing­ness to please.

En route to Wash­ing­ton, Key even re­port­edly found time in Los An­ge­les to dine with the Hol­ly­wood film ex­ec­u­tives he had obliged so ful­somely dur­ing The Hob­bit fi­asco last year.

De­spite the splen­did photo op­por­tu­ni­ties on of­fer dur­ing the United States trip – an Oval Of­fice hand­shake with Obama is def­i­nitely one for the fam­ily scrap­book – the re­al­ity is that the Key Gov­ern­ment has far more in com­mon with Obama’s op­po­nents than with the em­bat­tled oc­cu­pant of the White House.

Obama’s lat­est battle with the Repub­li­cans has been about how to re­duce the Amer­i­can deficit. Like their New Zealand coun­ter­parts, the Repub­li­cans are stonily re­fus­ing to coun­te­nance any bal­anc­ing of the books that might con­ceiv­ably in­volve tax in­creases.

No mat­ter what spend­ing cuts Obama has of­fered in the hope of reach­ing a com­pro­mise deal, the Repub­li­cans have re­jected tax in­creases as part of the price for sav­ing their coun­try from de­fault­ing on its debts.

Rather than ask­ing the wealthy to forego a cent of the tax cuts doled out by the Bush ad­min­is­tra­tion, the Repub­li­cans have seemed will­ing to in­flict se­ri­ous hard­ship via re­duc­tions to health, ed­u­ca­tion and wel­fare spend­ing. Not to men­tion pur­su­ing state sec­tor job cuts, even in a time of high un­em­ploy­ment. Plainly, there are par­al­lels be­tween this ap­proach and the pre­vail­ing eco­nomic or­tho­doxy in New Zealand.

As with the Repub­li­cans, tax cuts have also been treated here as a bless­ing – not just to the rel­a­tively few lucky re­cip­i­ents, but to the pro­duc­tive econ­omy as a whole.

Yet as in the United States, there has been pre­cious lit­tle em­pir­i­cal ev­i­dence of the eco­nomic gains that would jus­tify such be­liefs.

In the mean­time, in­come dis­par­ity ( with its re­lated so­cial costs) has in­creased sub­stan­tially dur­ing the pe­riod that this ap­proach has been in the as­cen­dancy.

Is it al­ways po­lit­i­cally sui­ci­dal to raise taxes?

Lo­cally, the re­ceived wis­dom on this point will shortly be put to the test.

In the early 1990s, the Clin­ton ad­min­is­tra­tion raised taxes and – de­spite cries of hor­ror from some quar­ters – the United States econ­omy en­tered a pro­longed boom pe­riod.

In com­ing months, the Labour Op­po­si­tion is gam­bling that it can mine po­lit­i­cal gold out of in­tro­duc­ing a mod­er­ate cap­i­tal gains tax on one hand while for­sak­ing GST on fruit and veg­eta­bles on the other, and aban­don­ing the planned par­tial sales of state en­ergy com­pa­nies en­tirely.

That prom­ises to be a hard sell. Not an im­pos­si­ble one though, given that the elec­torate seems un­easy about how en­ergy prices may be af­fected, once pri­vate share­hold­ers be­gin to drive them.

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