Covid’s impact on New Zealand may be diminishing but it still has injected a feverish tone to the debate on the state of the government’s books this week.
Labour and the Greens reject Opposition parties’ calls for tax cuts as “unaffordable”. They contend tax cuts would just add to inflationary pressures.
National and ACT insist tax cuts are needed to ease the pressure on household budgets as costs soar.
Meanwhile Reserve Bank governor Adrian Orr seeks to check inflation by raising interest rates again.
In all the fog, what’s clear is that in five years the Ardern government has lifted the tax take by 43%, from $76bn to $108bn.
Finance Minister Grant Robertson tends to under-rate his taxing ability as he attacks National for advocating tax cuts. He also ignores the fact his higher tax take is due in part to people moving into higher tax brackets.
The NZ tax system sets higher rates at what some would say are absurdly low levels. Overall core tax revenue is 30.2% of GDP, higher than at any point since 2008 (guess when a Labour government was last in power).
The Green Party’s finance spokesperson, Julie Anne Genter, said tax cuts were “wholly irresponsible, especially at a time when costs for most families are going up”.
But the Opposition parties contend those families are precisely the ones who need tax cuts.
You have to turn to economists for arguments in favour of tax cuts, for individuals and for business. With an eye on trying to raise NZ’s very low productivity, they say it is important to lower the rate of taxation on business income because the company tax rate deters foreign investment.
According to Thomas Coughlan in the NZ Herald, Robertson
“… unwrapped a $9.3bn surprise, revealing that the government’s books were nearly $10bn closer to surplus than forecast in May, helped by a tax take that topped $100bn for the first time”.
“The bonus was partly thanks to a healthy year for corporate profits, with companies paying 26.2% more in tax on their earnings than last year—an increase of $4.1bn” .
It may be, as National’s Nicola Willis says, that Robertson does not have an income problem but a spending problem. She calculates there is room for tax cuts at the same time as boosting spending
ACT leader David Seymour believes government spending is out of control. He points out Labour spent $9bn more than they taxed, even though taxes were up $9.9bn.
“The government has abandoned any pretence of being a careful economic manager”.
For their part, Labour and the Green Party have used the UK’s financial meltdown as a warning against tax cuts after it provoked a turbulent reaction from financial markets which weakened public finances.
“We have seen evidence in the United Kingdom to just how wrong they are,” Robertson said.
He made it clear he doesn’t think it is time “to fritter away” any cash the government holds or might gain in the years ahead on tax cuts for those he calls the “wealthiest New Zealanders” .
In a final dig he says:
“Anybody thinking about significant changes to the tax system needs to be able to make it add up.”
Just as Bill English and Steven Joyce did.