A plan so cynical it just might work
National’s tax cut promise is certainly bold — and it’s also a fiscal rort
National Party leader Judith Collins has placed a big bet that enough Kiwis will be happy to be bribed by temporary tax cuts to put her party firmly back into the electoral race.
Yesterday’s package is bold. It is also deeply cynical. It is also a fiscal rort.
How Collins and National’s Paul Goldsmith plan to deliver their $4.7 billion programme of planned personal income tax cuts is through mounting a raid on the Covid Recovery and Response Fund (CRRF), which the coalition Government established this year.
At the May Budget, Finance Minister Grant Robertson unveiled the $50b Covid fund. Much is already spent on big items like the wage subsidy scheme, but also other programmes like the billion-dollarplus initiative to create new environmental jobs for people who lost employment when the tourism industry hit the rocks.
The facts are that this so-called “fund” is simply borrowed money in the first place. It is not the accumulation of Budget surpluses or even asset sales which have in the past been deployed by a National Government as “capital recycling” to fund new infrastructure. It is government debt and must be repaid.
The coalition initially set aside a $50b fund (much of it was spent by the time it was announced on Budget day) when the pandemic and lockdown began to cause severe economic damage. It now has some $14b left in it.
It is there as a backstop to shelter the economy in the event of more waves of Covid-19 — not to shell out as helicopter money.
Labour should have calculated that National might mount a raid on this so-called fund if it left the back door open.
If the fund had been set up at arm’s length with appropriate parameters and governance, it would not have been easily subject to plunder.
It might also have led to more sensible scrutiny of the wage subsidy scheme and appropriate auditing to ensure that these borrowed funds have not been misspent.
Tax cuts can be an economic
To keep our economy ticking, New Zealanders need money to spend. Judith Collins
stimulus. That is a fact.
Collins reckons “to keep our economy ticking, New Zealanders need money to spend”.
The Collins plan does not have the elegance of a “tax switch” such as that introduced by former National Finance Minister Bill English, who part-funded personal tax cuts through raising the level of GST in an effort to achieve fiscal neutrality.
The bet is that growth will be super-charged via the helicopter money. The problem will be when it comes to withdrawing the sugar hit.
This tax cuts package has a time limit of 16 months — or so National says.
Scott Morrison’s Australian Government has also talked about temporary and targeted stimulus measures. In practice that has not been the case.
What this shows is that Collins’ killer instinct has come to the fore.
Will the programme be modified if National gets to form a coalition with either Act or even NZ First?
This is an open question, with the political polls currently putting National well behind. But for sheer gall and bravado it is likely to put National back into the game.
Collins is perceived by business as being economically literate and a better manager than Labour’s Jacinda Ardern.
She talks the business sector’s game.
But business leaders also have considerable confidence in Robertson — more so than in National finance spokesman Goldsmith.
What credible people — such as former Treasury secretary and Reserve Bank governor Alan Bollard — are arguing is that there needs to be much more focus on bringing in tax revenue.
The National Party package does not address this. Neither for that matter does Labour’s paltry personal tax hike, which will bring in a mere $550 million.
In truth, everything should be on the table.
The problem is that it won’t be voters who make the final call.
That will be done through the process of Government formation after the election.