Nats finally bring decent meat to the BBQ
Until yesterday the National Party’s campaign was akin to the person who shows up the barbecue complaining about the food before producing the same sort of sausages from a different supermarket.
Now the party has shown up with some better fare in the form of a big, but temporary, personal income tax cut.
Back-tracking on an earlier pledge by Judith Collins not to cut taxes, the Nats will significantly change the tax thresholds, paid for with cash from Labour’s Covid fund. It now has something to campaign on, and not before time.
Up until now, National had simply asserted that it would be better at growing the economy. Yet without any decent plan, apart from mostly new transport infrastructure, it was all very magic pudding.
Yesterday, finance spokesman Paul Goldsmith revealed the plan: A big tax cut through changes in business depreciation, and a 16-month personal income tax cut to the tune of $3000 per person on the average annual income – $6000 for a household with two average earners. It is significant.
Whether this works politically for National remains to be seen, but the public now has a genuine choice: National’s private sector and individual-led stimulus or Labour’s state-directed efforts.
At the centre of the National plan is a slashing of the so-called ‘‘operating allowance’’ compared to what Labour has promised. This is the amount of new money allocated by a government at each Budget for new spending plans and boosts.
At the same time, it would crank out the stimulatory tax cuts to fatten take-home pay packets and increase disposable income.
Unlike Labour’s big spending plan for new projects, National’s package would get money out to households quickly and go to everyone, rather than lots of projects and government payments favoured by Labour, which, by their nature, target specific groups. Ironically, Labour is now the champion of targeting.
The fiscal disadvantage is the cash cost to the bottom line. Then it becomes an argument over the growth, and wellbeing impact of the different policies. And that, in a nutshell, boils down to traditional arguments between the political left and the political right.
It is also worth noting that these election commitments have been costed by the respectableNew Zealand Institute of Economic Research (NZIER). They haven’t been done by some ‘‘Nationalfriendly’’ economic consultancy.
Altogether, National says, and NZIER agrees, the effect of its package would be to reduce net debt to 35 per cent of GDP by 2034, compared with the 48 per cent of GDP projected in this week’s PreElection Economic and Fiscal Update.
This policy does represent a climb-down from two things that National has been saying over the last little while: that it had a 30 per cent debt to GDP target, and that it had ruled out any tax cuts.
While whatNational was or wasn’t promising may have been of great import to political insiders, voterswill only care about the end plan, which iswhat they get to vote on. But the faffing around up to this point is a reminder of the high transaction costs of the leadership turmoil that has gripped the Nats since May.
There will remain a residual trust issue: three leaders in three months compared with Labour’s and the Coalition’s stability.
Labour, for its part, says that National is raiding the kitty – the $14 billion of borrowed money Finance Minister Grant Robertson put aside for a rainy day and unforeseen Covid
expenses – to plough into tax cuts.
Nationalwould use $4.9b of that fund, leaving about another $4b for Covid emergencies, and is planning to leave a further $5b unspent. Considering that the first wages subsidy hosed $11b out the door, leaving $5b aside for future wage subsidies or support if needed seems reasonable.
If there is another nationwide weeks-long lockdown that requires billions more in wage subsidies, New Zealand will have much bigger problems, not least of which will be whether the current approach to Covid-19 is really feasible in the long run.
This new plan also means that when it comes to spending, Labour looks the more fiscally conservative economic manager.
But this goes to the basic ideological difference between left and right: Is a tax cut the government spending its money on you, or is it your money to keep in the first place, and the government should find other ways to balance things out?
Robertson yesterday said National was ‘‘desperate and reckless’’ and that its plan will slash public services, unlike ‘‘the considered and moderate approach that John Key and Bill English took to the economy’’.
This doesn’t bear much scrutiny.
National will pare back the ‘‘operating allowance’’ to $1.5b from Labour’s $2.4b. That will lift to $1.8b in 2022. In the Key and English Government’s 2010 Budget there was only $1.1b of new operating spending. This equates to about $1.28b in today’s dollars.
Labour is right: it means lower spending on social services under National’s plan as it stands. But it’s best described as restraint, not austerity, or swingeing cuts – just smaller increases.
There are a couple of political problems for National: one real, one hypothetical.
The first is that in this era where Covid sacrifices are part of the lexicon, how can it convince people that a tax cut will help pay down debt quicker? And how is it fair on people who are now unemployed? Expect Labour to home in on that.
The other is, if National gets elected, where will it find the money to extend the tax cut? A temporary tax cut is all good in theory, but the old rates would be politically very hard to reinstate.
This plan, of course, hinges on whether voters are still listening to National, or have tuned out. In a close election, tax cuts such as these could be decisive, but in the current environment it looks more like aHail Mary.
But at least Judith Collins will now have more to talk about than new roads during the first TVNZ leaders’ debate on Tuesday night.
National’s package would get money out to households quickly and go to everyone ...