Labour’s fiscal gamble

I was not expecting to see an announcement on tax policy by a major party so soon in election year. I certainly was not expecting that the Leader of the Labour Party, Andrew Little would announce he does not anticipate tax increases should his party win the 2017 General Election.

Prime Minister Helen Clark raised income tax to 39% for incomes of $60,000+; 33% for $38,000+. During her time in office the Government attained a surplus of $10 billion. It also paid back some of the debt accrued by previous Governments. Despite constant Opposition calls for a tax cut, the Government of Ms Clark resisted the urge to the end.

Following National’s election to office in 2008, its then leader and former Prime Minister John Key resisted the immediate urge to crimp spending and cut taxes, as the Global Financial Crisis had hit. Public sentiment was not in immediate favour of tax cuts and there was a need for a stimulus bill to encourage the New Zealand economy to start growing again. Whilst this happened, spending cuts began to be implemented against items National considered to be not necessary such as night classes for adults.

When National did cut taxes in 2010, the range of the tax bracket changes were set to: the top tax was lowered to 33% for $70,000+; 21% for $48,000+ and 17.5% for $14,000+. The Treasurer, Steven Joyce has hinted at the prospect of further cuts in this eleciont, which would most likely be funded by cuts to social services and further borrowing, which I believe may make credit rating agencies start to question New Zealand.

I consider it to be a fiscal gamble to take an instrument as important as tax rises off the table before an election campaign has even started. It reduces the scope for policy changes and long term investment, to say nothing of paying back some of our $100 billion public (Government) debt. In the absence of an allowance for tax increase I do not believe that the available fiscal instruments are sufficient to enable good policy to be promulgated in this campaign. As I believe keeping the public debt in check should be part of fiscal policy, it is important that New Zealand makes an effort to repay what it has borrowed – not least because the money is not ours.

If Andrew Little thinks he can win the election without significantly curtailing policy making because he took a key instrument off the table, good luck to him. Many people expect a left-leaning party to raise the corporate and income taxes to cover spending. So how he proceeds from here, assuming he does not commit a flip flop between now and 23 September 2017 will be interesting to watch.

3 thoughts on “Labour’s fiscal gamble

  1. Rob, can we use this blog piece in our new Ak Region newsletter please. Julie

    Sent from my Windows Phone ________________________________


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