The gentle art of making (and keeping) political promises
Political philosophers will tell you that while governments gain their agency from voters, that agency becomes worthless if voters are misled or lied to. Which is why any prospective government should apply extreme caution when making political promises. Keeping them is of the utmost importance and breaking them is only done when something more critical, such as public interest, prevails.
Which makes next Wednesday’s Budget Policy Statement, announcing the Government’s operating and capital allowances, a significant moment for National in being seen to keep its promises. This week saw the softening of language and expectations around the biggest and shiniest of those promises, its $14 billion Back Pocket Boost tax plan.
On last Monday’s media round, Christopher Luxon was more equivocally unequivocal than ever, proclaiming that “tax relief is going to happen” and in the same breath that he’d “love” the plan to be brought in on July 1 as promised, that was his “intention”, but Cabinet had to sign it off.
At his weekly post-Cabinet presser, Luxon confirmed there would be tax cuts, but wouldn’t say if they were the same size as those agreed to in the coalition agreement. At the same time, he wouldn’t rule out new taxes to pay for it, a comment he was forced to rule out once again the next day.
There’s only one interpretation for this miasma of double-talk; there’ll be tax cuts, possibly by July 1 this year and they may be smaller than what National promised. Scrapping them entirely would constitute political suicide.
And while National seems intent on bending a key campaign promise to voters, it is contractually obliged to adopt its coalition agreement with ACT.
It agreed to using ACT’s tax policies to achieve the same relief as National’s by using a flatter tax system and more use of tax credits to ensure taxpayers were better off.
And while doubts were raised before the election as to whether National could “fully fund” its tax cuts plan, those doubts have become concrete five months later.
The term “fiscal hole” reappeared this week, being variously estimated to be between $5.6 billion and $3.3b short, either the result of National’s capitulation in coalition negotiations or policies that had been poorly costed during the campaign.
The biggest is NZ First’s scrapping of the foreign buyers’ ban, which cost it $2.91b, while restoring interest deductibility for landlords is calculated to cost $800 million more than forecast.
The revenue from the online gambling tax will bring in $500m less than forecast and indexing benefits to inflation, expected to save $2b, is now only $67m.
Meanwhile, the Climate Change Commission warned the Government that the estimated $2.3b from the Emissions Trading Scheme – earmarked for tax cuts – couldn’t be counted on.
Which goes some way to explaining why, if voters didn’t trust the last government, then that lack of trust has been established relatively early with the present lot.
Yet another poll, the Ipsos NZ Issues Monitor, rated the Government at 4.6 out of 10, where ‘0’ equates to ‘abysmal’ and 10 is ‘outstanding’. The fact that 37% of respondents gave a low score, which the report’s authors described as “significant”, while 29% gave a mid-score and 30% a high score indicates the polarising effects inequality has on an electorate.
The equation is simple; poorly performing economies produce voters in a world of financial pain who vote governments out.
National will be buoyed by the fact that in 15 of the 20 areas New Zealanders are worried about, respondents backed National to solve them, but 4.6% is hardly expressing voter confidence this early in the electoral cycle. But the report that outlined the most serious deficiencies in the Government’s tax cuts arrived mid-week, courtesy of the United Nations agency the International Monetary Fund (IMF). Noting that despite tight monetary policy, inflation remains high, at 4.7 %, “current fiscal policy is more expansionary than in most other advanced economies”.
What’s more, “the government is running a structural fiscal deficit” with its spending-to-GDP ratio higher in financial year 23/24.
Budget 2024, the IMF warned, should deliver a tight fiscal stance in FY24/25 to support disinflation.
The problem is that tax cuts are aimed at low and middle-income earners and families with children, who will spend it, and drive up inflation.
“It is important to calibrate the funding, timing, and the parameters of this tax relief to be fiscally neutral,” the IMF’s concluding statement said, before warning that restoring an operating surplus in the next four years “should remain the objective”.
Which is the IMF’s way of telling the Government that it’s spending too much, that tax cuts shouldn’t be paid for by borrowing more, and that putting more money into the economy, as the cuts will, increases inflation.
Next Wednesday will reveal whether the Government has listened to the IMF and acted. With the country officially in recession, be prepared for utterances not about broken promises but about changed circumstances, all in the public interest.