Hazeldine says tax breaks needed

Tim Hazeldine writes:

We need a big boost, fast. So, the Government has invited local authorities to prepare plans for “shovel-ready” projects – and, boy, have they responded, with long wish-lists requiring billions of dollars in subsidies.

I think this is quite the wrong thing to do. I have three concerns. First, a lot of these projects are dodgy from a cost-benefit perspective, and some may be particularly inappropriate to our new post-pandemic economy. Top of Wellington’s list is an international convention centre – does the business plan for this still stack up, if indeed it ever did? Auckland has prioritised the ruinously expensive underground railway, premised on the assumption of continued mass commuting to the CBD.

Can only agree. We certainly do need to do some infrastructure spending to soften the recession but they must be projects that produce benefits that exceed their costs.

And thirdly, because of problem two, it turns out that most of these schemes couldn’t actually be cranked up before six months from now, at the earliest. But we need a programme that will give relief to households and revenue to small and not-so-small businesses right across the country, and right away, the moment we get to lockdown level 2.

There is only one way to do this fairly and efficiently, and it is a very good way. On the day that the Prime Minister announces the move to level 2, the Minister of Finance should startle the country by proclaiming a GST holiday: zero GST from tomorrow until…well, he probably shouldn’t say when. Just get out there and enjoy it while you can, with 15 per cent more spending power in your pockets.

A great idea. It is an effective 13% boost the household budgets and will encourage spending, boosting the economy and jobs.

Instead of adding to the deficit by throwing expensive shovels at projects, and thereby taking the public sector’s share of total spending up even further than its current, very high, level of 40 per cent of GDP, let’s hold the line on spending and cut tax revenues for a while, and let the households and the business sector sort out the shovelling for themselves.

I 100% agree. What I find remarkable is that Hazeldine is generally regarded as one of the most prominent left leaning economists. When he is saying that what we need is to keep spending below 40% of GDP and instead cut taxes, well hopefully some of his former students will listen.