Eric Crampton proposes a sensible approach to the projected surpluses New Zealand now has ahead of us:
- A third of the projected surpluses being devoted to tax cuts (so about $2.8b by 2021).
- A third of the projected surpluses being devoted to spending increases
- A third of the projected surpluses being devoted to paying down government debt
Government should resist calls to simply increase spending in response to surpluses. The government has been pushing hard, over the past few years, to encourage a greater focus on the value that government delivers for its expenditure as the measure of its success rather than just what it spends. If it identifies areas where spending delivers strong value for money, by all means increase spending in those areas. But that has to come with a commitment to pare back spending in areas where spending doesn’t really achieve much. Blunt calls to increase overall expenditure miss that the government still has a lot of work to do in identifying areas where spending should be reduced because it is ineffective.
I agree. Simply increasing spending to match the increased tax take due to fiscal drag is wrong.