Why this is an extremist Government

The cancellation of the announced tax cuts for 2008, which can only be seen as a particularly spiteful act, reminds me of how this Government is such an extremist one. And I use that word carefully and only in relation to their tax policy.

Jordan Carter argued last week that Labour Governments will always spend more than National Governments, and hence this is why they will not reduce tax.

But this paints the situation as black and white – almost a fundamentalist approach to fiscal matters. And the truth is in almost every other developed country in the world it is about shades of grey.

Since 1999 the economy has grown by $52.3 billion. That’s a 48.8% increase. Even allowing for inflation it has increased (to Dec 2006) by $25.1 billion or a 24.6% increase.

Now as one would expect, as the economy grows, and the population grows, the amount of government revenue and specifically tax grows. And from 1999 to 2008 the amount of tax revenue has grown by $24.5 billion or around $3 billion a year.

Now here is where the extremism comes in. The fundamentalist approach. Jordan is certainly right that a left wing Government will spend more than a right wing Government. But what one would normally expect to see is something like this.

A centre right Government might propose that it would spend 60% of the extra $3 billion in taxation on extra spending, targetted assistance etc and give 40% back in tax reductions.

A centre left Government might propose that it would spend 80% of the extra $3 billion a year in taxation on extra spending, and give say 20% back in tax reductions.

This is how it is meant to be. A choice between balanced priorities.

But Labour under Dr Cullen have taken the extra $3 billion a year. A total of $24.5 billion and has spent the lot basically. They will find money for savings incentives, for welfare, for foreign aid, for everything you can think of. But despite taking in an extra $24.5 billion a year, they can’t find even one dollar to return to those who pay the tax.

Look this budget is probably one of Labour’s better ones. I like some of what they are doing with Kiwi Saver. I think some of the increase for overseas aid is a good thing. But it is the total refusal to be balanced which grates. Instead of $70 million more for overseas aid, why not $60 million more and $10 million back to taxpayers. That’s a win win. Instead of $1.2 billion on Kiwisaver, why not $1.1 billion and $100 million back to taxpayers. Instead of $1 billion of WFF why not $800 million and $200 million back to taxpayers.

In eight years Dr Cullen has taken a Taliban approach to fiscal strategy. No one expects Labour to not spend more than National. No one expects Labour to give as big a tax cut as National would. That is why we have choice between parties. But to have $24.5 billion of extra tax revenue, and to refuse to give even 1% of it back let alone 10% or 20%. That is extreme.

It is the ideological equivalent of an ACT Government, not a National Government. An Act Government would probably have given back the entire $24.5 billion, and not increase spending by a single dollar. (Libertarianz members stop drooling). Labour doesn’t cut income taxes by a single dollar and spends it all. This is not mainstream economic management.

In countries like Australia, the debate is at the centre, where it should be. It is a choice between should the spending:tax cut ratio be 60:40 or 80:20.

NZ Labour in some areas is moderate and centrist. In its approach to taxation it is extreme left. And by refusing to even inflation adjust the tax brackets, every year almost every NZer ends up paying more and more tax.

Already 14% are in the top tax bracket, up from 5% in 2000. A further 6% are in the $50,000 – $60,000 range. Within a couple of years they will probably be over $60,000 and you’ll have 20% of taxpayers paying the 39% rate. Another few years and it will be 30%. This is what happens when you do not adjust the tax brackets for inflation.

Over the last eight years Peter Costello has delivered tax cuts of around 30% to 50% to every Australian earning under $100,000. Dr Cullen has delivered not even the packet of chewing gum.

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