Govt should use extra to cut debt, not taxes

The Prime Minister, an endlessly agreeable politician, entertains talk of tax cuts whenever the Budget surplus turns out to be higher than expected. It is well past time that he stopped doing so and instead made the public better acquainted with its debt position.

John Key and his Government know very well that the reason they have managed to bring the economy through a recession and earthquakes in good shape owes just about everything to the very low debt left by the previous Government.

National in 2008 inherited net government debt at $10 billion. By 2012 the debt had risen to $50b and the Government rightly makes no apologies for running deep deficits rather than cut spending in those stressful years. But if it had been starting out with debt levels it is now still running, it would not have been able to cushion the costs of relief of the recession and the earthquakes without concern for the country’s international credit.

We have to hope the next economic “shock” does not happen before 2020, for it is not until then that National plans to have the debt back down to the level at which Labour left it.

Yet the economy has been enjoying good growth since 2013. We are nearing the end of a fourth year of economic upturn and these are years the Government ought to be banking surpluses, just as Sir Michael Cullen did during the boom of 2000-2007. Cullen resisted pressure from his own party for social spending and from National in opposition who were constantly criticising the size of his surpluses and calling for tax cuts.

It is too much to expect politicians to admit it, but Team Key must have been relieved when they came to office that Cullen had ignored their advice.

The calls for tax cuts today are not coming from opposition parties, nor from business lobbies who have seen how low public debt helped the economy weather the global financial crisis better than most others.

As Key noted on Newstalk ZB on Monday, the call for tax cuts is not as loud now as it was when he was National’s finance spokesman 10 years ago. In fact the only such “calls” heard today are merely questions from media interviewers who think tax cuts are a sure-fire election winner.

They are not. A promise of tax cuts did not win an election for National in 2005, it merely caused the Labour Government to make a counter-offer of interest-free student loans.

Talk of tax cuts for the next election has already caused Labour to announce it will instead make tertiary education free for everyone for three years. That announcement did not make much impression on the polls. Today’s voters are not easily moved by blatant election bribes that damage the country’s fiscal balance.

While he welcomed a surplus to June of $1.8b, three times more than forecast in May, Finance Minister Bill English sounded wary of the political temptations. He said he planned a “responsible” Budget next year. The measure of that will be the rate at which the debt comes down.

He must make the most of the good years while they last if the economy is to withstand the next squall the world sends its way.