We cannot tax our way into prosperity. With the economic indicators of the last few days showing that we are in a deep recession and that unemployment is going to rise and remain with us for seven years, we need a government with a plan to grow the economy. Labour’s classic tax and spend approach to everything does not grow the economy. Increasing taxation of any sort does not grow the economy; it simply deprives hard working people of more of their own money. Big infrastructure projects brought Western countries out of the depression in the 1930s, but in those days, there were a lot of unskilled workers who could shift easily from a factory job to working on a building site. I am not sure these days that we will have the manpower for some of these big infrastructure projects, which will mean, of course, project delays for years which will not solve the economic woes of the times.
So how come National is proposing tax cuts in a deep recession? Can they afford to do this? Well yes. They can.
National is proposing to raise the bottom tax threshold from $14,000 to $20,000, the middle bracket from $48,000 to $64,000 and the top tax threshold would be lifted from $70,000 to $90,000. They calculate that their entire package will cost $10 billion over 5 years, which presumably is approximately $2 billion per year.
$2 billion a year is absolute chicken feed compared with the billions being splashed around at the moment. If that really is all it will cost, then bring it on.
National also promises no cuts to health, education or social services, which is important because we may need more spending in these areas over the next few years. Health in particular needs attention. In spite of all the money scattered around over the last few months, we still have no more hospital or ICU beds, and the health service is at the same risk of being overloaded as it was in March. Madness.
Can National do it? Well, they believe that they can, and it really would not be difficult to make considerable savings in cutting out some of the wasteful spending incurred by the current government. Think of all those working groups that produced absolutely nothing except well paid jobs for their Labour cronies like Michael Cullen and Heather Simpson. Anyway, National says it will be funded by using the unallocated portion of the government’s COVID-19 fund and by spending $51 billion less money than a Labour government would over the next 14 years.
Spending $51 billion less than a Labour government is not that hard to do.
The thinking is sound. If people have more money in their pockets, they will spend it, which is a major stimulus to the economy. This policy benefits all workers (and beneficiaries too, who also pay tax on their welfare payments). Everyone will have a bit more money to spend. And spend they will.
The only aspect of the policy that I dislike is the fact that the tax cuts are temporary. At this point in time, they run out in March 2022. It is admirable of National to be upfront about this, but in these uncertain economic times, a lot can happen. I think they should have backed themselves and made it a permanent tax cut, and relied on the economic stimulus of the tax cuts to show an improvement in economic activity by then. A tax increase in 2022 will give their political opponents plenty to attack them with in the run-up to the 2023 election.
Nevertheless, this is a good stimulatory policy, from which everyone benefits. Compare that to Labour’s policy of increasing taxes, even if it only affects 2% of voters. Most people believe that there will be bigger tax increases if Labour is re-elected. There has never been a better time to vote National. They are the only party, apart from ACT, that understands that you cannot tax your way into prosperity. They also understand, as Margaret Thatcher used to say, that socialists eventually run out of other people’s money. National wants us all to keep more of our money for ourselves.
If you enjoyed this BFD article please consider sharing it with your friends.
