What do you do with a growing economy?

I think many NZers don’t realise how absolutely outside the mainstream (pardon the term!) Labour are with their refusal to cut tax rates despite tens of billions of dollars in surpluses over the years. This is not just a case of oh left wing parties never cut tax. You would struggle to find any party anywhere in the developed world who given our fiscal circumstances would not be reducing tax rates. Sure there would be a wide variation as to by how much, but NZ Labour is very isolated in its views.

To illustrate how ridicolous Labour’s stance is, let me point out what the equivalent opposite action would be to what they are doing.

Imagine a National Government that has presided over seven years of a growing economy. Over that seven years that have cut taxes every year. Also over that seven years they have chalked up tens of billions in surpluses. But over that seven years that have refused to increase Government spending by one cent. Yes no matter how good the case, no matter how long the waiting lists, no matter how many more students are attending universities the Government over seven years refused to increase spending by even a cent. That insisted that every single dollar of the growing economy must go into tax cuts and surpluses.

What would you call such a Government? You’d call it fucking crazy wouldn’t you. I mean sure if you had an operating deficit you might refuse to increase expenditure for say one year, but with massive surpluses what sort of Government would refuse to increase spending at all year after year?

Well this is what Labour are doing, in reverse.

Think about it. There are three approahces you can take when you have a growing economy. And with the odd minor blip, the NZ economy has been growing since around 1991. This is good. And as the economy grows, more people work, more companies make money and hence more tax is paid.

Now one extreme is to not increase spending at all. Stick it all into tax cuts.

Another extreme is to not reduce taxes at all and stick it all into extra spending.

But the middle way, the way practised by almost every-one, is to have a mixture of tax reduction and increased spending. Of course left wing parties will have a greather emphasis on spending, and centre-right parties a greater emhasis on tax reduction but normally you just argue about the mix. A CL party may put 80% of the increased tax take into spending, and give 20% back in tax cuts. A CR party might put 55% into increased spending and 45% into tax cuts.

But this Taliban-like ideological purity where NZ Labour will not consider any reduction in tax rates, no matter what, is just nuts.

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