National’s amorphous tax cut plan

Tax cuts – they’re coming, in April 2017, should National be re-elected. Maybe. Depending on whether economic and fiscal conditions allow.

But what form will these tax cuts take? That’s a good question, to which no one is any the wiser. By April 2017, National projects that they’ll have accrued a pool of $1.5 billion, of which apparently $1 billion will be set aside for tax cuts, while the remaining $500 million will go towards debt reduction. Tax cuts will be targeted to lower and middle income earners, but how National intends to structure the cuts is a mystery.

And what will these lower and middle income earners receive in their back pockets? Well, here things get really strange. Last week, John Key was pulling numbers from thin aid, pondering anything from $10, $20, $30… Then over the weekend on The Nation, Bill English was denying that any numbers had been floated at all, and come the official announcement on Monday, nary a number was in sight.

The lack of numbers has given David Cunliffe carte blanche to wander round waving a $10 note, telling all and sundry that that’s all, folks. National can hardly refute him, given that they don’t seem to know themselves.

I can understand that National would be wary of relying too much on Treasury’s three year projections. After all, Treasury projections can be remarkably inaccurate in just the short term. Nonetheless, would it be that difficult for the Finance Minister to say, “If these projections are reasonably accurate, here’s our expectation of how our proposed tax cuts would be structured. Obviously, if the projections change, we’ll need to revise how we do it.”

One gets the feeling that this is National’s particular brand of policy-making on the hoof; an awkward diversion from Dirty Politics that hasn’t yet been debated in any policy back room. Certainly, neither John Key nor Bill English seemed to have spent much time making sure their song sheets were as one.

At the end of the day (to use a now-universally reviled phrase), National’s tax cuts announcement is more of a vision statement than a coherent policy. National wants to draw a line between its goal of largely capping Government spending and eventually lowering taxes, and Labour’s intention to increase spending via its Capital Gains Tax policy.

Of course, the Labour and National positions aren’t necessarily mutually exclusive. I’m a fan of a broad-based tax system, with all income treated equally, regardless of source. That of course requires a comprehensive CGT, and a CGT means that other tax rates can be lowered to take into account the additional Government revenue. Labour’s (less than comprehensive) CGT is certainly all about funding extra spending in the short-term, but longer-term, Labour may be intending to use the increased revenue to fund tax cuts.

On The Nation, David Parker left the door open for tax cuts at a higher rate than National. Of course, future tax cuts weren’t “promised”, but Parker stated:

 No, we’re actually not promising tax cuts. We’ve said that we’ve left open the possibility of tax cuts. Our promises are to run Budget surpluses and to reduce net government debt to 3% of GDP by the end of our second term.

Then, when asked, “So you’re leaving open the possibility, as you put it, of tax cuts that are a higher rate than National?”, Parker replied, “Yes, we are.”

It’s a position that’s even more amorphous than National’s, but National doesn’t want the focus on the distant possibility of tax cuts under Labour. They want voters to be performing a very simple comparison: tax and spend under Labour (that old National mantra) versus fiscal restraint under National.

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