National has received some very loud criticism for suggesting that they will reduce taxes if they are elected into government next month. The intention of the policy is stimulatory, of course, aimed at encouraging people to spend their extra money within the economy. In many ways, this policy is likely to be more effective than cash payments, which were paid out in Australia during the GFC (and were talked about here earlier in the year), because a tax cut is not a lump sum; it is a smaller amount each week or month that is more likely to be spent. That, of course, is the point of it all. The criticisms of the policy range from “you shouldn’t borrow to give tax cuts” to “this is not the time to be giving people tax cuts” and so on. Much of it is parroted by the media, most of whom, of course, are desperately biased towards the current government.
But where is the media criticism of Labour’s tax policy, which is to increase taxes during a recession? This has the opposite effect of National’s policy. Tax increases are always anti-stimulatory; they take money out of people’s pockets and therefore do exactly the opposite of what National is trying to do.
But not a whisper about that from the media.
It may be because Labour’s proposal to increase the top rate of tax on incomes over $180,000 will only affect 2% of taxpayers (and probably less than that, with business owners able to avoid the tax increase if they wish), and is expected only to raise about $550 million in additional revenue. This is, in the current times, a drop in a bucket. It is not a drop in a bucket, though, to those who will end up paying more tax. These people spend too, and taking more money away from them will not encourage them to spend.
There are those that argue that National’s tax policy just gives more money to ‘the rich’. Of course. That handy old stalwart is brought out again. But look at it this way. New Zealanders are a compliant lot. If a Judith Collins-led government tells people to use their tax cuts in the local economy, they will do just that. Think of how the current government encouraged us all to take holidays within New Zealand after the first lockdown. People travelled the country in droves, giving a much-needed boost to local tourism and hospitality. If asked, they will do that again.
Increasing taxation during a recession slows down recovery. It is a measure of austerity. It is not much different from cutting services by reducing government spending. Both have an anti-stimulatory effect. Both make it harder for a country to recover. That is a generally accepted economic principle now. Unfortunately, our Labour led government did not receive the memo, and no one in the media so far has brought it to their attention.
We all know what will happen next. Labour has indicated its intention to increase taxes, but is applying a measured approach at present because it wants to win the election. We have all seen the Greens tax policy, however, and it is frankly terrifying. Expect more tax increases if Labour forms the next government. They have already made their intentions clear, but at this stage, they don’t want to frighten the horses.
I don’t believe the claim that taxation is theft. We live in a country where free healthcare, free education, a strong welfare system and a free police service are matters of right. These things must be funded somehow. But we all pay enough tax. Taxing people who earn a lot of money at a higher rate just because you can is not a way to improve the economy. It just takes more demand out of the economy and makes businesses suffer even more.
Those who say that this is ‘not the right time’ for tax cuts are clearly wrong. It is exactly the right time for tax cuts. We need to stimulate the economy, and tax cuts will do that. What is more, tax cuts will benefit everyone. No government has ever taxed its way out of a recession, and chances are, this government won’t manage it either.
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