Surpluses

Dr Cullen is already admitting that once again there will be another huge surplus. This is not a surprise. I have been blogging for some years that Treasury systemically underestimates the surplus by several billion. Yet these projections are held up as a reason not to have tax cuts.

Now people will say ha we have an inflation problem, and tax cuts can contribute to inflation, so we should not have tax cuts.

Not at all. The inflation issue means one should spread any tax cuts over time, rather than do them all in one year while inflation pressures are high.

The tragedy is that Cullen could have delivered gradual tax cuts over the last four or five years – say a cumulative billion a year, and this would have minimised any overheating the economy. But by refusing any and all tax relief to date, he has built up huge surpluses.

And while not minimising the importance of low inflation, tax cuts are forever, while a spike in interest rates may only last a year or two. So it is not a choice of one or the other. It is a matter of timing and quantum.

It is also worth remembering that tax cuts are less inflationary than extra government spending, as a proportion of tax cuts will be saved.

So is it likely National can propose a huge tax cut in one year? No. But can National commit to a series of moderate reductions in the tax burden, over time? Yes. Can National commit to an overarching principle of “If we take in more money then we need, we’ll give it back to taxpayers”? Yes.

Comments (22)

Login to comment or vote

Add a Comment

%d bloggers like this: