Truss sends warning signs to Luxon
TALKING POLITICS
Can Britain survive Liz Truss? The British Prime Minister’s tax cut package has forced the Bank of England into a rescue mission.
Like central bankers elsewhere, the Bank of England had been fighting inflation by raising interest rates and tightening up economic conditions.
Yet now – simultaneously – the Bank has had to ease conditions by injecting a further £65 billion into the British economy, to keep the currency afloat.
The political response has been equally horrifying for the Conservatives, with the British Labour Party leaping out to a 31 point lead in the polls. Truss remains unfazed.
Like her hero Margaret Thatcher, the worse the headlines are, the more Truss appears convinced that she must be on the right track.
Understandably, National Patty leader Christopher Luxon has been trying to put daylight
OPINION:
between his own promised tax cut package, and the tax cuts that Truss is promoting.
According to Luxon, things here are ‘‘incredibly different.’’ Different how, exactly ? Well, Luxon told RNZ, National would merely be ‘‘adjusting’’ the tax brackets, rather than cutting taxes as Truss has done. In fact, Luxon is promising to cut the top tax rate entirely. As a result, top earners like him would receive an $18,000 annual boost to their incomes, while workers in the squeezed middle class would receive only about $850 extra a year.
The UK, Luxon continued, has a ‘‘more challenged’’ economy.
‘‘You’ve got massive amounts of stimulus spending going on and you’ve got massive wholesale tax change going on as well.’’
Frankly, these were strange distinctions for an Opposition leader to be making.
Luxon appeared to be saying that – under current management – the New Zealand economy is better placed than Britain, to take the risks involved in cutting taxes.
Very odd. All year, Luxon has been painting New Zealand as a country wracked with a cost -ofliving crisis, beset with weak economic growth, and awash with stimulus spending. Just like Britain, in fact.
At bedrock, what Truss and Luxon share in common is the belief that cutting taxes will generate economic growth. Yet ever since the 1980s, as the Nobel Prize winning economist Paul Krugman has pointed out, there has been no evidence whatsoever to support this belief.
Faith in tax cuts as an engine of growth, Krugman recently wrote, belongs to a class of ‘‘zombie economic ideas.’’ Such ideas ‘‘have failed repeatedly in practice, and should be dead, but somehow are still shambling around, eating policymakers’ brains. The pre-eminent zombie in American economic discourse has long been the belief that cutting taxes on the rich will create an economic miracle.’’
To be fiscally neutral, tax cuts would also have to be matched (a) by significant cuts to spending on big ticket items like health, education and National
Superannuation or (b) by extra government borrowing.
Truss at least, has been upfront that major cuts to public services and extra borrowing will be needed to finance her tax cuts. To date though, the examples of ‘‘wasteful’’ government spending cited by Luxon have added up to barely 2% of state spending. Further costing details are being promised.
Thanks to Truss, at least we can’t say we weren’t warned.